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Boston Business Journal
August 1-7, 2003

By Bill Archambeault

A New York City investment fund has purchased the three-building portfolio of 15 Broad Street, 33 Broad Street and 112 Water Street for $24 million, representing a strong sales environment for middle-market properties.

Boston-based Fairlane Properties Inc. sold the three low-rise downtown buildings, which total 134,000 square feet to Ceres Realty Fund LLC, which is managed by BlakelyStern Investment Advisors LLC of New York City.

BlakelyStern’s Ceres Fund doesn’t own any other properties in the Boston area, but plans on investing about $100 million in retail, warehouse and office properties in the next two years.

Middle-market properties that fetch between $5 million and $30 million have been in high demand, said Dick Reynolds, a principal at Boston-based Spaulding and Slye LLC, which brokered the sale.

While the sale of trophy assets like the John Hancock Tower command headlines, the industry’s “bread and butter” properties are also drawing significant interest, Reynolds said, because interest rates remain low, capital sources are hungry to invest and there are few assets available.

Spaulding and Slye has sold seven middle-market buildings in downtown Boston this year, and the firm is marketing three more properties in the 60,000-square-foot to 150,000-square-foot range.

This wasn’t just a flurry and it’s over. We’ve got others coming through,” Reynolds said. “This sort of building has become a very attractive investment opportunity.”

Spaulding and Slye has so far handled $111 million worth of deals in the middle-market range out of roughly $350 million in sales of all property types in the Greater Boston market.

“We’re seeing it as a stronger year for that marketplace,” he said. “We’ve got capital still looking at real estate as the place to be, capital that wants to be in Boston, and this is the vehicle. People can get into those without having to buy a tower.”

Meredith & Grew Inc., a Boston-based real estate firm, is marketing the sale of 199 State St., which will overlook the new Rose Kennedy Greenway once the expressway is demolished.

The property, which has elicited nearly 100 offering memorandums, could continue to be used as an office building or be converted into residential condominiums, said Lisa Campoli, co-head of Meredith & Grew’s capital markets group.

While she doesn’t think 2003 will end with a higher trading volume than previous years, she expects there will be a “decent” number of middle-market transactions despite the weak office-leasing environment.

“There is a lot of activity right now,” Campoli said. “It’s a good time to sell a small downtown building. I think it’s going to end on a strong note.

The three buildings in the Fairlane Portfolio were built in the late 1800s and early 1900s, but have had a total of $5 million in renovations done recently. They are 91 percent leased.

On top of that, the buildings’ tenants have been long-term, reliable occupants, with several of them renewing their leases as the sale was being negotiated, said Cappy Daume, a senior vice president at Spaulding and Slye who handled the sale along with Scott Jamieson.

“There were tenants who had been in the buildings for more than one cycle,” she said. “They have a proven attachment to the real estate and the location.”

Michael Grill, president of Fairlane Properties, said investors’ demand for real estate prompted Fairlane to sell sooner than expected.

“We did have a longer-term hold planned, but you have to adjust to market situations,” he said.
With the sale, the only other property in Boston that Fairlane owns is 98 N. Washington St., that the company is looking for opportunities to buy.

David Godbout, managing partner at Blakely Stern, said a combination of the location and a solid tenant base fit the fund’s short- and long-term investment requirements.

“These assets represented the perfect balance,” Godbout said, with their price well below replacement cost, a steady rent yield going in and significant potential over a mid- to long-term hold.

BlakelyStern has retained Fairlane as the asset manager and Boston-based Lincoln Property Co. as the property manager and leasing agent. Asking rates in the three buildings range from $24 to $28 a square foot.

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