Fairlane Properties has sold 98 North Washington St., an 83,000-square-foot office building in Boston’s North Station area, for $9.2 million.
Acquire. Stabilize. Sell. Repeat. The inaugural cycle for Fairlane Properties is complete, with the homegrown real estate investment firm last week peddling the last of five Boston-area office buildings purchased shortly after its launch in 1997. The $9.2 million disposition of 98 North Washington St. in the North Station district to First General Realty Corp. ends Fairlane’s run as a commercial property owner in the Hub, but President Michael S. Grill acknowledged he still has intentions of pursuing new deals as the economic recovery begins to take hold in Massachusetts
“We’ll be poking around,” promised the former Boston Redevelopment Authority staffer, who last year sold three Financial District office/retail properties for $24 million after purchasing them separately in the late 1990s. By Fairlane’s math, the five properties, which the company bought between 1997 and 1999, produced returns ranging from 17.5 percent to 40 percent. At its height, Fairlane controlled more than 300,000 square feet in Greater Boston, including 313 Washington St. in Newton, a successful retail building owned in partnership with the Grossman Cos. and RSI Inc.
In the case of 98 North Washington St., Fairlane paid $7.39 million in 1998, then set about on an ambitious renovation and re-leasing program that improved occupancy in the 83,000-square-foot building from 40 percent to 65 percent. That mark slipped to 60 percent when longtime tenant Grant Thornton relocated recently to nearby 226 Causeway St. Despite that setback, several long-term leases were cemented along the way, said Grill, with more than 45,000 square feet of lease space brokered by the landlord and Lincoln Property Co. veteran Kevin Brown during the past eight months alone.
The sale of 98 North Washington St. yielded a 20 percent IRR over the six years of Fairlane’s stewardship, said Grill, providing a return of about 160 percent on equity. “We’ve got some happy investors,” he said, adding he had no intentions of selling the final building until Newton-based First General offered a price that “was hard to turn down.” Had the sale not occurred, Grill said he was prepared to continue the leasing program and efforts to add value to the property.
Efforts to contact First General officials were unsuccessful by press deadline. The company is controlled by developer David Zussman, an owner of such North Station-area buildings as 205 Portland St., 160 Canal St. and 239 Causeway St. In conjunction with the latest deal, First General has retained broker Karyn McFarland to lease 98 North Washington St., McFarland confirmed when contacted by Banker & Tradesman last week.
“It’s a wonderful building,” said McFarland, who recalls sticking to the floors of the one-time candy factory just prior to its rebirth as an office building in the 1980s. Along with unusually large floorplates for the district, 98 North Washington St. features windows on three sides and a location in the heart of the booming North Station district, McFarland said in listing the building’s main attributes.
Adding Value
Leasing velocity in North Station is recovering after an unexplained slump, said McFarland. “It’s hot as a pistol again,” she said, with activity dominated by tenants seeking between 2,000 and 10,000 square feet of space. McFarland praised the new ownership of 98 North Washington St., noting First General’s strong presence in the North Station area and long-term view of the market. “They are terrific to work with,” said the president of McFarland & Finch, who opined that the estimated 40,000 square feet of office space available at 98 North Washington St. will attract plenty of suitors as the market heats up in the coming months.
Indeed, First General is not the only entity chasing deals in the area, with Essex River Ventures having committed to 225 Friend St. and retail specialist Ed Haddad last week purchasing three small properties at Causeway and Lancaster streets previously owned by Eagle Graphics.
McFarland, who brokered that $2.8 million sale, referred questions about the future of 55 Causeway St. and two adjacent buildings to Haddad, who was unavailable for comment. Some observers assessing the sale said the aging properties would do well as a future development opportunity.
One source familiar with the buildings estimated that nearly 75,000 square feet of space could be built on the conjoined parcels, an attractive option in a market that has seen substantial investment in recent years. If the office market woes curtail that as a possibility, the properties could be developed into residential space or as a hotel, said the source. North Station is seeing a surge of those uses, with two new hotels opening this summer and several residential projects in various stages of development.
As for 98 North Washington St., the decision to sell frees up capital that will allow Fairlane to chase new deals, said Grill. And while generally bullish on the region, he predicted certain owners will opt to cash out at a discount rather than pursue a redevelopment program. “It is the right time to position ourselves to do additional purchases where we can again add value,” Grill said, adding, “It may be awhile, but we will be patient looking for the opportunities that suit our [strengths].”
