Abbey Group Chairman Bob Epstein's Strategy For Remaking Downtown Boston
Abbey Group chairman and CEO Bob Epstein makes it sound easy to turn flagging properties into hot commodities like Lafayette City Center, which scored the largest lease in Boston last year: 170k SF taken by Cambridge transplant Sonos. (No doubt five decades of experience helps.)
In ‘02, Abbey paid $133M for Lafayette after three other groups had failed to make a go of the 600k SF property—originally smaller and developed as a hotel—with retail. “It’s logical,” Bob tells us. There was a stable, long-term tenant—State Street Corp—paying a predictable (albeit low) rent for back office space. The location, in the heart of the Financial District with Boston’s best mass transit access, meant that when State Street’s leases expired by 2014, Abbey expected rents would be higher and produce a handsome return, he says. Buying a property producing income gave Abbey the luxury to time the market before investing in upgrades.
In 2012, PayPal leased at International Place in the Financial District and a parade of tech companies has followed. In ’13, Abbey decided to chase this new breed of downtown tenants, its broker, JLL EVP Tom O’Regan, tells us. Abbey invested $10M to renovate the lobby to appeal to them. It’s open and airy; and has WiFi and seating clusters for collaborative space. “We addressed the needs of today’s tenants,” Bob says. In the past 12 months, Carbonite (50k SF) and Safari Books Online (30k SF) also gobbled up sizable chunks of space in what is now one of the coolest downtown submarkets.
But in ’02, Downtown Crossing was a dreary place; dark after 5. In the past few years, Abbey’s decision to buy here has been reinforced by a wave of other big investments by top-tier developers. Millennium Partners has been building two big mixed-use projects across the street; National Development and AvalonBay Communities have been developing apartment towers. And Suffolk University and Emerson College have been opening academic facilities and renovating historic theaters that are bringing students and culture mavens into the neighborhood.
Bob; his brother; David Epstein; and his brother-in-law, the late John Svenson also were the fourth development group to try to revive the 1.5M SF Sears Roebuck distribution center in the Fenway. In 1999, they paid $13M for the Art Moderne structure that Sears had shuttered for nine years before selling. They liked the high-grade masonry construction. After a $110M gut renovation they converted it into Landmark Center, office/retail space that kick-started the rebirth of that neighborhood. In 2011, Abbey sold the property to Samuels and JP Morgan for $530M; they're doing a $500M redevelopment of their own. Long before, in the ‘70s, the brothers had developed an eye for languishing properties with turnaround potential. They got their start in real estate buying Back Bay townhouses that had been chopped up into rooming houses. Abbey converted them into condos and sold hundreds.
At Lafayette City Center, they also saw a property with “good bones" and upside potential. It has high, 14-foot to 17-foot ceilings, expansive column spacing of 30 feet by 36 feet and big windows. As the downtown vacancy rate falls, rents are rising but Downtown Crossing is reasonably priced, Tom tells us. Its rents in the high $30s/SF to $40s/SF compare well to Back Bay rents in the $50s/SF and Cambridge hitting the $60s/SF. Downtown Crossing is still a value play. But back in 2002, Abbey Group saw that it—like Fenway in the ‘90s and Back Bay in the ‘70s—was undervalued.