Friday, December 10, 2004

Boston Business Journal - by Michelle Hillman Journal Staff

Buildings along the Fort Point Channel and in South Boston are finding buyers as fast as for-sale signs can be posted.

But just as fast, buyers are walking away -- nervous about the high vacancies and physical conditions of the aged waterfront properties.

While Boston Wharf Co. is in the midst of closing a $100 million, 1 million-square-foot sale of 12 pieces of property along Congress Street with buyer Berkeley Investments, it continues to wrangle with buyers over other parts of its portfolio.

At the same time, four office buildings owned by Boston Wharf on Summer and Melcher streets fell through just last week. Boston-based Taurus Investment Holdings had 253 Summer St. and 19-37 Melcher St. under agreement until a week ago, when it walked away from the deal, unable to reach an agreement on price.

The Taurus-Boston Wharf deal had been priced at roughly $200 per square foot, or approximately $35 million, according to real estate sources. The four buildings total 173,000 square feet and have been up for sale since the summer.

The Summer and Melcher Street buildings are nearly fully leased to tenants including the landlord, Neighborhood Health Plan and DST Belvedere Financial Systems Inc.

New Boston Fund's Jerome Rappaport Jr. confirmed he had bid on the 253 Summer St. and Melcher Street properties several weeks ago, but couldn't be reached for comment on whether he would bid again now that Taurus was out of the deal.

The Fort Point Channel and the nearby South Boston waterfront have been game for local real estate investors willing to take risks. And despite walking away from the Boston Wharf deal, Taurus remains interested in that area.

"We're interested in that submarket," said Peter Merrigan, president and chief executive officer of Taurus. "The area does have its challenges." He said the area is an emerging one in the eyes of office tenants and comprises older buildings.

With so many buyers circling the neighborhood, Beacon Capital Partners Inc. decided to put its 50,000-square-foot empty office building at 154 West Second Ave. on the sale block. The building is near Gillette Co.'s headquarters building, not far from Andrew Square.

Beacon has hired Spaulding & Slye Colliers to market the property.

The 51 Sleeper St. property is again under agreement, with sources indicating The Mayo Group will pay $19 million for the mortgage.

Taran Grigsby, general counsel at Roxbury-based Mayo Group, said the 51 Sleeper St. deal was "nothing I can comment on," but said the real estate investment company is looking to acquire between nine and 12 buildings in downtown Boston.

"There are a lot of things moving over there," said Grigsby, referring to the waterfront.

The Mayo Group currently owns 1.2 million square feet of office property in Boston, including 211 Congress St. and 121 Portland St. It also recently closed on a $14.2 million, four-building portfolio in Worcester.

Merrigan said he has looked at properties for sale on the waterfront, including 51 Sleeper St. and the 154 W. Second St., but does not have any properties under agreement. The submarket is considered to be a higher risk for investors looking for assets to redevelop or lease up in a slow and unproven market.

Earlier this summer, Boston Wharf sold a block of 10 buildings totaling 386,000 square feet to HDG Mansur Capital Group LLC for $92 million. The properties were part of a deal that fell through with Tishman Speyer Properties LP for the entire 44-building, 2.8 million-square-foot portfolio.

The nature of the waterfront area and old buildings will continue to present challenges for buyers and developers alike, said Bill Collins of Spaulding & Slye.

"There's a lot of old buildings, so there's going to be a lot of issues to contend with," said Collins. "I think a lot of people are trying to figure it out."

Despite such challenges, Berkeley Investments says it expects to overcome the obstacles to its million-square-foot purchase. The Boston real estate firm is in the midst of figuring out a master plan for the site, which could include conversion of one or two of the buildings, according to real estate sources.

"It will close mid-December," said Young Park, president of Berkeley. "It's on track."

MICHELLE HILLMAN can be reached at mhillman@bizjournals.com.

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