© Copyright 2005 by The Warren Group, 280 Summer Street, Boston, MA 02210

Banker and Tradesman
June 20, 2005

Goldman Sachs Frontrunner in Chase for Boston Wharf Holdings
By Joe Clements,

An attempt to purchase the remaining piece of Boston Wharf Co.'s Fort Point Channel real estate holdings by president Robert N. Kenney and Lehman Bros. has faltered, sources have told Banker & Tradesman. Instead, the assortment of office, industrial and retail space in 17 buildings is being chased by four major players, with Goldman Sachs now expected to snag the portfolio. The winning bid is tabbed at $92 million, according to sources who also reported that a purchase-and-sale agreement is being finalized between Goldman and Boston Wharf's London-based owner, the Peninsular & Oriental Steam Navigation Co.

"They are working hard to get it done," one source claimed of Goldman Sachs, a New York-based firm active in Massachusetts real estate during the past decade. Totaling more than 1 million square feet, the portfolio features both occupied and empty space as well as parking for several hundred vehicles. Other competitors include the Gale Co. and a new partnership of Kenney and Rockpoint Group LLC, while others claimed Lehman had submitted a bid independent of Kenney. As Banker & Tradesman reported in February, P&O initially agreed to sell the portfolio to Kenney and Lehman in an off-market arrangement, with Kevin C. Phelan of Meredith & Grew Oncor tabbed to assemble the financing.

As for why the initial effort failed, one source maintained that the Kenney/Lehman tandem ultimately balked at the original $90 million price tag. Some investors had reportedly been distraught about being unable to compete for the portfolio, a notion underscored by the thoroughbred roster of bidders emerging when the process was opened up by P&O. The Gale Co. is best known locally for developing Boston's One Lincoln St., a 36-story office tower overlooking South Station, while Rockpoint Group LLC is comprised of several former top executives at Westbrook Real Estate Partners. It is unclear whether a broker is acting on behalf of P&O or any of the bidders. Some sources said GVA/Thompson Doyle Hennessey & Stevens is representing Gale, but officials at the real estate services firm and Gale Co. were unavailable for comment. TDH&S has negotiated several prior asset sales by P&O, including the recent disposition of another 700,000 square feet in the Fort Point Channel area to Berkeley Investments for $97 million.

Neither Kenney nor Lehman officials responded to inquiries by press deadline, while Phelan declined comment. Also not responding were officials at the Archon Group in Boston, which is backed by Goldman Sachs. One source maintained that Goldman is pursuing the deal through its Whitehall Fund, an aggressive opportunity vehicle that favors short-term investments. The company would likely find a local operating partner, predicted the source, who anticipates "tons of interest" from Boston's development community to get involved in the deal. Goldman Sachs officials did not return calls to discuss their game plan should the deal be consummated, which even some competitors conceded as the likely outcome. "I'll be shocked if they don't get it," said one, citing a longstanding international relationship between P&O and Goldman Sachs as giving the firm a leg up on other bidders, who reportedly were all close on pricing.

The Boston Wharf portfolio includes eight buildings fronting Summer Street, a residential property at 319A St. and a dusty warehouse recently refurbished into modern office space. Even with such income-producing aspects as that building at 300 A St., the portfolio is seen as a redevelopment play by brokers and others familiar with the structures. Residential uses are considered among the most likely outcomes for much of the space, while a dank garage on Necco Street has been identified as a possible site for new construction. Although the portfolio is in need of infrastructure work, one developer who has studied the opportunity said it could ultimately be worth more than $100 million.

"That whole area is about to explode," said the source. "It's going to be a whole new neighborhood." A residential plan had been quietly crafted by Boston Wharf Co. for a key block in the offering, but one source said a hotel is another option given that site's proximity to the new Boston Convention & Exhibition Center.

Boston Wharf Co. is headquartered in Fort Point Channel area in a building just sold to Beacon Capital Partners. P&O, which has also been involved in such Boston projects as 99 High St., has held property in Fort Point Channel since the 1800s. A series of blockbuster sales completed since 2000 has whittled down the size of the portfolio to the piece now being tendered, promising an end to P&O's legacy in Fort Point Channel when a deal is consummated.

© Copyright 2005 by The Warren Group, 280 Summer Street, Boston, MA 02210

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