Published in Banker and Tradesman
© Copyright 2005 by The Warren Group, 280 Summer Street, Boston, MA 02210New Partnership to Buy Boston Wharf Portfolio
Boston Wharf President Acquiring Company Holdings; Joins With Lehman Bros. to Buy Fort Point BuildingsApril 25, 2005
By Joe Clements, Reporter
After months of negotiations, it appears Boston Wharf Co. President Robert N. Kenney has found a partner to help acquire the final piece of his firm’s once-dominant real estate holdings in the Hub’s Fort Point Channel district. According to industry sources, Lehman Bros. has agreed to team up with Kenney to purchase more than a dozen former warehouses and industrial buildings that are expected to be converted into a mix of modern uses such as office, retail and residential space.
Calls to Kenney and Lehman officials were not returned by Banker & Tradesman’s press deadline last week, but sources insisted that a deal is in the works, with Lehman reportedly already performing due diligence on the structures. “I know that it’s happening,” one source told Banker & Tradesman, while another whose company considered buying into the deal concurred that Lehman Bros. has been selected by Kenney. The sale could be finalized in a matter of weeks, that source claimed.
It is unclear what the partnership will pay for the assets, but one source estimated the transaction will easily exceed $50 million and could be substantially above that mark. Boston Wharf, which has had a presence in Fort Point Channel for more than 150 years, has already reaped substantial profits since beginning to sell off its portfolio five years ago, most recently trading a block of buildings and parking garages to Berkeley Investments for $97 million and disposing of its headquarters at 253 Summer St. and an adjacent structure to Beacon Capital Partners for $34 million.
Owned by a British-based company, Peninsular & Orient Steam Navigation Co., Boston Wharf Co. had undertaken its own development program in recent years, restoring many of its older properties into office space and developing several buildings, including 22 Boston Wharf Road, which was sold as part of the Berkeley deal. Some sources told Banker & Tradesman in a February article announcing Kenney’s search for a capital partner that he would be given an inside track for the final holdings partly as a reward for decades of service to the firm and for helping improve the value of the Boston holdings. Others insist, however, that P&O will not sell at a deep discount to market value.
Regardless of any inside edge, Kenney’s involvement in a Boston Wharf deal is seen by some as worthwhile given his history running the portfolio.
“Who knows those buildings better than Bob Kenney?” said one source.
The source whose firm had considered becoming a partner in the deal concurred, saying the changing nature of Fort Point Channel and the larger Seaport District is another reason for pursuing the portfolio. “I think it’s a great opportunity,” said the source. Last year’s opening of the Boston Convention & Exhibition Center just steps away from the Boston Wharf properties would make a hotel use possible for some of the buildings, said the source, but the improving economy and a trend toward urban living also makes office space and residential units possible options as well. “There’s a lot of flexibility with what you can do there,” said the source.
Seaport See-Saw Boston Wharf reportedly has 17 properties remaining in Fort Point Channel, including 263, 269 and 297 Summer St., a parking garage on Necco Street and an adjacent warehouse that was recently converted into 110,000 square feet of upscale office space. Among the tenants that have recently agreed to move to the latter property at 300 A St. is Elkus Manfredi Architects, which recently announced that it will take 40,000 square feet there after being pushed out of its longtime home at nearby Russia Wharf. “That’s a really nice building,” one source said of 300 A St., which is being marketed for lease by GVA Thompson Doyle Hennessey & Stevens. Another refurbished building in the portfolio is 321 Summer St., which is already offering upscale office space. Other space is “uninhabitable,” said one source, and will require capital investment to make it commercially viable.
Primarily a gritty industrial area until Boston’s office market began expanding outward in the 1980s, Fort Point Channel consists largely of hulking warehouse buildings once used to support the working port. The office trend has occurred in fits and starts since that time, with the district occasionally seeing tight conditions but suffering during difficult economic periods when tenants head for more central areas such as the city’s Financial District.
In its latest office market survey, Spaulding & Slye Colliers placed the vacancy rate for the Seaport District at 20.9 percent, the highest level in the city following negative absorption of 138,000 square feet in the first quarter of 2005. The average asking rate in the district is $26.07 per square foot, according to Spaulding & Slye, which is actually higher than all other fringe submarkets in Boston except the Back Bay.
Kenney reportedly has retained Meredith & Grew Oncor to help put the partnership with Lehman Bros. together. Meredith & Grew principal Kevin C. Phelan, said to be overseeing the effort, was unavailable for comment last week. Meredith & Grew previously has assisted Boston Wharf in other sales of its portfolio, including the just-completed deal with Beacon Capital Partners. The sell-off of Boston Wharf’s legacy began in earnest in 2000 when Beacon purchased a group of buildings on A Street that is now being renovated into office and residential uses. Two other mega-deals were completed last year, among them Berkeley’s blockbuster transaction. An Indiana firm had previously bought 10 properties off Congress Street for $92 million.
Joe Clements may be reached at jclements@thewarrengroup.com.
© Copyright 2005 by The Warren Group, 280 Summer Street, Boston, MA 02210
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