Real Estate Deals

[kz1000ps]

Room to grow for Microsoft

Cambridge lease to expand firm's area footprint by 75%
By Robert Weisman, Globe Staff | June 21, 2007

In a move that will expand Microsoft Corp.'s footprint in the Boston area by about 75 percent, the software company plans to sign a lease this week at One Memorial Drive in Cambridge, just around the corner from the new Kendall Square offices of rival Google Inc.

Microsoft will be leasing 136,000 square feet in the 17-story high-rise office tower, overlooking the Charles River, in addition to the 46,000 square feet the Redmond, Wash., company agreed in April to lease for employees of Softricity, a Boston company it acquired last summer.

The building is owned by Equity Office, a commercial real estate arm of Blackstone Group, the big New York private equity firm. Microsoft will be leasing eight floors, roughly half the building, in three stages.

Microsoft currently leases about 183,000 square feet of space in Waltham, Beverly, and South Boston. With the new space, it will have the capacity to roughly double its 550 employees in Massachusetts by the end of the decade, though the company has yet to decide how it will use the space. Among the possibilities are beefing up its research and development activity, housing start-ups it purchases in the Boston area, and consolidating Microsoft operations from other area sites.

"It gives us great potential to grow here," said Ted MacLean , Microsoft's general manager for New England. "The proximity to MIT is important. MIT has historically been a great source of job candidates for us, and it will continue to be. Boston is quickly approaching the size where it could be one of our largest sites in the United States."

Though cofounder Bill Gates and chief executive Steve Ballmer both attended Harvard University in the 1970s -- with Ballmer graduating and Gates dropping out to start his software company -- Microsoft has had a relatively small presence in the Boston area until recently. Its area employment has more than doubled from 250 since 2004 with the acquisitions of Groove Networks in March 2005 and Softricity last July. Softricity has become Microsoft's SoftGrid product team.

Microsoft employs more workers in Dallas and Charlotte, N.C., along with Redmond, California's Silicon Valley, New York, and Washington, D.C., than it does in the Boston area.

Microsoft chief software architect Ray Ozzie , the Groove founder who moved to Seattle to join Microsoft after it bought his company, has been lobbying in-house for several years to increase the company's presence in Massachusetts, one of the nation's leading high-tech states. One of Microsoft's top software competitors, IBM Corp., has more than 4,900 employees in the state, and search giant Google recently set up a Cambridge outpost at One Broadway and plans to double its 50-person workforce there by year-end.

"Ray's been a huge advocate for us in terms of raising the visibility of Massachusetts as a talent pool we need to do a better job of tapping into," MacLean said. "He's been consistent with that message."

Technology companies like Microsoft, IBM, and Cisco Systems Inc. are expanding in the area partly to take advantage of research ties to Harvard University, Massachusetts Institute of Technology, and other schools, said Paul Guzzi , president and chief executive of the Greater Boston Chamber of Commerce. Guzzi said Microsoft's move is "obviously very good news for the region."

Under the terms of its new lease, set to be signed by the end of this week, Microsoft will be taking the first, second, 10th, and 11th floors of One Memorial Drive immediately, with 95 employees from its SoftGrid group set to move there from their office in South Boston in September. Next year, Microsoft will take the ninth floor, and by the end of 2009 it will take the 15th, 16th, and 17th floors.

"We are very pleased to have Microsoft as a new tenant and to assist with their growth in the Boston and Cambridge markets," said Marshall Findley , a managing director for the Blackstone Group.

For now, the company will keep its three other sites in the Boston area: its district office in Waltham with 285 employees, a separate technology center in Waltham with 35 employees, and its Office Groove development center in Beverly with 140 employees.

Robert Weisman can be reached at weisman@globe.com.
? Copyright 2007 Globe Newspaper Company.

 

[Mike]

Hot market sends office rents higher: Some top $90 per square foot
By Scott Van Voorhis
Boston Herald Business Reporter
Wednesday, June 27, 2007


The summer weather is not the only thing sizzling in Boston, as a white-hot office market drives tower rents skyward.

Rowes Wharf and One Post Office Square both recently inked small leases for more than $90 a square foot, real estate executives said.

The trend of rapidly rising office rents comes as the local economy starts to finally post significant job growth and the amount of vacant downtown office space dwindles.?We have definitely seen some $80 to $90 (a square foot) deals,? said Jay Driscoll, a downtown leasing executive at Cushman & Wakefield. ?Across the board, rents are dramatically different than they were a year ago.?

Some office tower owners, while not yet citing $90-a-square-foot rents, say they are heading toward that range.

?We are quoting in the 80s up high, and in the 60s down low,? said Mark Roopenian, an executive at Chiofaro Co., which oversees leasing at the twin-tower International Place complex.

A major ownership shift in the downtown office market is also helping drive up rents - with a new wave of aggressive New York investors, led by Blackstone Group, taking control of most of the city?s top office addresses.

A spokesman for Blackstone, owner of Rowes Wharf and One Post Office Square, declined comment.

Overall, Boston has seen a dramatic rise in the average high-rise office rent over the past year.

