Their offices may not be stuffed with surfboards. They might not wear wetsuits to work. They probably don’t even call each other “dude” all day. But the investors in the last few substantial commercial property acquisitions in Boston’s Seaport district have possessed a decidedly West Coast vibe.
And for firms pouring capital into the area dubbed the “Innovation District,” those deals are indicative of good vibrations in the market.
Some of the highest-profile recent office property deals in the Seaport and Fort Point areas of the city are being executed by firms based in San Francisco that collectively control a deep roster of high-tech, creative tenants in markets nationwide.
Take a look at the most recent deals on the city’s Waterfront that have generated significant investor interest. In May, San Francisco-based Shorenstein Properties bought the 461,000-square-foot Seaport Center at 451 D. St. from The Beal Cos. and Rockpoint Group for approximately $115 million. That deal was struck a mere four months after the Boston Herald moved to Seaport Center, joining tenants including Monster.com, Verizon and JP Morgan Chase.
Shortly afterward, Spear Street Capital – another firm from the city by the bay – bought the debt on about 260,000 square feet of office and retail space at 281 and 321 Summer St.
And San Francisco’s DivcoWest is in negotiations to purchase a four-building, 362,000-square-foot office portfolio from Brickman in the Fort Point district for upwards of $105 million. Those buildings are house firms including Elkus Manfredi Architects and project managers Collaborative Partners.
Competitive Advantage?
Shorenstein Properties recently pulled a coup in San Francisco after Twitter signed on to create a new 215,000-square-foot headquarters at 1355 Market St. in the city’s gritty South of Market area. The Seaport is one of a handful of formerly overlooked or neglected urban commercial real estate submarkets nationwide – including parts of San Francisco, Seattle and Austin – that are finally coming into the fold from the fringes.
And those are the places where young high-tech and creative firms are choosing to locate, said Matthew Knisely, senior vice president for Shorenstein.
The Seaport has a number of things going for it, Knisely said. The combination of public infrastructure investment and significant recent private investment in development certainly attracted Shorenstein to the submarket. But Knisely told Banker & Tradesman there is more to it than that.
“We do have a competitive advantage since we’re based in the San Francisco market and are in touch with those [high-tech and creative] tenants in every part of our portfolio,” Knisely told Banker & Tradesman. “The Seaport really has demonstrated an ability to attract those kinds of companies. We know what those kinds of tenants are looking for.”
That includes open floor plans that breed collaboration. It includes an intense focus on the spatial experience – from design finishes to furniture layout and lighting – that creative companies want to portray to clients and potential recruits.
All the West Coast interest doesn’t mean local landlords didn’t anticipate the shift in the Seaport. But the recent deals have been big ones, and it seems the local players have been shying away from them, said Duncan Gratton, principal with Cassidy Turley FHO. And since the Boston market usually lags about six to nine months behind trends on the West Coast, it makes sense that firms from the Left Coast saw the market shift coming.
Real Estate Is Local
Even so, local firms like National Development, Berkeley Investments and the Fallon Co. – all significant property owners in the Seaport – foresaw the evolution of a former, largely industrial section of town into one of the hottest submarkets in the city and, and, some say, the country.
“German and other international investors have a strong interest in the Seaport,” said Joe Fallon, head of the Fallon Co., whose development firm is creating the new 1.1-million-square-foot home of Vertex Pharmaceuticals on the South Boston Waterfront. “The momentum we have here is unlike in any other part of the country.”
And not all industry players are convinced that the California companies will be able to do a better job at attracting tenants than the local boys. One famous example of a firm from another city seeking to improve upon the local model is when Broadway Partners bought the Hancock Tower in 2006. New York’s Broadway defaulted on their loan on the tower in 2009 after acquiring the iconic skyscraper for $1.3 billion at the top of the market. The 60-story tower was later sold at a foreclosure auction in 2009 for $660.6 million.
“Maybe it was true back in the tech boom in the ’90s, but Boston dominates in different sectors of technology,” said Brendan Carroll, vice president of research for Richards Barry Joyce & Partners. “Harvard and MIT and all the firms in Kendall Square are here, and we’re much closer to European markets and capital. I think it’s a dated idea to think that because you’re from San Francisco or Silicon Valley that you’re better than what Boston has to offer.
