Real Estate Deals

JohnAKeith

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Hello, ladies.

Hitting the wire this evening is news that Blackstone Group may have agreed to sell off a large portion of its Boston portfolio.

It hasn't been confirmed that it is happening and it also seems unclear which properties are being sold. One story I read said 500 Boylston was included. (Does Blackstone also own sister property 222 Berkeley?)

Blackstone Said to Sell Boston Buildings for $2.1 Billion
Hui-yong Yu, Bloomberg

Blackstone Group LP (BX) agreed to sell five office properties in Boston to a venture led by Toronto-based Oxford Properties Group for about $2.1 billion, according to two people with knowledge of the transaction.

The buildings total almost 3.3 million square feet (306,000 square meters) and are mostly in downtown Boston, said the people, who asked not to be named because the sale is private.

Oxford plans to purchase 100 High St. and 125 Summer St., and team with JPMorgan Chase & Co.’s asset-management unit to buy three other properties: 60 State St., 225 Franklin St. and One Memorial Drive in nearby Cambridge, the people said.

Blackstone also is selling its stake in Boston’s Rowes Wharf to part-owner Morgan Stanley for about $200 million, according to one of the people.
 

hockey92

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I read this in the WSJ this morning.. lots of high profile properties being sold off here and I seem to remember it saying somewhere that the property values rose 11.7% since the original purchases in 2007
 

kz1000ps

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The Bizjournal has an article from last week detailing the rental occupancy of all the latest apartment projects and detailing how some have been slow to fill: http://www.bizjournals.com/boston/r...-luxury-apartment-landlords-the-hunt-for.html

The Kensington: 93% leased after 12 months leasing activity

315 on A: 75% leased after 11 months

Avalon Exeter: 50% leased after 6 months

Radian: 34% leased after 6 months

Waterside Place: 60% leased after 6 months

The Arlington: 80% leased after 5 months

The Victor: 75% leased after 10 months
 

JohnAKeith

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If I could choose from any of those I think I'd go with Radian, the apparent bastard child of the bunch. If I could get a view, it would be worth not being as close to any amenities as the other places. Runner up would be The Arlington although the congestion around there would be a negative.

PS. I think Radian is the only developer telling the truth.
 

TheRifleman

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Re: One Federal St. sold for $514 mil

yeah but for how long? and at what rates? It may be a safe investment, but its return will be comparable to a c.d at your local citizen's bank.
Bosdevelopment: Good call on this:


Bingham McCutchen's decline raises questions for Tishman at One Federal

Craig DouglasManaging Editor, Online & Research-
Boston Business Journal

The decline of law firm Bingham McCutchen, a major Boston presence, and its recent takeover by Philadelphia-based Morgan Lewis could have serious implications for Bingham's Boston landlord.

Bingham's fate is of material interest to Tishman Speyer, the landlord of record of the law firm's home at One Federal St. in Boston. As of June 30, the 1.1 million-square-foot tower was 86 percent occupied, with Bingham accounting for the property's largest chunk of space with roughly 300,000 square feet under lease.

Tishman has struggled to fill the 38-story building for the better part of three years, with occupancy dipping to as low as 66 percent at the end of 2012. Much of the property's empty space was triggered by several big-tenant exits that included Bank of America and State Street Corp.

In 2012, Tishman saw around 10 percent of the property's space filled by a new lease with document storage vendor Iron Mountain.

Leaders at Morgan Lewis and Bingham have been tight-lipped about the fate of hundreds of Bingham attorneys. the Pittsburgh Post-Gazette today quoted the head of the Pennslyvania-based firm saying it won't have a role in the winding down of Bingham. The Post-Gazette said at least 80 Bingham partners didn't make the move. A number of Bingham lawyers have taken new jobs in Boston in recent months.

Real estate tracking firm Trepp issued what it calls a "trading alert" today for a CMBS loan tied to One Federal St., noting the Bingham wind-down and that the firm's lease at the tower runs "until 2023."

