KS Partners Spends $16.9 Million on Two Deals; Fairlane Sells 78,000-SF Newton Asset

NEWTON—KS Partners has completed a pair of real estate purchases here and in neighboring Watertown, paying an aggregate $16.9 million for the properties, $11.3 million on the Chapel Business Center outside Newton Corner that is barely two miles west of the Watertown buy involving two buildings and a prized parking lot. Both deals were listed for separate owners through the same Capital Markets team led by Brian R. Doherty and David J. Pergola which is now at CBRE/New England, while the investments share a $13.5 million loan from Cambridge Savings Bank.

Having paid $6.9 million in July 2007 for Chapel Business Center, Fairlane Properties was able to boost occupancy by 30 percent at the former textile mill converted into modern office product and made other enhancements before opting to harvest the asset this spring, a decision previously detailed by Real Reporter and an outcome praised by Fairlane founder and President Michael Grill. “Brian and Dave did a great job telling the marketplace about the unique mill complex at Chapel Business Center, its group of innovative tenants and our coworking space, Charles River Coworking,” Grill tells Real Reporter in celebrating a successful conclusion to his firm’s endeavor and relaying that KS Partners will continue the co-working operation considered Newton’s largest at over 60 members. [Fairlane Properties operates another coworking space with over 40 members in its Cambridge headquarters building at 1035 Cambridge St.]

A partner at CBRE/NE, Doherty was named exclusive agent of Chapel Business Center with fellow partner Pergola when they were at DTZ, which is now Cushman & Wakefield after this summer’s merger. They were joined by CBRE/NE Vice President Bruce Lusa and Financial Analyst Jenna J. Skaar on the assignments. Real Reporter unveiled KS Partners’ agreement to buy the building in its Oct. 8th issue that simultaneously identified the same group led by Kambiz Shahbazi as winning bidder on the Watertown listing. Doherty and Pergola also just wrapped up a separate Watertown trade in Davis Cos. paying $23.3 million for 101 Walnut St. A stone’s throw from the KS Partners Watertown assemblage, that building which dates to 1930 is fully leased to engineering and transportation company VHB Inc.

In passing the Newton torch to KS Partners, Grill leaves behind another reminder of his company’s eight seasons on Chapel Street, having played a pioneering role helping create the “Charles River Mill District.” Fairlane worked with the Newton-Needham Chamber of Commerce, plus Newton, Waltham and Watertown municipal leaders and fellow building owners along the eponymic waterway to identify and promote it as an innovation cluster 2.6 million sf strong. The initiative aims to inspire new age companies to join the march of talent into a corridor between Watertown Square and downtown Waltham which has seen hundreds of millions of dollars from public and private sources invested this decade, including vast sums from nationally known real estate groups.

Doherty credits his Newton client for making Chapel Business Center a popular investment prospect that drew a broad stripe of suitors. “Michael did an excellent job with the building,” Doherty says of a property that had reached 91 percent occupancy when put on the market, with the coworking concept having proven a wise move by Fairlane in not only generating a stream of income but also in welcoming promising startup companies including a number who have grown into more traditional space in the property. “It was a very creative idea and a pioneering concept nobody else was doing around here when he came up with it,” Doherty says. “Michael understood where things were going and he was able to capitalize on that vision.”

Shahbazi has a similar flair for repositioning assets, Doherty observes in predicting KS Partners will bring Chapel Business Center “to the next level” filling the unfilled portion which did rise by 4,900 sf recently when a tenant went out of business. Considering rents in the complex are still below par thanks to healthier fundamentals across the inner suburbs, Doherty says the added inventory could generate a higher return. “I do think there is room to run with the rents in the property,” he says. “Conditions continue to get stronger there every day.” Doherty and Pergola have listed several assets of note in the past two years, including another converted mill complex in Watertown two miles west of Chapel Business Center that Spear Street Capital paid $43 million to secure in early 2014.

