New Boston: Beyond Office Market

June 27, 2006
By KENNETH R. GOSSELIN, Courant Staff Writer

For years, New Boston Fund Inc. set its sights in Connecticut solely on Greater Hartford's office market, snapping up coveted buildings in downtown Hartford and the surrounding suburbs in hopes of updating them.

But rising prices and more buyer competition for prime office space in the area now has the real estate investment and development fund looking to sink money into properties that need more than a little TLC.

Late last year, the fund acquired the aging Wiremold factory in Rocky Hill. Two months ago, it signed a letter of intent to invest in the conversion of the century-old Capewell Horse Nail Co. factory building in Hartford to condominiums. And it has an appetite for more.

William H. Fenn, a senior New Boston executive in Hartford, said the move is part of a new strategy by the Boston-based fund to invest in a broader array of commercial properties - and even some residential developments - rather than just targeting the office properties for which the fund is most widely known.

The fund is pursuing that strategy not only in Connecticut, but also in all of the markets where it has investments, including throughout the Northeast, the Midwest and the South.

"We're not saying office is not a good market," Fenn said. "It is. But as a company, we realize that diversifying is a good thing."

Investor confidence in the Greater Hartford office market remains keen despite the threat of corporate downsizings and sluggish job growth. In 2005, the area saw the largest number of sales of high-end office properties in 15 years, far surpassing forecasts.

Although the office market has heated up, it is nowhere near the dizzying heights of the late 1980s. Experts say that's a good thing because commercial real estate prices back then got pushed up too high, too fast.

But now, the problem for New Boston is that there are too many investors chasing too few buildings. Prices remain much lower than in Boston or New York, making the Hartford area attractive. But Fenn says they are not the bargain they were in the mid-1990s when New Boston arrived.

Certainly, New Boston has made money in Greater Hartford for itself and for its investors - wealthy individuals and institutions, such as pension funds, insurance companies and foundations.

In 1996, New Boston bought its first office property - 200 Great Pond in Windsor - for $8.2 million, or $58 a square foot. It sold the 142,000-square-foot building in 2002 for $12.35 million, or $87 a square foot, after signing The Hartford Financial Services Group as a tenant when another company moved out in the middle of its lease.

And even with the fund's other sales, including the Prudential Financial Building in downtown Hartford in 2004, New Boston remains a key player in the area's office market. Of the 2.8 million square feet it owns in Connecticut, 2.6 million is in Greater Hartford, with 2.3 million - or 87 percent - in offices.

Still, New Boston's holdings in Connecticut are clearly shifting. Two years ago, the fund's holdings in Connecticut were 95 percent offices. Today, that has dropped to 75 percent. And in the next few years, offices are expected to account for about 55 percent of the fund's portfolio in the state.

Jonathan K. Putnam, a broker at the commercial real estate firm Cushman & Wakefield of Connecticut in Hartford, said the shift is natural for a firm that wants to keep expanding after a decade of rapid growth.

"They have to find ways to keep the growth going," Putnam said.

Last year, New Boston made its first buy in the Connecticut residential market, acquiring the 226-unit Windshire Terrace Apartments in Middletown for $26.25 million, or $111 a square foot.

Dale Reese, a senior New Boston executive in Hartford, said the fund is looking for other residential properties to buy or develop in Connecticut. In addition, the fund is strongly focused on investing in properties in urban areas that need rehabilitation.

New Boston draws its capital from funds that have different investing goals. A New Boston fund that is focused on rehab has mostly institutional investors, such as state and city pension funds, that want to see the money go back into urban areas to help promote job growth and an expanded tax base.

The Capewell project, which would convert a historic structure into condominiums, would provide housing and tax revenue.

And the aging Wiremold factory in Rocky Hill is slated for a renovation, with the intent of luring a tenant that will create at least 100 jobs.

Reese said New Boston isn't stopping at Greater Hartford. "It could be anywhere in Connecticut - Hartford, Bridgeport," Reese said. "Old mill sites, transition neighborhoods."