Should the Bingham headcount at One Federal decline substantially, filling the class A space with another legal client could prove tricky. Law firms have been shrinking overall, some firms have moved support functions to suburban locations and Boston's Financial District faces increasingly stiff competition for legal clients from the Back Bay and Seaport District.
http://www.bizjournals.com/boston/r...-mccutchens-decline-raises-questions-for.html
 

statler

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Globe finally catches up to Bloomburg report from May:

Boston Globe said:
Two Back Bay office buildings on market for $1.5 billion
Price may lead to one of biggest real estate deals ever in the city


By Dan Adams Globe Correspondent June 04, 2015

Two well-known office and retail buildings along Boylston Street in the Back Bay are on the market for $1.5 billion, probably one of the highest asking prices for commercial space in Boston’s history.

New York-based Blackstone Group LP is preparing to sell the abutting office buildings at 500 Boylston St. and 222 Berkeley St., according to a Boston real estate executive familiar with Blackstone’s offering. Details of the listing were also reported by Bloomberg News and the website Real Estate Alert on Wednesday.

The buildings total about 1.3 million square feet in size. A sale for $1.5 billion would put the price at nearly $1,150 per square foot, far higher than the selling prices of other commercial properties in Boston’s key business districts, which rarely top $700 per square foot.

“I don’t think any office building in the city has gone for that kind of money, and if they can get it, it shows how strong the market is,” said Larry DiCara , a veteran real estate lawyer at Nixon Peabody International LLP. “This is more comparable to a Midtown New York City building than a Boston building, in terms of the price point.”

A spokeswoman for Blackstone, the country’s biggest private equity investor in real estate, declined to comment.

The listings come at a time of tremendous growth in Boston’s real estate market, with new towers and construction cranes dotting the skyline, and several super-size complexes under development or in planning.

Vacancy rates in Boston and Cambridge office buildings remain low, and rents in prime properties are climbing. A number of large US and international investors have also begun snapping up properties in Boston, contributing to a favorable climate for sellers.

The Back Bay buildings are owned by a Blackstone subsidiary, Equity Office Properties, and share an underground parking garage. They are near the Public Garden, the Orange Line and commuter rail trains at Back Bay Station, and dozens of high-end retail shops.

DiCara said the prime location makes buying the properties a sound investment — even if, as some fear, the current hot market is nearing its peak.

“It’s a great site,” he said. “You have transit access, you have retail, and within a five-minute walk there’s almost every amenity you could possibly want. These were top-notch buildings the day they opened, and they’ve never really had a bad year since. There’s always going to be value there.”

In March, Equity Office announced plans to fill the marble courtyard of 500 Boylston with a five-story, 80,000-square-foot addition containing offices and retail shops. It is uncertain whether a new owner would pursue that project.

The buildings were developed in the late 1980s, originally intended to be matching towers designed by the famed architect Philip Johnson. But Johnson’s design for 500 Boylston, which was constructed in 1989, proved unpopular with critics and neighbors, so the 222 Berkeley job was handed to Robert A.M. Stern Architects. Construction on the Stern building was completed in 1991.

Blackstone purchased Equity Office Properties Trust for $39 billion in 2007. At the time, Equity Office owned some 580 buildings, including approximately 12 million square feet of office space around Boston. Since then, Blackstone has steadily sold off buildings from Equity Office’s portfolio and has said it expects to unload the remaining buildings this year. The company’s global head of real estate recently said investors who financed the 2007 Equity Office deal would triple their money.

In May 2014, Blackstone sold five Boston-area office buildings for $2.1 billion to Oxford Properties Group, an investment manager for the government of Ontario in Canada.

Other Blackstone buildings in Boston have been sold to Shorenstein Properties of New York and San Francisco and to a joint venture of Rockefeller Group and Mitsubishi Estate Co. Shorenstein purchased 1-3 Center Plaza; Rockefeller and Mitsubishi bought 28 State St.

Blackstone has also sold Wellesley Office Park, New England Executive Park, and other buildings in Newton, Burlington, and Cambridge.

Dan Adams can be reached
at dadams@globe.com.
Follow him on Twitter @DanielAdams86
 

statler

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I staring reading "Houghton Mifflin leaving Back Bay..." and my heart sank.
This is interesting. I think it means something. Not sure what, but something.