Average rents in Back Bay towers jumped 56 percent to $62 a square foot, while in the Financial District, tower rents soared 42 percent, pushing the average up $56.25, Richards Barry Joyce & Partners reports.


Link

 

[kz1000ps]

Google finds space for Hub expansion

Boston Business Journal - August 31, 2007
by Michelle Hillman

After two years scouting for locations in the Greater Boston market, Google Inc. has made it official: The company will open a major office in Cambridge.

The search-engine company signed a letter of intent to lease 75,000 square feet with an option to grow into 200,000 square feet at 3 & 5 Cambridge Center. The lease for the two adjacent buildings, which are owned by Boston Properties Inc., is expected to be officially signed in a matter of weeks, according to a real estate source.

A spokeswoman for Boston Properties said it is the public company's policy not to comment on any transactions it may or may not be working on.

Google has been quietly canvassing the Boston market for several years, but up until earlier this year the Mountain View, Calif., company only had a small sales office here. The Boston Business Journal reported two years ago Google planned on hiring up to 1,000 workers and looked for office locations in both Boston and Cambridge. Now those plans are actually becoming a reality as Google moves ahead with its expansion.

And Google can't seem to lease space fast enough.

Google is operating out of a small, 18,000-square-foot office at One Broadway in Cambridge's Kendall Square, which is quickly becoming cramped as the company continues to add salespeople and engineers. Google has doubled the number of engineers in Cambridge over the past four months and has approximately 50 people (including engineers and salespeople) working in the One Broadway office. Using a commercial real estate industry standard of 250 square feet per person, Google's new space could accommodate 300 or as many as 800 employees.

Google is in hiring mode with 12 different openings listed for the Boston area on the company's Web site. Though Google has positioned itself close to the Massachusetts Institute of Technology, it is looking for all types of workers to fill jobs in human resources, advertising, sales, engineering, online operations and administration.

"We're looking for a wider variety of roles and skills on the engineering side," said Stephen Vinter, director of Google's Cambridge office.

Staff at the Cambridge office of Google will work on electronically scanning books into a digital format as part of the Google Books program as well as video projects related to YouTube, said Vinter.

Vinter would not disclose how many people Google is looking to hire but said the company has "clearly grown in the last six months and we're obviously advertising for jobs in a broader number of areas than we did six months ago." Vinter, for his part, was hired five months ago to run the Boston office.

Google's corporate culture -- free lunches are catered every day, dinner is provided four nights a week, playing video games is encouraged and foosball is a pastime -- is almost as well known as the company itself. Still, Vinter is working to get the word out.

Next week Google is hosting an ice cream social for incoming freshman. Google will be interviewing candidates on campus at both MIT and Harvard University at upcoming recruiting sessions. Vinter plans to invite university groups to meetings hosted by Google.

One of the main reasons Google wanted to be in Boston was because of the talent pool the local university system creates and the companies that spin out of institutions like MIT.

Another reason, said Google spokeswoman Sunny Gettinger, is that Boston engenders fierce loyalty in its residents who might want to work for Google but don't want to move to Mountain View to do so.

"There's a recognition that this area has a high concentration of universities and people in the high-tech industry that it creates an ecosystem," said Vinter, noting that the talent pool in the Boston area is "phenomenal."

Google is not the typical company and it's certainly not relying on old methods of recruiting the area's best. In addition to the ice cream social, Google has come up with "out-of-box" recruiting ideas, said Bob Richard, associate director of employer relations at MIT. Richard said Google has volunteered to participate in workshops at a pre-career fair event that gets students ready for the real thing.

Google executives have also offered to review student r?sum?s and sponsor the career fair which is run by student groups on campus.

In the last year, Richard said, Google has ramped up its recruitment efforts, and has been much more focused in the people it is targeting.

"I would certainly say they've been a lot more active in the last year or so," he said.

Google is expanding in Cambridge at a time when the high-tech industry is picking up. Not to mention one of its competitors, Microsoft Corp., is nearby.

"The reason everyone is here is because of the brainpower," said Joyce Plotkin, president of the Massachusetts Technology Leadership Council. "It's not just the local graduates, it's the senior talent, the availability of senior-level (talent) is something that is of interest to companies."

Michelle Hillman can be reached at mhillman@bizjournals.com.

http://boston.bizjournals.com/boston/stories/2007/09/03/story1.html?b=1188792000^1514270

 

[pharmerdave]

HQ sale puts Verizon on the search for new space
Boston Business Journal - September 7, 2007
by Michelle Hillman
Journal staff
Verizon Communications Inc. is in the market for between 150,000 and 200,000 square feet now that the telecom company has put its Boston headquarters up for sale.
In July, Verizon announced it was exploring the sale of the downtown office building at 185 Franklin St. Approximately 1,700 employees work at the 18-story, 875,000-square-foot building that houses a Verizon central office.

