A new buyer reportedly has been found for 745 Atlantic Ave., an 11-story office building in Boston’s South Station market, after an initial deal for the property fell through.
Providing yet another twist to the convoluted climate for commercial real estate sales, an 11-story office building in Boston’s South Station market has reportedly found another buyer after the initial suitor stepped away from the deal.
“It is under agreement,” one Hub broker claimed of 745 Atlantic Ave., which Berkeley Investments had tied up earlier this year before the sale cratered, ostensibly over concerns uncovered during the deal’s due diligence phase. A Boston-based investment sales advisor, Berkeley was said to be acquiring the 15-year-old building on behalf of a German client.
Details about the latest pact are sketchy, although one source identified the new player as also being from overseas, but not from Germany. Another source said it appears an Australian group may be the buyer, estimating the property will sell in the $54 million to $55 million range. If so, that would be about what Berkeley had planned to purchase the building for before attempting to retrade the price.
Berkeley principal Young K. Park and the building’s owners, Lend Lease Real Estate Investments, did not return phone calls regarding the current situation by Banker & Tradesman’s press deadline. The 168,000-square-foot property is being marketed by Holliday Fenoglio Fowler of Boston on behalf of Lend Lease, which paid $39 million for 745 Atlantic Ave. in 1999.
Some observers tracking the initial sale have maintained that Berkeley had attempted to cut the price on the building once in the due diligence process. The nature of the problem was not revealed, but whatever it was, Lend Lease reportedly resisted efforts to retrade the price, instead supposedly turning to the second highest bidder, also said to be an advisor with German funds behind them. For whatever reason, however, sources said it appears the second bidder also bowed out.
Given the continued difficulties for Greater Boston’s office market, such complications are becoming almost expected in trading commercial properties, with owners carefully assessing both tenant rosters and the capital aspects of a property when deciding whether to pursue a deal. Given the stable list of tenants at 745 Atlantic Ave., which includes such firms as Iron Mountain and KeyBank, sources said they doubt the initial concerns were related to the tenant side of the deal. Conversely, it would be surprising if a serious capital problem were to arise for such a relatively new building, but observers said there must have been some aspect of 745 Atlantic Ave. which gave Berkeley pause once it had initially agreed to buy the property.
Unusual Mix
From a geographic standpoint, 745 Atlantic Ave. would seem to have certain advantages for an investor looking to grab a stake in downtown Boston. Developed by Trammell Crow Co. in 1988, the building is located in the city’s established South Station market, featuring not only that central transportation center, but also an unusual mix of residential, retail and office space. After being inundated for years by the Big Dig project, South Station today is reaping the benefits of being one of the first areas of the city hit by that project, with a new interchange off the Massachusetts Turnpike extension and the core Atlantic Avenue thoroughfare having recently been repaved.
As with other parts of the local office market, South Station has seen its share of struggles recently, with Spaulding & Slye Colliers estimating that the current vacancy rate for that submarket is 9.9 percent. While still below the average of 10.6 percent for the city overall, South Station has seen the vacancy rate increase during the past year, having stood at 6.4 percent after the end of the first quarter of 2002. There has also been 93,000 square feet of negative absorption in the South Station office market since the beginning of the year.
Not surprisingly, rental rates have been impacted by the office market woes. According to Spaulding & Slye, average per-square-foot asking rents in South Station have fallen substantially since during the past 12 months, from $34.11 to $23.76. Overall, Boston is averaging $39.42 per square foot for asking rents, down from $45.30 per square foot last year.
The falling rents have proven of great concern among investors, with some properties being taken off the market completely by owners dissatisfied by the response from investors. Among the casualties, for example, have been One Winthrop Square in Boston and the former Wang Towers in Lowell, with Boston Capital Institutional Advisors last week acknowledging to Banker & Tradesman that it had opted against selling One Winthrop Square for the time being.
Investor concerns have not entirely chilled the sales market, however, as witnessed by Cornerstone Properties buying 3 Post Office Square in Boston and Beacon Capital Partners shelling out more than $900 million for a Back Bay portfolio that includes Boston’s famed John Hancock Tower. And despite the back-and-forth nature of the protracted negotiations, sources said it appears that 745 Atlantic Ave. could finally have a new owner as well. “It looks pretty serious this time,” said one source.
Joe Clements may be reached at jclements@thewarrengroup.com.