Boston Globe - July 8, 2015

Houghton Mifflin leaving Back Bay for Financial District
By Jon Chesto Globe Staff July 08, 2015

Houghton Mifflin Harcourt will write its next chapter in the Financial District instead of the Back Bay.

The publishing company has signed a 16-year lease to occupy 162,000 square feet at 125 High St., taking over the entire fifth through eighth floors in the building.

A lease of this size would make it one of the biggest office deals in Boston this year. It also represents another example of how the makeup of the Financial District is changing: More media and digital technology companies — HMH, with its digital push under chief executive Linda Zecher, now fits comfortably in both categories — are packing into spaces that had once been the domain of lawyers and bankers.

The company is expected to relocate from its existing headquarters — 180,000 square feet at 222 Berkeley Street — by early 2017. HMH had been at that location since 1991. Gil Dailey of Cushman & Wakefield represented HMH in the negotiations.

A spokeswoman for HMH said the company picked 125 High St., a building owned by Tishman Speyer, because of its proximity to services and transit links, including South Station.

About 685 HMH employees — including workers from the recently acquired Educational Technology and Services division of Scholastic — will make the move, according to the spokeswoman. The company employs about 4,100 people worldwide.

The move to High Street does bring the company closer to its geographic roots: Its founding can be traced to a small publishing business at a bookstore at the corner of Washington and School streets in Downtown Crossing, more than 180 years ago.

Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.
 

fattony

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I staring reading "Houghton Mifflin leaving Back Bay..." and my heart sank.
This is interesting. I think it means something. Not sure what, but something.

Boston Globe - July 8, 2015
I have a friend at HMH. He knew about this internally at least 2 months ago. We were having a beer and listening to live music on the Greenway (one of those Thursday block parties) when he pointed toward 125 High and mentioned it. I think that alone contains the meaning. Downtown has gotten cooler than the Back Bay.
 

JumboBuc

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Carrying some stuff over from 22 Liberty:

There should be a law against flipping property this quickly, especially since this building isn't even open yet. We'll never solve our housing crisis if investors can just swoop in on the market rate units, and then turn around and sell them at a premium to people who actually want to LIVE there.

This also exemplifies how the rich can invest their money to make more money, (and continue to tip the pie chart in their favor) while the rest of us are stuck not only spinning our wheels, but then paying higher housing costs due to the greed of the rich. Really a discussion for another thread except I just find this whole thing to be sick.
There's no "rest of us" in this situation, just rich people and even richer people. What we're seeing here is the 1% making some bucks off of the 0.1%.

Remember that Fallon did all of their sales and marketing for this building in-house. The developer selling to investors who then resell to eventual owners is pretty much the same as a company selling to retailers who eventually sell to customers. The resellers put up their money up front and take on some of the risk, and then are rewarded if the resale price is greater than their original purchase price plus holding costs. This situation could have gone the other way, too, where the market could have soured and the flippers could have lost money.

This shows that Fallon originally underpriced the units relative to today's market. This could have done intentionally in order to move the units quickly and avoid exposure to risk. The developer over at One Dalton is making a point of not selling to investors, only to people who intend to own and live in the units. This could help them to capture more of the value themselves, but it also means the units should sell more slowly and thus the developer will be open to more risk (both upside and downside). There's always a trade-off...

As long as the flippers are actually on the hook for the risks they take and don't get bailed out, there's nothing wrong here; it's just the market at work. Any time a building sells out before it opens (which the developer gets to brag about) there's always a chance that those pre-sold units will be underpriced relative to the the market at opening.
^I disagree with some of what you said, if you are interested in continuing this debate in a relevant thread.
 

West

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JumboBuc, I also agree with a great majority of what you say, from the perspective of how this impacts the housing market.

From a taxation perspective, if I were ever to get on board the idea of taxing some types of capital gains at a much higher tax rate than standard capital gains, this would be one example of where I'd be in favor of it.