When Verizon announced it would sell the building -- located across the street from Post Office Square Park in the heart of the Financial District -- the company said it would move employees into two other Verizon buildings at 6 Bowdoin Square and 8 Harrison Ave. in Boston. However, real estate sources said those two buildings will not be able to accommodate all of the workers from 185 Franklin St.
Verizon's real estate broker, Ted Wheatley The Staubach Co., declined to comment.
The building at 185 Franklin St. officially went on the market Wednesday, confirmed Verizon's spokesman Phil Santoro.
Santoro declined to provide any additional information about how much space is available at both 6 Bowdoin and 8 Harrison. He did say that employees from 185 Franklin would be relocated to those two buildings as well as "other leased space."
Verizon has been paring down its real estate portfolio over time. Last September the company sold two locations in Braintree and Waltham. The 160,000 square-foot office building at 350 Granite St. in Braintree was sold to the Campanelli Cos. for an undisclosed amount. Last December it sold the six interconnected buildings that make up its 345,000-square-foot campus at 40 Sylvan Road in Waltham to David Marcus Partners Inc. for an undisclosed price. At the time, Verizon said it would lease back 140,000 square feet in Waltham.
"As part of our corporatewide strategy, Verizon continually reviews workspace needs and occupancy levels of buildings we own," Lee Brathwaite, vice president of real estate for Verizon, said in a statement from July. "In today's competitive telecommunications environment, it is particularly important that we make the most efficient use of our facilities."
While Verizon has been busy consolidating its operations, the amount of available office space in Boston has shrunk considerably. At the end of the second quarter the vacancy rate for Boston towers was 4.6 percent, according to a recent real estate market report from Jones Lang Lasalle There are currently five blocks of space larger than 100,000 square feet and at least six tenants actively searching for as much space, according to the market report.
The building at 185 Franklin St. was constructed in 1947 and was the former headquarters of New England Telephone.
Michelle Hillman can be reached at mhillman@bizjournals.com.
http://boston.bizjournals.com/boston/stories/2007/09/10/story8.html?b=1189396800^1517697

This is the perfect location for a much larger office tower. Right in the heart of the financial district bordering Post Office Square.

 

[vanshnookenraggen]

It is also a perfect place for a signature tower, hopefully not some modern box but unfortunately that seems to be the style today.

 

[czsz]

The last time we talked about this there was a lot of opposition to tearing down one of Boston's few art deco buildings:

The FiDi risks becoming Houston with cowpaths if it acquires too many postmodern skyscrapers. Better to keep any pre-modernist low-midrise building to maintain architectural variety and reevaluate all the 60s and 70s crap down there instead.

 

[Ron Newman]

I'd much rather see this building reused than demolished.

 

[vanshnookenraggen]

If it could support it I'd say that a tall glass tower would look great atop the current building. It is very squat and fat looking.

 

[czsz]

Isn't there some fat windowless hideous thing out back behind this that could be torn down for a soaring new backdrop for the art deco ziggurat?

 

[z-money]

Microsoft Lease Controversy Expanding
By Joe Clements

CAMBRIDGE, MA-Equity Office Properties' troubles with its blockbuster lease with Microsoft Corp. at One Memorial Dr., are far from over, according to sources familiar with the negotiations. As GlobeSt.com reported last week, the process of freeing up 180,000 sf to accommodate Microsoft has fomented charges that certain tenant rights were not addressed by the subsidiary of the Blackstone Group of New York City.

The initial GlobeSt.com article indicated that tenant PA Consulting Group has an option for the top three floors of the 17-story tower, a clause that EOP allegedly neglected to address prior to signing Microsoft. The landlord is rumored to be working on a resolution that would include free rent and concessions approaching $10 million, if PA agrees to relocate to another EOP building. But sources tell GlobeSt.com that InterSystems Corp., a tenant of One Memorial Dr. since the prominent office tower opened in 1987, is also threatening legal action.

Not only does InterSystems supposedly hold the second option behind PA for floors 15 through 17, but sources familiar with the negotiations explain that the firm had first-refusal rights on most of the other space leased to Microsoft, which inked a 10-year pact at rates said to exceed $70 per sf. One industry professional, also familiar with the negotiations, maintains that EOP considered neither the feelings nor legal rights of tenants who stood in the way of assembling the space needed for Microsoft.

?It was just ?slash-and-burn, let?s get it done,?? says the source, who adds that EOP had been advised in advance that there might be encumbrances on the space. Blackstone Group spokeswoman Heather Lucania declined comment on the latest information when contacted by GlobeSt.com. Microsoft also declined to comment, and InterSystems Corp. spokesman Paul Grabscheid says his firm ?is not prepared to say anything on the matter at this time.? Grabscheid did indicate his firm is focused on remaining at One Memorial Dr. ?We have been here for a long time, and we would like to continue to be here,? he says. Calls to PA Consulting were not returned by press deadline.

One participant in the ongoing process also maintains that EOP has been in discussions with other tenants to see if they might relocate to make room for either Microsoft or InterSystems, with free rent and generous tenant improvement allowances among the possible carrots. Worst-case scenario, if Microsoft wanted out of the lease, the costs would exceed $100 million, according to some familiar with the financials.

http://www.globest.com/news/985_985/boston/163755-1.html

 

[statler]

Greater Boston Office Space Costs Firms a Pretty Penny
Average Asking Rents on Rise Throughout Region; Largest Increase Found in City?s Back Bay Market

By Thomas Grillo
Reporter

Pay up. Office space is getting more expensive. Average asking rents have increased 14 percent in the suburbs, 46 percent in Boston and a whopping 48 percent in Cambridge compared to last year, according to third-quarter data from Jones Lang LaSalle.

