Potential Sale of Office-Retail Complex May Signal a Market Turnaround

The Boston Globe

6 January 2009

An office-and-retail complex near Longwood Medical Area will be the first major property in Boston to be offered for sale this year, and brokers predict it will mark the beginning of a turnaround in commercial real estate after two straight years of sharply declining sales.

The owners of One Brigham Circle will begin soliciting bids for the 200,000-square-foot complex within days, an executive handling the marketing said.

Beyond being the first such sale of the new year, One Brigham is also one of only a few major properties put up for sale in recent months. The slow economy has virtually paralyzed the commercial real estate market.

But many specialists expect that to change this year, with investors looking for opportunities to spend the huge sums of money they stockpiled to buy properties following the downturn.

“When good assets are placed on the market right now, they are getting more attention than they’ve ever had,’’ said Robert Griffin, who is handling the sale of One Brigham for Cushman & Wakefield, a real estate services firm. “I’ve been doing this for 30 years, and I’ve never seen anything like it.’’

The pent-up demand is a result of the scarcity of buildings available for sale, which specialists say is causing more investors to bid on the few properties that are on the market.

In 2009, 12 commercial buildings changed hands in Boston, 92 percent fewer than at the height of the market in 2007, when 149 buildings were sold, according to the real estate firm Jones Lang LaSalle.

Real estate specialists had expected the commercial property market to be in a more advanced stage of recovery by now. But with so few transactions to serve as a basis for comparing sales, buyers and sellers cannot agree on property prices; that, in turn, creates more uncertainty and even paralysis.

Another factor is the banking industry. Big institutions, already suffering from huge losses on residential mortgages and other loans, are saddled with nonperforming loans to owners and investors in commercial real estate. But given their precarious condition, the banks have not moved to foreclose on these loans because the resulting write-downs would further weaken their balance sheets.

That has meant fewer distressed properties being brought to market.

Many specialists expect that to change this year as banks and other lenders rebound and are able to foreclose on these loans, take the losses, and put the properties involved up for sale.

In most cases, an increasing number of foreclosures is seen as a bad sign economically, but in commercial real estate it can help fuel a recovery by bringing properties to a market hungry for buying opportunities.

“Those buyers will begin to get assets at very attractive prices,’’ said Scott Jamieson, managing director of capital markets for Jones Lang LaSalle.

Jamieson predicted there will also be more sales of desirable properties, such as One Brigham Circle, although not at reduced prices.

Located in a busy plaza across Huntington Avenue from Brigham and Women’s Hospital, One Brigham was built six years ago and is 98 percent leased. Tenants include Partners HealthCare, Bank of America, and Stop & Shop. Real estate specialists said they expect bids of $90 million or more.

“This sale is going to be watched very closely,’’ Griffin said. “There is an inordinate amount of cash out there right now to buy commercial real estate.’’