Shahbazi owns other Newton real estate, office buildings on Needham Street, but he says that is a far different climate than the one found around Chapel Street thanks to numerous buildings in the latter neighborhood that offer a brick-and-beam format favored by a constituency of promising companies. “That is what I am looking for right now,” Shahbazi explains to Real Reporter, especially targeting inner suburban real estate with the mindset skyrocketing rents in Boston and Cambridge will continue driving tenants elsewhere in search of more affordable venues. The Newton and Watertown communities are “quasi-urban” settings where investors can still make a reasonable purchase and yield upside, he observes, a prospect difficult to find in the downtown markets which have seen pricing for buildings move in lock step with record rental rates now being achieved, including an $80 average asking figure in Cambridge’s Kendall Square, Cresa Boston research conveys.

“What is going on in Cambridge right now is crazy,” says Shahbazi, but a positive for his platform Whereas Chapel Street is a short trip to Watertown Square, the buildings on School Street and Dexter Avenue are even closer, and have bus routes connecting directly to Boston and Harvard Square. It is also mere blocks from Arsenal on the Charles, a former armaments factory developed in the 1990s into a mixed-use complex that was bought in 2013 for $168 million by medical software giant athenahealth, a tenant growing its operations in the community, and that commitment has become a catalyst for changing the entire Arsenal Street corridor that connects to Brighton.

“We are in the heart of everything that is happening there,” says Shahbazi of 85 School St. and 165 Dexter Ave., with plans to ultimately upgrade both structures to office space, the currently vacant Dexter Avenue building first on the list thanks to being vacant after the owners, a Jesuit order, moved to a new campus. The other asset is an 11,300-sf flex building leased to a manufacturer of banners and flags, that property providing a measure of income for now but one that could follow in the footsteps of 85 School St. in being converted some day to an office function. For now, however, the aim is to reposition the vacant building. “It’s a great opportunity to develop some very cool space that we think a lot of companies will find attractive and affordable,” Shahbazi says of a 32,000-sf building constructed in 1948, one year after its companion came on line.

Davis Cos. CEO Jonathan Davis spoke to Real Reporter regarding his reasons for outbidding numerous competitors on 101 Walnut St., part of it due to an in-place lease with five years remaining by a credit tenant. As with Shahbazi, however, Davis stresses the upside leading to its $23.3 million purchase is in the Arsenal being so promising down the road with a plethora of new construction underway that will add new life sciences and office buildings plus ancillary uses including hotels, multifamily and retail. The sellers, a partnership of Ashworth Capital and Paradigm Properties, had held the 95,800-sf building for almost exactly 10 years, paying $19.2 million in Nov. 2005 for the building that is located on 4.2 acres along a busy roadway that connects Arsenal and Mount Auburn Streets.

“What we see happening there is very dramatic,” says Davis. “Watertown in general and the Arsenal Street area in particular have been an underappreciated sweet spot for a very long time that is going to only get better in the next five to 10 years . . . It really feels like this wave of activity is here to stay; this is not a temporary trend.”

Real Reporter first announced Davis Cos. had both 101 Walnut St. and two Waltham buildings under agreement in August, the latter purchase a separate pact negotiated by HFF involving 303,000 sf at 1025 and 1075 Main St. which were acquired from Gramercy Capital for $52.5 million. Davis calculates the former Baybanks headquarters now occupied by Bank of America was purchased for half its replacement cost and has badly needed space available in one of suburban Boston’s top business addresses while being close to the city center that has an expanding menu of LWP elements plus a commuter rail connecting to Boston. “We’ve got a quality property with good cash flow and 80,000 square feet to lease in a strong market, so we are very excited by this purchase,” says Davis, who found an enthusiastic lender in Brookline Bank to deliver $40.5 million in financing.

The Cambridge Savings Bank loan KS Partners obtained does cover both assets, and will have funds that can be applied to reposition 85 School St., a strategy already in the works, Shahbazi relays. “They are very easy to work with, very flexible and they understand the market really well,” he says of CSB, a regional institution active in the CRE sector. Loan officers Michael Lindgren and Kevin Teller led the assignment assisting KS Partners.

Compared to other recent KS Partners acquisitions such as last year’s $59.5 million purchase of Brickstone Square in Andover, the Watertown deal is not particularly hefty, but Shahbazi expresses optimism it could prove to be among the most valuable, and if nothing else, paves the way for similar opportunities throughout the inner suburbs with a now-acquired taste for the western flank. “We are happy we were able to get a foothold in those markets,” he says. “We would definitely like to buy more of the brick-and-beam (product), and this is a good beginning for us.”