Boston?s Back Bay saw the biggest rent hike as the average asking price for Class A office space reached $60.36 per square foot, up from $39.90 in the third quarter of last year, a 51 percent boost, the global real estate services company reported.

?Ten years ago, Back Bay offered a $6-$10 per square foot discount compared to the Financial District,? said William Motley, a JLL managing director. ?Not anymore. Today, we?re seeing higher rents at places like 111 Huntington Ave., 500 Boylston St., the John Hancock Tower and 222 Berkeley St. These new buildings have created comparable space to the Financial District.?

Among the highest Back Bay rent deals, Motley said, was a law firm that leased 12,000 square feet at 111 Huntington Ave. for $72.50 per square feet. The tenant, who he declined to name, is expected to move in early next year. In addition, expansion deals have been completed at 222 Berkeley St. for $71 per square foot, he noted.

The Back Bay was not the only place where rents skyrocketed. Every submarket in Boston, Cambridge and the suburbs saw increases. Landlords in the Hub?s Financial District asked an average of $57.79 per square foot, up from $39.37 for the same quarter one year ago. Cambridge?s Harvard Square/Massachusetts Avenue saw asking rents swell to $45.59, up from $29.01 last year.

Ten of the 16 submarkets in Greater Boston saw availability shrink during the third quarter. In terms of absorption, Interstate 495 North had the largest amount of space filled with 614,852 square feet, while the Back Bay filled 417,713 square feet and Route 128/ Massachusetts Turnpike filled 268,463 square feet. Still, those areas have available space in excess of 3 million square feet, 1.3 million square feet and 2.4 million square feet, respectively.

?Flat? Market

In Cambridge, the office vacancy rate fell to 7.8 percent in the third quarter, down 9.1 percent from the same period one year ago, according to CB Richard Ellis data. The average asking rents grew to $43.52 in the third quarter, up from $30.78 last year. Among the tenants driving rents included the Internet search engine, Google, which took 75,000 square feet at 5 Cambridge Center. In addition, ChoiceStream, which develops personalization solutions for online consumer services, mobile operators and TV providers, renewed its lease and expanded to 39,000 square feet at 210 Broadway.

Still, while rents rose, Cambridge experienced 63,000 square feet of negative absorption in the third quarter, meaning that the amount of space leased has been less than the amount of space introduced to the market.

?The Cambridge market was flat in the third quarter from a demand standpoint,? said Curtis Cole, a partner at CB Richard Ellis. ?The debt-world difficulties have had an impact and people are not as aggressive as they had been earlier this year.?

There were few large deals in Cambridge from July through September compared to the first and second quarters, Cole said. Tenants rented smaller blocks of space in the 10,000- to 30,000-square-foot range instead of the 50,000- to 150,000-square-foot deals, he added.

?Cambridge office rents increased because demand over the past year has been strong, with the majority of deals earlier in the year,? Cole said. ?Finding big blocks of space is a challenge for tenants who feel it?s important to be in Cambridge.?

Still, while Boston and Cambridge may be booming, the suburbs have vacancy rates in the double digits. Of the 86.3 million square feet in the suburbs, 17.5 percent is vacant, down from 20.2 percent one year ago, according to Meredith & Grew. At 24.6 percent, Route 128 North has the highest vacancy rate.

?It?s not where we want to be, but the market is tightening and that number is not reflective of the average tenants seeking space,? said Matthew Daniels, senior vice president at Meredith & Grew.

Among the region?s facilities with available office space are Addison-Wesley in Reading, Cummings Center in Beverly and Stoneham Hospital, which is being marketed as office space. Those vacancies alone, Daniels said, account for 650,000 square feet of more than 6 million square feet of space in 128 North or 10 percent of the vacancy.

?These empty spaces are dated, older facilities that do not subdivide well and were once single-tenant users,? Daniels said. ?Landlords are not willing to make the investment into the buildings and would rather do a lower rent. But many of the vacancies are in big blocks of space so if you?re a medium-sized tenant of 7,000-15,000 square feet, you have fewer options.?

Looking ahead to the fourth quarter, there is disagreement about the office market?s future. While many brokers are convinced that rents will continue to rise and vacancies shrink, Joseph Sciolla, managing principal of CRESA Partners, a Boston-based global real estate firm that represents tenants, said rents have peaked.

?The economic dynamic is not there to sustain the rent increases we?ve experienced over the last year,? he said. ?Downtown Boston might see a little more bump-up in rents, but the suburbs have flattened because activity is down. While the hype that brokers are putting into the marketplace benefits landlords because they are trying to keep rents high, demand has tailed off because the credit crunch in the residential market has bled into the commercial side.?

Sciolla noted that he is working with two tenants who are seeking space in Waltham. While the landlord is offering rents at $40 per square foot, he has told them to wait, that Waltham is worth in the low- to mid-$30 range, he said.

?We think $40 for Waltham is crazy,? he said. ?The Wall Street surge is over and the landlords are coming to realize that they have to offer lower rents.?