The City of Boston created the land value on this site when it filled this part of the Harbor (or was it the Commonwealth?), and the Atlantic might take the land value back one day. The developer added value by going through the development process and building the structure. These short term flippers added no value to the world, they just gambled some money on a purely speculative basis and it worked out. They weren't even doing the sort of "slap on some paint and trim the hedge" flip that befouls so much of TV these days. Their capital gains should be taxed at a much higher rate (not 100%) than capital gains more generally, so as to decrease the incentive to do this. The tax code should incentivize everyone, rich and middle class alike, to deploying capital where it will actually do something. And no, I would NOT provide for some counterbalancing process whereby if their bet goes bad, they get an offset. In fact, I would want the tax code to be rewritten so that they got stung worse (relative to a non-flip capital gain or loss) both ways: if the market went up or down.

It would be hard to write that into the tax code. I would not be in favor of a similar short term hold differential for stocks, for instance, unless it was a really small differential. There's more utility to short term holds on stocks. But a three or four month flip on real estate, in which the flipper cannot show one penny of rehab, is just pure speculation, and should be taxed more than either honest hard work (i.e., income) or the kind of capital gains that came from producing something of value or adding some value to something else.

I'd tax gambling winnings at a higher rate too, but then no state lottery is going to do that, are they? 'nuff said.
 

JumboBuc

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JumboBuc, I also agree with a great majority of what you say, from the perspective of how this impacts the housing market.

From a taxation perspective, if I were ever to get on board the idea of taxing some types of capital gains at a much higher tax rate than standard capital gains, this would be one example of where I'd be in favor of it.

The City of Boston created the land value on this site when it filled this part of the Harbor (or was it the Commonwealth?), and the Atlantic might take the land value back one day. The developer added value by going through the development process and building the structure. These short term flippers added no value to the world, they just gambled some money on a purely speculative basis and it worked out. They weren't even doing the sort of "slap on some paint and trim the hedge" flip that befouls so much of TV these days. Their capital gains should be taxed at a much higher rate (not 100%) than capital gains more generally, so as to decrease the incentive to do this. The tax code should incentivize everyone, rich and middle class alike, to deploying capital where it will actually do something. And no, I would NOT provide for some counterbalancing process whereby if their bet goes bad, they get an offset. In fact, I would want the tax code to be rewritten so that they got stung worse (relative to a non-flip capital gain or loss) both ways: if the market went up or down.

It would be hard to write that into the tax code. I would not be in favor of a similar short term hold differential for stocks, for instance, unless it was a really small differential. There's more utility to short term holds on stocks. But a three or four month flip on real estate, in which the flipper cannot show one penny of rehab, is just pure speculation, and should be taxed more than either honest hard work (i.e., income) or the kind of capital gains that came from producing something of value or adding some value to something else.

I'd tax gambling winnings at a higher rate too, but then no state lottery is going to do that, are they? 'nuff said.
I hear you. Some types of capital gains are more beneficial to society than other types, and this sort of behavior is more towards the "less beneficial" end of the spectrum. It's important to remember that this is short-term capital gains, so it would be taxed at a highest marginal rate of 39.6% on the Federal level. I'd also argue that this behavior is no less beneficial for society than short-term holding of stocks, however, as they both add value equally by "adding liquidity to the market". And when one is talking about short-term holding of stocks the holding periods in question are typically much shorter than multiple months, as is the case here.

Imagine that a developer is running low on cash during development, and is having trouble finishing a condo project because he can't cover the final construction costs. Instead of taking out a construction loan (which may be hard to get and/or come with a relatively high interest rate) he could sell the future rights to a couple units to investors at a price that may be lower than market price at completion. Even if an investor just signs a letter of intent to buy a unit this could give the developer the collateral he needs for a loan. The developer could use this deal to get the capital he needs to finish the project and the investors/speculators could resell the units when they are complete for a profit. This is the value speculation can have. It turns an illiquid asset (a half-complete condo building) into a liquid asset (cash).

