Thursday, October 14, 2010

LOCAL NEWS: Boston Properties gets Hancock Tower in $930m deal

The sale of the John Hancock Tower to a Boston-based investment firm yesterday marks a resurgence in demand for trophy office buildings as investors jockey for position in a slowly recovering commercial real estate market.

Boston Properties, which also owns the Prudential Building, bought the signature tower for $930 million, strengthening its hold on the Back Bay office market. The firm beat out several other bidders, including former owner Beacon Capital Partners of Boston, Vornado Realty Trust of New York, and Fortis Properties, also of New York, among others.

“The bidding was as fierce as anything I’ve ever handled during my 30 years in this business,’’ said Robert Griffin of Cushman & Wakefield, who brokered the deal for sellers Normandy Real Estate Partners and Five Mile Capital Partners.

The sale is a jolt to a sluggish commercial real estate sales market. The 62-story Hancock is just the sixth commercial building to change hands in the Boston area this year, down from a high of 54 at the top of the market in 2007, according to Jones Lang LaSalle, a real estate services firm.

“This is one of the biggest deals in the country in 2010,’’ said Michael Smith, a managing director of investment sales for Jones Lang LaSalle. “I’d like to say it shows the sales market is back, but it’s really an aberration. The velocity of transactions is still way down.’’

This is the fourth time the Hancock has changed hands in just the last seven years. It is also a dramatic turnaround for a building that was sold at a foreclosure auction in March 2009. That transaction valued the Hancock at $660 million, and Normandy and Five Mile Capital came in promising to attract new tenants and restore the building to its place atop the office market.

“We had a five-year plan, so we really didn’t know we’d be able to do it in 18 months,’’ said Finn Wentworth, a Normandy founder and principal. The firm earlier this year signed a game-changing lease with investment powerhouse Bain Capital for seven floors of the building. The lease increased the Hancock’s occupancy to 95 percent, putting Normandy in a strong position to unload it.

After the sale was announced yesterday, Boston Properties said it intends to hold on to the Hancock and stop the constant buying and selling of recent years.

“We’re a long-term operator, not a trader of real estate,’’ said Doug Linde, president of the publicly traded firm. “We feel this gives us a significant advantage in leasing space to tenants who want to be occupiers of space in the Back Bay. That’s really what was attractive about [the deal.]’’

Linde said the firm does not have any plans to change the building beyond the ongoing construction of an underground parking garage and renovations to the lobby and cafeteria.

In addition to the Hancock and Prudential, Boston Properties also owns 101 and 111 Huntington Ave., giving it control of the largest and best-known buildings in the neighborhood. The firm has been an active buyer lately; just last week it announced a deal to purchase the Bay Colony Corporate Center in Waltham for $185 million.

In purchasing the Hancock, it paid $289.5 million in cash and assumed $640.5 million in debt. Although the transaction was initially marketed as a partial sale, Boston Properties will own it outright. Normandy will retain management responsibilities during the next few years, as it completes the garage and lobby renovations.

Real estate specialists said the move was a strategic victory for Boston Properties, as it was able to fend off challenges from out-of-town companies who wanted a piece of the Back Bay, where the office market remains strong compared to other districts in Boston and around the country.

The vacancy rate for top-rated office space in the Back Bay has dropped into the single digits, while other parts of the city are struggling with vacancy as high as 35 percent. “This deal puts Boston Properties in a great position,’’ said Griffin.

The demand for trophy buildings like the Hancock is expected to remain strong in coming months, as real estate firms seek safe places to invest their money. “The best bets right now are highly recognizable buildings with quality tenants,’’ said Ryan Severino, an economist with Reis Inc., a New York-based research firm. “There is still a lot of demand for the trophy assets, and the Hancock certainly falls into that category.’’

Casey Ross Boston Globe October 5, 2010

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