 

[statler]

Re: New England Telephone Building (185 Franklin St)

Rumor around the building is that it has been taken off the market.

Scuttlebutt says buyers are weary about amount of asbestos abatement required.

If true, this would suggest none of the potential buyers were looking into demo/rebuild.

 

[Padre Mike]

I could be wrong, but I think asbestos abatement must take place even if the building is going to be demolished, so that particles do not get into the environment.

 

[TC]

I could be wrong, but I think asbestos abatement must take place even if the building is going to be demolished, so that particles do not get into the environment.

You're right Padre. And the depending on what materials contain the asbestos it could cost double (or more) than the demolition itself.

 

[kz1000ps]

Long Drop

Credit crisis turns market for commercial property from hot to suddenly cold in Boston, across country
By Thomas C. Palmer Jr.
Globe Staff / December 7, 2007

The unprecedented frenzy in the commercial real estate sales market seemed as if it would never end.

For five years, office buildings were turning over with increasing frequency, at ever-increasing prices. Three-quarters of downtown Boston's top-quality office properties changed hands at least once in the last five years. With sales of $7.3 billion by the middle of the summer, the market was on track to set another record in 2007.

But in August, the meltdown in subprime mortgages triggered a wider credit crisis on Wall Street. Overnight, potential buyers could no longer borrow money to do deals, bringing the commercial property market in Boston and across the country to a standstill.

"It's not completely dead, but it's been knocked on its bottom," said Rob Griffin, president of Cushman & Wakefield of Massachusetts Inc., a commercial brokerage. "It's certainly been chaos since August."

The sales slowdown should not have an effect on the broader economy, industry analysts said. Demand for office space remains high in Boston, and leasing rates have never been stronger. But the enormous profits that commercial real estate owners and investors have enjoyed for several years are over for the foreseeable future.

Now, many properties sit on the market or have been withdrawn. Some deals fell through and others sold for below asking price. Sales in the third quarter this year plummeted to under $1 billion, from the $2.5 billion of the third quarter of 2006.

Even trophy properties such as the Hancock Tower, which twice sold quickly in the past four years, were hit by the slowdown. The Hancock's owner, Broadway Partners Fund Manager LLC, received an unsolicited offer in the spring for the tower and other properties. But in late July, when credit markets were becoming volatile, the prospective buyer backed out.

"The market blew up," said Scott Lawlor, Broadway Partners' chief executive.

Several other owners of Boston properties have also been unable to sell buildings they were marketing - even though industry specialists predicted they would draw record numbers of bidders and the highest prices yet.

Normandy Real Estate Partners could not sell a portfolio of about eight buildings it put on the market earlier this year, and Brickman, a New York private equity company, this fall removed a slate of about 10 buildings that didn't sell. Brickman's holdings include One Bowdoin Square.

Fortis Property Group, co-owners of One Lincoln Street, one of Boston's newest buildings, recently attempted to sell it, but apparently the offers weren't good enough.

"My impression is they were hoping for a big huge number, and the pricing was not as dramatic as they'd hoped," Lisa M. Campoli, executive vice president of Meredith & Grew, said after speaking to a gathering of real estate executives yesterday.

Eastdil Secured LLC, the real estate investment advisers hired by Broadway, Brickman, and Normandy, declined to discuss the sales efforts. Fortis could not be reached for comment.

Peter F. Korpacz, executive managing director of Weiser Realty Advisors LLC, said, "A number of deals actually blew up."

Typically on a national basis, 2 percent of commercial property sales fall through for various reasons, such as financing fails to come through, he said; this fall the number was 6.5 percent.

Some deals that did close experienced something that hasn't routinely happened for about five years -"repricing." Buyers were able to negotiate prices downward 5 to 8 percent, Korpacz said.

Even with the dramatic slowdown, 2007 could be a record year in Boston, according to Real Capital Analytics, a New York firm that tracks transactions. That's because the year started off with a monumental transaction: the $39 billion purchase of the holdings of Equity Office Properties Trust by private equity firm The Blackstone Group LP. Part of the sale included the biggest portfolio of Boston office buildings held by one owner.

The turn in the market was swift. As recently as late June, Douglas M. Poutasse, executive director of the National Council of Real Estate Investment Fiduciaries, said: "It doesn't get any better than it's been."

The trouble first emerged from the residential real estate market. Wall Street investors were big buyers of investment portfolios consisting of subprime and other lower-quality home mortgages. When homeowners began defaulting on their loans this year, those investors were left holding investments worth substantially less. Facing losses, the investment community abruptly stopping pumping new funds into the lending market.

The credit shortage spread to the larger commercial loan market, and suddenly a source of capital from Wall Street that had fueled the buying frenzy in office buildings had also evaporated.

"It's just stopped," said Michael Fascitelli, president of Vornado Realty Trust, which is increasingly investing in Boston properties.

Executives say the residential mortgage market wasn't the only factor in the decline of commercial real estate investing. Riskier loans were showing up in commercial investment pools being sold on Wall Street as well.

Predictions vary on whether the go-go days will return soon, or at all. "I personally think this is a very dangerous time to do transactions," Scott M. Sperling, copresident of the private equity firm Thomas H. Lee Partners LP, told a group of executives last month.

