Oct. 4 (Bloomberg) -- Boston Properties Inc. agreed to buy Boston’s John Hancock Tower, New England’s tallest building, for $930 million as the office landlord seeks to expand in the city.
The company will pay $289.5 million in cash for the 62-story tower and assume about $640.5 million in debt, according to a statement from the real estate investment trust. Boston Properties already owns the Prudential Center in the city’s Back Bay area, where it has its corporate headquarters.
“We’ll have a dominant position in the Back Bay, which is we think the best long-term value in terms of a location,” Chairman and Chief Executive Officer Mortimer Zuckerman said in a phone interview. “And this is one of the iconic buildings of Boston, one of the very few. So it’s right in our sweet spot, because that’s the kind of building we like to build or buy.”
The deal adds another trophy to a collection that already includes, besides the Prudential Center, New York’s General Motors Building and 601 Lexington Ave., the slant-topped skyscraper known until last year as Citigroup Center. Zuckerman told analysts on a conference call in July that the company is focused on finding buying opportunities.
Last month, Boston Properties closed on the $275 million acquisition of 510 Madison Ave., a newly built 350,000-square-foot (32,516-square-meter) Manhattan tower, from an affiliate of developer Harry Macklowe, who had to sell properties after taking on too much debt.
Normandy, Five Mile
The seller of Hancock Tower is a joint venture between affiliates of Normandy Real Estate Partners and Five Mile Capital Partners. The purchase, which also includes an eight-level parking garage, probably will be completed by the end of the year, Boston Properties said.
The I.M. Pei-designed glass tower, completed in 1976, is “the iconic building of the Boston skyline,” said Dave Geltner, professor of real estate finance at Massachusetts Institute of Technology in Cambridge, Massachusetts. “It catches the setting sun in a certain way. It’s a sculpture as much as it is a building.”
The Hancock Tower was one of the most prominent properties to get caught up in the decline in real estate values following the 2008 credit crash. Normandy and Five Mile bought the 790-foot building at auction in March 2009 for $661 million, about half what Broadway Partners paid for it in 2006. The Copley Square skyscraper was the crown jewel of a 10-building portfolio Broadway had acquired from Beacon Capital Partners LLC in 2006.
Significant to City
“Normandy and Five Mile always recognized the significance of the John Hancock Tower to the city of Boston,” the companies said in a statement today. “We focused on restoring this unique property to its first-place role in this great city. We’re pleased to have arrived at a place where that responsibility can be passed with confidence to a new owner.”
The deal is an example of how pricing has rebounded for a select group of high-quality assets in the most attractive investment markets, such as New York and Washington, as well as Boston, Geltner said. As of July, commercial real estate prices nationwide were 43 percent below their 2007 peak, Moody’s Investors Service said last month.
“The acquisition growth story for REITs is starting to materialize as maturing debt for overleveraged assets, capital availability and price discovery are all prompting transactions,” Sheila McGrath, an analyst with Keefe, Bruyette & Woods Inc. in New York, wrote in a research note today. She has a “market perform” rating on Boston Properties.
13 to 14 Bidders
About 13 to 14 groups bid for the building, said Rob Griffin and Ed Maher, Cushman & Wakefield Inc. brokers who represented the sellers.
Boston Properties agreed last week to buy Bay Colony Corporate Center, an office park in the Boston suburb of Waltham, Massachusetts, for about $185 million. McGrath said both deals are examples of “an opportunity that arose from an overleveraged situation.”
“We have to take advantage of these opportunities,” said Zuckerman, whose company had cash or equivalents of $1.7 billion at June 30. “These kinds of buildings aren’t always available. You just have to be available to move when they are.”
The Hancock Tower fits in with his company’s “long-term view of the world,” in which it holds properties of the highest quality in the center of the most expensive markets, he said. Renters gravitate to those properties during tough times, according to Zuckerman.
“You look around the world of REITs and you find another strategy that has worked better than that, and I’ll adopt it,” he said.
At midyear, Boston’s central business district had one of the lowest “Class A” office vacancy rates in the U.S. at 11.8 percent, Cushman & Wakefield reported. The Back Bay neighborhood had an overall vacancy rate of 9.4 percent.
Boston Properties fell 7 cents to $83.57 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 25 percent this year.
Zuckerman’s REIT already owns 48 properties in its home market, including buildings in Boston’s suburbs, according to its website. As of June 30, it had 9.4 million square feet of properties in the Boston area.
The Hancock Tower has about 1.7 million square feet of rentable office space. The building’s offices are about 80 percent occupied, according to data from CoStar Group Inc., a Bethesda, Maryland-based real estate information service. That should rise to about 92 percent when Bain Capital LLC moves in, CoStar reported. The private-equity firm agreed in May to take 208,000 square feet in the tower.
“The Bain lease was the coup,” said Cushman’s Maher. “It completely changed the perception of the building around from last year, when it was a poster child for foreclosure.”
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