Developers slow to slash prices despite stagnant market

Feb 1, 2008

Turmoil in the capital markets has made it difficult for investors to buy large trophy buildings in Greater Boston. Despite the slowdown, property owners have been slow to drop prices.

In the case of the 1 million-square-foot Westford Technology Park East in Westford, developer Arthur Gutierrez Jr. decided not to sell after a handful of offers he received fell short of the $200 million target price. The property came to the market last September -- at about the same time the upheaval in the debt markets was hitting home.

"We ended up pulling it because it was kind of bad timing," said Gutierrez, president of Burlington-based The Gutierrez Co. "That's when the CMBS (commercial-mortgage backed securities) market hiccuped or just took a turn."

Last year, 41 commercial buildings estimated to sell for $2.6 million were taken off the market in Greater Boston, compared with five properties worth about $254,055 in sales in 2006, according to the New York-based real estate research firm Real Capital Analytics Inc.

Gutierrez said he has noticed a market slowdown in the suburbs where he scouts for development deals.

In the spring, Gutierrez said, he would get an offer package advertising a building for sale every other day, but now there's almost "nothing" being marketed for sale.

Steven Duffy, a principal at the family-owned Duffy Properties LLC in Waltham, is another suburban developer who pulled property from the market last November. Duffy said a three-building, 130,000-square-foot property at 76, 78 and 80 Blanchard Road in Burlington was under agreement for about $20 million, but the buyer backed out.

Duffy said the buyer couldn't justify the price based on rent projections and decided not to take the risk. Duffy may not have been willing to lower his price for the Burlington assets, but he expects to find deals when he's on the other side of the table. Until that happens, he's staying on the sidelines.

"I don't think the market has come down enough yet to make it attractive," said Duffy.

Despite the investment sales market being crippled by the lack of cheap debt, there are no "screaming bargains," said Brian Kavoogian, president of the real estate investment firm Charles River Realty Investors LLC, in Newton.

"There's no guarantee that valuations will return to the peak valuations we saw in 2007 and 2006," said Kavoogian.

Industrial investment

While no property type has escaped the effect of the credit crunch, the industrial market may provide a safe haven for investors looking for smaller deals and less risk.

Last year, Quincy-based Condyne LLC bought industrial and office property and development sites valued at $180 million in such places as Norton, Littleton and Bolton through its $25 million Condyne Investment Fund II.

Condyne raises money from wealthy individuals and smaller institutions and also enters into joint venture partnerships to buy both existing industrial property and development sites.

This spring, Condyne will launch the $100 million Condyne Investment Fund III, said Jeffrey O'Neill, president of Condyne. O'Neill said he has already received positive responses from investors who view industrial real estate as a safe alternative.

O'Neill primarily buys industrial properties that make up 80 percent of the portfolio, but he also buys office properties. Last December, he bought the 105,000-square-foot Bolton Office Park that Condyne for $14 million.

"No matter what goes on in the economy, there still has to be an allocation toward real estate," said O'Neill.

Cummings hires Walker

After 12 years at the Boston-based Beal Cos. LLP, Molly Walker took a sojourn to Annapolis, Md., where she worked as a principal at Capital Resource Associates LLC for two years. Walker has returned to the area, taking a job as leasing director at Woburn-based Cummings Properties LLC in Woburn.

Walker, who has nearly 30 years of commercial real estate experience, will focus on marketing and leasing Cumming's properties to life science, biotechnology and office tenants.

She's a member of the Greater Boston Real Estate Board, New England Women in Real Estate, Building Owners and Managers Association, the Massachusetts chapter of the National Association of Industrial and Office Properties and the Commercial Brokers Association.

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