Many other industry executives predicted the office market would improve next year, although a few warned the credit crisis could make things worse in the coming weeks before the real estate investment market improves. They said Wall Street firms have to work out at least $40 billion in troubled residential loans before they resume investing in commercial properties.

Nevertheless, Janet N. Krolman, director of the investment advisers Holliday Fenoglio Fowler LP, noted that unlike the residential market, there have been few casualties so far. "There's almost no delinquency," she said. "The commercial market is very sound."

Thomas C. Palmer Jr. can be reached at tpalmer@globe.com.
? Copyright 2007 Globe Newspaper Company.

link

 

[JimboJones]

Getting national companies such as Vornado and Related to come here is a good sign ... hopefully they can weather the storm ...

 

[kz1000ps]

Foreign buyers swoop down on Hub buildings

Friday, December 14, 2007
Boston Business Journal
by Michelle Hillman

Foreign buyers prompted by the weak dollar and a healthy Boston office market are making the city a favorite investment target, acquiring more commercial office property in the Hub this year than in any of the previous five years.

This year alone, seven office properties have sold to foreign buyers totaling $242 million -- representing about 16 percent of the 43 office property sales in 2007 -- with an eighth deal pending for $170 million, according to Meredith & Grew Inc.

Boston is attracting international interest from a diverse group of foreign buyers. Among those scouting for or looking to buy a piece of the bean pot are Dutch, Canadian, German, Irish, Middle Eastern and Japanese investors.

"We know that the Spanish are looking, the Dutch are looking, the Japanese are looking. There's new British money," said Lisa Campoli, who is head of investment sales at Meredith & Grew in Boston.

"This is not a trend that's going to change, she added later. "I don't think we're going backward in terms of the flow of foreign capital, it's going to intensify as our economy continues to globalize."

In 2006, three Boston office buildings sold to foreign buyers. In 2005 there were none.

Of the seven buildings that were sold this year, all were purchased by Irish investors or Irish groups representing foreign investors. An eighth deal -- the sale of 50 Milk St. for $170 million -- is under agreement with Spanish real estate holding company Ponte Gadea SL. Ponte Gadea also purchased 45,000 square feet of retail space at 360 Newbury St. for more than $50 million.

Aside from the Spanish, Irish and Australians, Japanese investors and Middle Eastern buyers are looking for cheap places to invest their money, said Riaz Cassum, a senior managing director at Holliday Fenoglio Fowler LP in Boston. Cassum said Japanese investors are starting to sniff around the Boston office market for trophy properties but have not yet found the right deal.

A major driver is the plummeting value of the dollar.

Two years ago this week, a European investor buying a $100 million property in Boston would have had to come up with 84.6 million euros.

One year ago, 75.8 million euros.

This week, the same deal would cost the European just 68 million euros.

Other foreign buyers are shopping in the United States, not because of favorable exchange rates but because they hold dollars already, making investing in many other countries cost-prohibitive.

"The biggest new source is the Middle Eastern (buyers)," said Cassum. "They've been buying trophy office buildings in New York and in Washington. They've looked at some deals here ... you're going to see them coming because they make their money in dollars so they have to invest in dollars."

A group from Dubai, for example, recently bought a big stake in a 10-building Braintree office and industrial portfolio.

The group is looking for Boston properties to buy, according to real estate sources.
Attractive target

Boston has always been an attractive city for foreign investors because of its high barriers to entry -- including its limited supply of office property -- and European-style architecture. The city is now capturing foreign investors' eyes because rents have risen and vacancies have decreased as the market continues to improve.

There is currently an 8.6 percent vacancy rate in Boston and asking rents are between $35 and $75 per square foot.

"What's changed in the last year is vacancies have come down sharply and the rents have increased," said Jeffrey Miller, a principal at Barrington Capital Partners LLC. "That's when you start getting noticed by everybody."

Miller has raised $10 million from 117 Irish individuals who are "very eager" to make investments in the U.S. market.

The fund, called Barrington Capital US Commercial Real Estate Fund, was launched in February. Miller, whose offices are at 10 High St. in Boston's Financial District, will continue raising capital until September of next year.

The fund, called Barrington Capital US Commercial Real Estate Fund, was launched in February. Miller, whose offices are at 10 High St. in Boston's Financial District, will continue raising capital until September of next year.

Miller will deploy the capital in Boston, New York, New Jersey, Connecticut and Chicago.

Miller also advises Australia's Mariner Financial Limited, which has a $324 million portfolio of seven U.S. properties.

One of the most prolific buyers in the Boston market is an Irish-backed group called Synergy.

In the last two years, Synergy purchased 650,000 square feet of property in Greater Boston valued at $200 million.

The majority of Synergy's equity comes from wealthy Irish individuals or institutions, said Synergy President David Greaney.

"The fact that the dollar has weakened has really increased our ability to source and place equity," said Greaney during the real estate event sponsored by the Massachusetts chapter of the National Association of Industrial and Office Properties.

Besides favorable exchange rates, foreign buyers have also benefited from a slower than usual sales pace in Boston resulting from the credit crunch that sidelined domestic buyers.

