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The following article appeared in The Boston Globe on 11/7/03
© Copyright 2003 Globe Newspaper Company.

Boston Wharf deal in peril
Concerns over buildings' space, structure threaten $400m sale

By Thomas C. Palmer Jr., Globe Staff, 11/5/2003

One of the largest Boston real estate deals in decades is in trouble, as New York-based Tishman Speyer Properties is balking at buying 44 Boston Wharf Co. buildings in the Fort Point Channel area for an estimated $400 million.

Tishman Speyer, owner of the Chrysler Building and Rockefeller Center in New York, tentatively said in July it would buy all of Boston Wharf's industrial-style brick buildings on the edge of the South Boston Waterfront, the city's new development frontier.

But after inspecting the huge real estate portfolio, Tishman said it realized there may be less usable square footage in the buildings; it is worried about liabilities if underground water problems recur; and it cannot add floors for structural reasons to some of the aging buildings.

So it all comes down to the price -- and whether a lower one can be agreed upon.

"Tishman has to make a realistic assessment of the all-in cost of this project relative to the value they're trying to create," said George J. Fantini Jr., the chairman of Fantini & Gorga/iCap Realty Advisors, who is not involved in the ongoing talks. "If it costs you a $1 and you create a value of $1.05, that's not enough. That's what these deals boil down to."

The parties hoped to complete the sale this fall. But meetings in London -- home of Boston Wharf's parent company -- and in Boston, New York, and Houston, where Tishman Speyer's US headquarters are located, have not lead to a sale.

"People call regularly wanting to buy it," said John K. Dineen, senior counsel at Nutter McClennen & Fish, Boston Wharf's law firm. "Whoever is going to show interest and move on to the next step has to spend some time looking at it. It's a complicated piece of real estate."

Thomas N. O'Brien, senior director and the regional director for Tishman's Boston office, and former Boston Redevelopment Authority director, is interviewing two real estate services firms, hoping a third party with a more objective view of the property and its value will be the key to success. O'Brien, through a colleague, declined to comment, as did Robert N. Kenney, the chief executive at Boston Wharf.

Although many sales are negotiated directly, buyer to seller, more complex properties are frequently handled by a brokerage firm, which does extensive research before an agreement is reached.

"A transaction like this is a very difficult one to judge on the first look," said David I. Begelfer, chief executive of the National Association of Industrial and Office Properties' Massachusetts chapter.

"It's very possible that there can be some surprises when you do look into real estate of this type that you may not have been prepared for," he said. "There's so much unknown."

The Boston Wharf buildings, some of which are as old as 160 years, were built on filled land and wooden piles. In the past, water tables have dropped, exposing the pilings to possible rot. One person involved in the negotiations said Boston Wharf had solved the water issue and the sticking point in the negotiations was whether there could be future liabilities.

The properties for sale include most of the buildings in an area from the Fort Point Channel east to West Service Road, and from Seaport Boulevard south, along Congress and Summer streets, to the Gillette Co. complex on A Street.

One person close to the negotiations said it is unlikely Boston Wharf would put the buildings on the market if this sale falls through. Instead, Boston Wharf could wait for the economy to improve and property values to increase before talking with another possible buyer.

Tishman Speyer hired Alex Krieger of Chan Krieger & Associates of Cambridge, an architectural and planning firm, to develop a master redevelopment plan of the property. City Hall officials have called for residences, commercial, and office space in the area, which is quickly being gentrified.

In 2000, Beacon Capital Partners bought two rows of buildings on A Street it is developing into Channel Center, a $400 million mixed-use project. Gillette purchased 10 acres of Boston Wharf land near its headquarters.

Boston Wharf has owned and managed property in Boston since it began filling in tidelands in 1836. It has about 2.3 million square feet of space over 15 acres in mostly four- to 10-story buildings in the Fort Point Channel area.

Tishman Speyer has developed 52 million square feet of property worldwide and its real estate portfolio is worth about $10 billion. The company has owned 125 High St. in Boston, a 1.5 million-square-foot, three-building office complex, since 1997.

Bill McCall, the president of the real estate advisers firm McCall & Almy, said uncertainties abound in a transaction that is so large. "It's like the dog catching the car -- what are they going to do with the space when they get it?" McCall said.

McCall said Boston Wharf did a good job in steering Thomson Financial into about 300,000 square feet in its buildings. But the market may not be right for awhile for Tishman Speyer to redevelop other buildings for either office or residential use.

"I try to look at what's going to happen tomorrow, and I mean tomorrow," McCall said. "You could call them visionaries, looking at what the next 20 years are going to be. In the short term, I don't think you can do much at all."

Thomas C. Palmer Jr. can be reached at tpalmer@globe.com.
© Copyright 2003 Globe Newspaper Company.

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