A developer may also be fearful that the market will sour before the building is complete, so he sells future rights to units to speculators as a hedge against risk. If the market goes up the speculators win, if it goes down the developer is protected. This also adds value.
 

dwash59

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I hear you. Some types of capital gains are more beneficial to society than other types, and this sort of behavior is more towards the "less beneficial" end of the spectrum. It's important to remember that this is short-term capital gains, so it would be taxed at a highest marginal rate of 39.6% on the Federal level.
You could do a 1031 exchange on this though, right?
 

JumboBuc

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You could do a 1031 exchange on this though, right?
Maybe, but probably not.

In order for a 1031 exchange to be legitimate the seller would need to show that their intention was to hold the property for rental investment or business purposes but circumstances changed and they sold it. You can't do a 1031 exchange on a property that was purchased "primarily for sale", so they don't apply to short-term flips. You also can't do a 1031 exchange on a personal residence.

If you try to do a 1031 exchange on a condo that you held for a couple months you can be sure the IRS will take an extra close look.
 

West

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Imagine that a developer is running low on cash during development, and is having trouble finishing a condo project because he can't cover the final construction costs. Instead of taking out a construction loan (which may be hard to get and/or come with a relatively high interest rate) he could sell the future rights to a couple units to investors at a price that may be lower than market price at completion. Even if an investor just signs a letter of intent to buy a unit this could give the developer the collateral he needs for a loan. The developer could use this deal to get the capital he needs to finish the project and the investors/speculators could resell the units when they are complete for a profit. This is the value speculation can have. It turns an illiquid asset (a half-complete condo building) into a liquid asset (cash).

A developer may also be fearful that the market will sour before the building is complete, so he sells future rights to units to speculators as a hedge against risk. If the market goes up the speculators win, if it goes down the developer is protected. This also adds value.
Fair points, and why I'd want capital gains higher on this sort of thing but not to 100% or (as I didn't specify) not to nearly 100%. But higher than existing.

With stocks it's a way different situation, and I feel on much less firm ground opining. But if it's true that an increasing percentage of stock movements on any given day are driven by computer-driven models trading by the micro-second, then that I argue doesn't add liquidity, it's just allowing existing liquidity to slosh around jacking up bigger gains via computer engineering. Which should be taxed more.

This is where it all gets tricky in real estate, too. Liquidity, as you argue, is critically important; we don't want to discourage that nor do we want to punish risk-taking. But when existing liquidity has piled up to the point that folks have the time and breathing room to just play games and reap gains from adding no value, the tax code should have disincentives built in to steer that liquidity in more useful directions, preferably actually building something.

I believe this is more important in real estate than in stocks. Farting around with speculation in real estate causes more harm than does speculation in stocks, I feel. I am not going to even attempt to support that, don't have the time, other than to note that REAL estate is called that for a reason.
 

AmericanFolkLegend

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If someone put down a deposit and bought their unit prior to the building being completed (or even in the preconstruction phase) of course they got a cheaper price. And of course they're entitled to resell it once the construction risk is gone and someone else is willing to pay more for it.
 

JohnAKeith

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15 Broad Street in FiDi sold for $32.5341 million today. This is on Broad Street next to the entrance to 75 State Street garage. Prior owner purchased in 2007 for ~$18.9 million.
 

JohnAKeith

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Verizon has apparently turned some of its space at 8 Harrison Ave (Chinatown) into commercial condos according to a master deed filed today, plus an entity controlled by Cresset bought one of them for $4.585 million today. Cresset built Liberty Wharf and a lot of other local projects. http://cressetgroup.com/?page_id=2
 

TheRifleman

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Downtown, Greenway, Seaport or Backbay:

Good article concerning Space for Rent in the Backbay in 200 Clarendon having trouble finding a tenant.

http://www.bostonglobe.com/business...ncock-tower/MBDhvugrM4tE9pByYPmOrK/story.html

My point is if your looking for space in Boston:
What is the best location at this point:
#1 Downtown
#2 Greenway
#3 Seaport
#4 Backbay

I think the Backbay is losing it's luster to the Greenway and Seaport these days.
 

tysmith95

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What I took from the article was that the Hancock Tower owners are asking too much for their space and made a mistake trying to market it to tech companies. Rents in the Back Bay have gone up 10% YOY, the Back Bay is not dying.
 

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