Up until this summer, commercial real estate transactions went under agreement before some buyers had the chance to bid.

"Foreign capital will be able to compete better because the deal process will be slower and take longer," said Michael Smith, a managing director at Jones Lang LaSalle.

http://boston.bizjournals.com/boston/stories/2007/12/17/story2.html?b=1197867600^1564603

 

[statler]

Tower's owner bucks trend, seeks sale
One Federal listed despite idea that market is stalled

By Thomas C. Palmer Jr., Globe Staff | February 22, 2008

Tishman Speyer Properties LP is putting 38-story One Federal Street on the market - bucking the consensus in commercial real estate that the roaring market for such big office properties has come to a halt, at least temporarily.

The offering comes less than two years after New York-based Tishman Speyer bought the 1.1 million-square-foot tower for $514 million, or about $471 a square foot, a near high for the time.

Trophy properties had been trading at rapidly escalating prices and with increasing frequency for several years.

But late last summer, the subprime loan meltdown in the residential sector chilled the lending climate, even for office properties. Sales of commercial properties fell dramatically in the last half of 2007.

Tishman executives would not comment, but their broker, Rob Griffin, president of Cushman & Wakefield of Massachusetts Inc., said the current conventional wisdom is wrong.

"Although pricing is off a bit from what it was, it's still high, with historically low interest rates," he said. "And the real estate fundamentals are as strong as they've ever been in Boston, with single-digit vacancy rates."

Griffin noted the General Motors Building in New York, which just went on the market, has drawn three strong bids and could sell for as much as $3 billion.

"Like the GM Building, great assets still garner the great pricing," he said.

Besides being nearly completely leased, One Federal has debt with good terms that can be assumed by its next owner, Griffin said. And some of the current leases are at rates that by current standards are low enough that the next owner could anticipate raising rents.

"Which is why Tishman feels so confident that this is a good time to sell," he said.

Current tenants include Bank of America, State Street Corp., Bear Stearns, Credit Suisse Group, and the law firm Bingham McCutchen LLP.

David I. Begelfer, chief executive of the Massachusetts chapter of the National Association of Industrial and Office Properties, said Tishman's decision shows confidence in the Boston market, despite general industry nervousness.

"I would call it location, location, location meets quality, quality, quality," Begelfer said. "There are buyers who have been on the sidelines for quite a while with no great alternatives, certainly not the stock market. This may be the start-up of a buying cycle in Boston."

Boston's office vacancy rates are as low as they have been in about six years, and there is little office space under construction. Construction prices have increased so much over the past several years that even though existing buildings are selling for near-record prices, they are still going for below replacement cost.

One Federal, built in 1976, has undergone at least two major renovations.

In mid-2006, Tishman Speyer bought One Federal, which occupies a full block, and was formerly Shawmut Bank and FleetBoston headquarters, from Jamestown, a German pension fund.

At the same time, Tishman bought out Jamestown's 76 percent interest in 125 High St. for an undisclosed price.

Tishman and Jamestown had jointly owned 125 High since 1999.

Thomas C. Palmer Jr. can be reached at tpalmer@globe.com.

Link

 

[kz1000ps]

Office rents reach dizzying heights

$100-a-square-foot deals could be taste of what's to come as demand tightens
By Thomas C. Palmer Jr.
Globe Staff / February 22, 2008

For the first time in almost a decade, office rents in downtown Boston have moved above the eye-popping $100-a-square-foot mark.

So far just a few well-heeled companies have agreed to pay three-digit rates for their offices, involving relatively small amounts of space on the upper floors of some of Boston's trophy towers. Executives in the real estate industry predict that, with demand for high-quality space exceeding the available supply, more companies will pay up for such offices.

"You will see more deals done above $100 a foot," said James R. Brady, director at the real estate firm Cushman & Wakefield of Massachusetts Inc. "It's not going to be the norm, but it's going in that direction."

The $100 price is the peak for a tight Boston office market where rents have been rising rapidly. Owners of several top-quality towers are now asking for annual rents in the range of $80-$95 a square foot; the average asking price in class A buildings now is about $67 a square foot - up from a low of $38 in 2003, when there were vacant floors galore.

The last time rents tipped above $100 a square foot was in 2000, according to the real estate firm Jones Lang LaSalle, and involved just a few leases that were signed right before the office real estate market started a steep decline. Jones Lang LaSalle represents the Blackstone Group, the largest office landlord in the city, at two of its buildings.

Even amid warning signs the economy is at risk of sliding into recession, local real estate executives said demand for office space in Boston right now is so strong that already-low vacancy rates are dropping - and rents are rising correspondingly.

"The fundamentals of supply and demand are such that really good space is scarce," said Ted Oatis, a principal of Chiofaro Company, developers of the International Place.

The last new office to open in Boston was in 2004. Although there are a number of buildings under construction or well-along in development, including projects at Fan Pier, Russia Wharf, and Two Financial Center in the Leather District, local real estate brokers expect space at these locations to be absorbed quickly.

Among the companies that have signed leases for $100 a square foot or more is Barclays Global Investors, which added about 2,900 square feet of space to its Boston offices on the 44th floor of One International Place.

