The winds of March seem as strong as ever, but when it comes to Boston’s commercial real estate, the windfalls appear to be tailing off sharply. After several years of unprecedented sales activity, with each record deal trumping the previous one, indications are emerging that the boom may have finally peaked.
It’s a different market, Elizabeth Carillo Thomas, an investment specialist with Jones Lang LaSalle in Boston, told Banker & Tradesman last week. It’s really tough to get the same kind of price you got six to 12 months ago.
In one current deal, for example, the Archon Group has reportedly agreed to drop its asking price by several million dollars from the $72 million it was seeking for 99 Summer St., the red-roofed office tower reportedly being acquired by Paradigm Properties and the Carlyle Group of Washington, D.C. That follows the recent sale of 99 High St., a 32-story building purchased by Boston Capital for $168.5 million, nearly $17 million off the owner’s original target price. Meanwhile, Lend Lease Real Estate Investments is said to be making another run at selling One Boston Place after earlier talks with Hines Interests collapsed, supposedly because Hines got cold feet over the estimated $200 million sticker.
Some observers are predicting a lukewarm reception for One Boston Place, with one investment specialist maintaining that Lend Lease will do all right, but not what they thought they would in trading the 770,000-square-foot behemoth. Fearing a need for substantial renovations to the 30-year-old tower, some overseas investors supposedly shied away from the 30-year-old tower in the initial offering, while factors such as rising interest rates could potentially dilute the stable of suitors in the latest go-round, especially the leveraged buyers who have been so active of late.
Calls to Lend Lease officials were not returned by press deadline, but there are some who anticipate a good outcome for the sale. One investment broker familiar with the property said that despite its age and need for improvements, One Boston Place is still a desirable target for certain investors, noting that leases for several of the upper floors are due to roll over in the near term, space that should be well-received in the tight leasing market.
While acknowledging that One Boston Place is not attractive to some investors, the specialist nonetheless predicted that there’s going to be a lot of interest the second time around. Hines official David Perry, while declining to discuss his firm’s previous retrenchment, said last week that the company would consider making another run at One Boston Place, presumably at a discounted rate from before.
As for the overall market pulse, Trammell Crow principal Robert E. Griffin Jr. said last week that interest remains strong for Boston office buildings, but warned that sellers have to be realistic about the changing environment. Some, he said, are being overzealous, having failed to recognize that much of the upside in rents has already been achieved, forcing buyers to focus on due diligence and financial potential.
There’s a glass ceiling on the price-per-square-foot, Griffin said. You’ve got to be more careful about what you are buying now, and the pricing has to reflect that.
That realization may be coming home to roost for the Prudential Insurance Co., with rumors circulating last week that the firm has pulled One Beacon St. off the market after trying to first sell a 50 percent interest and then the entire 34-story building in recent months. Prudential officials were unable to confirm the status of the One Beacon St. strategy when contacted last week, but several brokers said they have heard the tower is no longer for sale. One source said it appears Prudential will first attempt to lease significant space coming available before putting One Beacon St. on the block again.
They want to stabilize the asset first, the source said. That seems to be their thinking.
Willing Buyers Remain
In any event, Insignia/ESG Director Lisa Campoli said she has seen no slowdown of investor interest locally. While individual properties may have seen their prices adjusted, Campoli said those should be seen as isolated incidents and not part of any trend.
I see as many people anxious to buy in downtown Boston as ever, said Campoli, reporting strong participation from most categories, including pension funds, overseas investors and opportunity funds. She disputed some theories that the pension funds as a group are becoming overstocked on office, and instead are turning their attention to multi-family and retail deals. Campoli said her firm is already garnering a strong response to 30 Winter St., a 12-story, 83,000-square-foot office building it is marketing on behalf of the owner, DLJ Inc.
Perry, too, said he believes the Boston investment market is still a prime target for investors of all classes. I think we’ll continue to see buildings trade here, but probably not at the pace at which they have the last five or six years, he said.
As for 99 Summer St., calls to both Paradigm and Spaulding & Slye, brokers for the Archon Group, were not returned by B&T’s deadline. One source close to the deal said, however, that Paradigm will pay no more than the mid-$60 million range for the 13-year-old, 20-story building. According to the source, the property has a location that should improve over time, but issues such as difficult floorplates and a sub-par lobby are keeping the price below what it might otherwise fetch.
That building is one that, for the right price, someone will buy it, but they aren’t going to stretch it, the source said. You have to really be careful about what your price-per-pound is for that one.
