Another downtown office building is being sold at a significant loss

Another downtown office building is being sold at a significant loss

Boston-based City Realty Group said last week it has acquired a nine-story office building in the Leather District for $11 million, just over half of what it last sold for in 2015.

The 73,000-square-foot building is located at 186 Lincoln Street, just south of South Station. It is approximately half leased, with tenants including CozyKin, SmartSense by Digi, Full Contact Advertising and Mightier.

“Our goal is to always be the best choice for renters looking for space in our neighborhoods,” Steve Whalen, managing partner of City Realty, said in a statement. “By being flexible and responsive to our tenants’ needs, we seek to form long-term, mutually beneficial partnerships.”

The sale is another example of a Class B office space in a city center being sold for a significant discount to the previous purchase price. Office valuations citywide are down about 20 to 30 percent, according to recent research by brokerage Newmark. Smaller, older office buildings have generally seen steeper declines in occupancy since the start of the COVID-19 pandemic than newer towers.

“Tough market fundamentals and a high interest rate environment are dragging down office valuations,” Newmark’s latest research report said.

At 186 Lincoln, City Realty plans about $1 million in upgrades, including bike repair and storage facilities, a fitness room with lockers and bathrooms, and tenant common space. One change the company isn’t considering: converting the property into housing.

“It’s too deep. The dimensions don’t lend themselves to conversion,” said Cliff Kensington, director of acquisitions at City Realty. “The current layouts won’t work well.”

The City of Boston has a short-term office-to-residential transition pilot program open to applicants. Gov. Maura Healey’s administration is also considering supporting conversions through the $4.12 billion housing bond bill, while the federal Department of Transportation and the Department of Housing and Urban Development plan to free up resources for conversions.

Real estate firm Brickman last purchased 186 Lincoln Street in 2015 for $20.7 million. Kensington said the building was fully occupied at the time, although he could not recall a specific occupancy rate. But throughout the COVID-19 pandemic, many leases have expired, leaving the property’s lower four floors empty.

In recent years, when Brickman was looking to sell the property, the company asked “at least” $20 million, then $18 million, Kensington said, reflecting a disconnect between what owners thought the properties were worth and their value. Brickman’s representatives could not be reached for comment.

“The value of these properties is driven by the cash flow that is there, or you can expect it to be there after any vacancies are filled,” Kensington said.

The property’s rental space is approximately 30,000 square feet, and available office space starts at around 1,500 square feet.

Newmark brokered the sale of 186 Lincolns, and the Mechanics Cooperative Bank financed the deal. The building “offers a combination of real income and value-add opportunity,” Newmark’s Samantha Hallowell said in a statement.

Catherine Carlock can be reached at follow her @bycathcarlock.

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