Also at One Post Office Square, Saracen Energy Partners LP, a Houston-based investment firm, signed a lease for about 3,300 square feet on the 38th floor, at an average price of $100 per foot. And Four Winds Capital Management paid a little over $100 a square foot for about 1,500 feet of additional space last year at 60 State St.

The companies either declined to comment or could not be reached for comment. Indeed, few others in downtown Boston's business and real estate communities would talk publicly about busting the $100 rent threshold. Landlords who are getting it don't want to be seen as bragging, and tenants - never inclined to talk about how much their paying in downtown rents - are especially reluctant to acknowledge they're paying top dollar.

Several real estate brokers said the tenants who paid the $100 price needed to renew leases or add more space but didn't want to go to the expense and trouble of moving. Just outfitting new office space from scratch can cost $120 per square foot for a financial firm, and even more for some white-shoe law firms, according to a recent study.

Local executives agree that the higher rents can be attributed in large part to "the Blackstone effect." That's a reference to the Blackstone Group, which bought the nation's largest commercial real estate portfolio about a year ago from Equity Office Properties Trust. The deal included the Boston buildings One Post Office Square and 60 State St. among about a dozen downtown.

"They came in and they raised rents overnight 20 percent," said Mark Roopenian, director of leasing for Chiofaro Co., which co-owns and manages the two International Place towers. "God bless them."

That had the effect of showing other landlords what prices the market would bear.

"When Blackstone took over, there was a decisive change in the tone of the market," said Oatis, Roopenian's colleague at Chiofaro. "They've got to be credited for being aggressive in their leasing efforts."

Oatis and Roopenian refused to comment on whether their firm has rented space at International Place for more than $100 a square foot. The building is one of the city's premier office locations and commands among the highest rents.

Andrew J. Maher, managing director at the Blackstone-owned Equity Office, said he and his colleagues have been amused by the "Blackstone effect" term.

"It seems to be a term coined from some of the brokers as a negative phrase," he said.

"Our strategy is to take some very well-located buildings," Maher said, "and invest some substantial money in them," including at least $50 million into four downtown towers. "We're finding tenants are willing to pay up for those spaces because of the quality of life and the recruiting tool it provides for them."

The rent spike also comes as the investment market for commercial properties has slowed, part of the fallout from the subprime mortgage crisis that has led to a shortage of lending for real estate in general.

David A. Martel, executive director of Cushman & Wakefield, acknowledged that the Boston rental market appears at odds with other economic trends.

There's a lot of bad news in the economy, and it's hard to ignore it," Martel said. But he said many firms in downtown Boston are financially healthy and are seeking additional space. "When you look at the requirements in the marketplace, out of the 16 top companies, 13 are growing," Martel said.

Link

 

[stellarfun]

Re: Real Estate Deals (Verizon in Post Office Square)

Verizon to make new push to sell its Hub tower
By Scott Van Voorhis | Thursday, February 28, 2008

Verizon?s ambitious plan to reap hundreds of millions from the sale of its longtime downtown Boston regional headquarters is facing challenges as the once-hot office tower market has suddenly gone cold.

Verizon announced plans to sell its historic, 1940s high-rise near Post Office Square Park last July at a time when investors were shelling out record numbers for office towers.

But as the implosion of the subprime mortgage market spread into the capital markets, money for all types of acquisitions, including office buildings, dried up. Verizon received at least one offer last fall, but it was under the firm?s target price, pegged at more than $300 a square foot, according to one industry executive familiar with that offer.

Now Verizon is preparing another push this spring to sell the iconic, 185 Franklin St. building, known for its Art Deco trimmings and marble floors, Verizon spokesman Philip Santoro confirmed.

At stake for Verizon is an ambitious revamp of its downtown Boston operations, with plans to move 1,700 workers from Franklin Street to buildings in Government Center and Chinatown.

?I think there was a lot of interest,? said Lisa Campoli, a top investment sales executive at Meredith & Grew. ?My impression was that there were many people who wanted to own the real estate. It was a question of pricing.?

Now Verizon is ready to try again, this time with a new commercial brokerage firm handling the marketing. After initially working with Staubach Cos., Verizon has turned to CB Richard Ellis, another top commercial real estate firm.

Still, Verizon is likely to face some of the same questions from potential buyers, executives said. While the Post Office Square location can?t be beat, the 18-story building, used for years as a central switching station as well as offices, needs significant work before it can be an attractive location for downtown firms. The building has large floor plates that can be hard to work with, and a dearth of windows.

There?s also the challenge of a tough tower sales market, where the number of potential buyers has dwindled. That said, there are investors, such as ?opportunity funds,? that are looking just for this sort of fixer-upper opportunity, Campoli said. But whether Verizon will fetch the $300 million it had initially hoped for on the 875,000-square-foot building is another question altogether, executives said.

?The interesting question is whether Verizon is doing this because of its own business needs, or does it think that conditions have improved so it can achieve a higher price than last fall?? asked Robert Richards, president of Richards Barry Joyce & Partners

http://www.bostonherald.com/business/real_estate/view.bg?articleid=1076440