ORLANDO-Boston-based-New Boston Fund Inc., a private equity realestate investment, development and management firm, acquired acontrolling interest in the 137,000-square foot SouthpointExecutive Center, a Class A office building in the Orlando suburbof Maitland, on May 12th. The former owner of the property, now aminority partner, is the Stiles Corp. of Ft. Lauderdale.

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Stiles purchased the Southpoint Executive Center in 2007, butthe building, which is 20 years old, lost tenants over the last fewyears, the most important being Embarq, a telecommunicationscompany, which occupied roughly 60,000 square feet. After thecompany was acquired by CenturyTel Inc., now CenturyLink, lastsummer, it left Southpoint.

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With the loss of tenants, the lender wouldn’t put new money intothe property, says Pryse Elam, southeast regional director for NewBoston Fund, which stepped in and paid off the commercialmortgage-backed securities loan on the property. While he declinedto say how much his firm paid for the debt, the original loan was$17 million, he says, although New Boston paid a discountedrate.

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“The New Boston Fund is sitting on several hundred milliondollars in cash,” which it invests in properties such as theSouthpoint Executive Center, says Elam. The few office transactionswhich take place today involve either “trophies and trash,” hesays. In the case of the trophies, there is enormous competitionfor these properties, which drives up prices, while prices for theso-called trash properties keep getting lower, says Elam. “We liketo buy the ‘bread and butter real estate,’ which is in the middle,”he says.

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Those middle of the road properties are not trading now, saysElam, while their values have fallen 30% to 40% in the last coupleof years. The problem they have is that their owners often lack thecapital to pay leasing commissions, tenant improvements and debtservice, among other expenses, he says. Sometimes these propertieshave a technical default or even a monetary default, says Elam.“But lenders aren’t foreclosing, because they can see that the realestate is still good,” he says.

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With capital from entities like the New Boston Fund, propertiesare recapitalized, although the previous owner, in this case theStiles Corporation, now has little equity in the project. Inaddition to retaining a small ownership interest, Stiles willmanage the property, which is now 30% leased, having just acquireda new, 10,000-square-foot-tenant, Taylor Morrison Home Funding, aCanadian real estate company with offices in six states in theUS.

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New Boston is working on several other transactions similar tothe one involving the Southpoint Executive Center in Florida andNorth Carolina, says Elam. The firm will continue to recapitalizeother buildings like the Maitland-based asset, as long as themarket continues in its present state, he says.

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The New Boston Fund, which is 50 years old, runs a series ofclosed-end investment funds, which typically exist for seven to tenyears. Investors in these funds run the gamut, from wealthyindividuals to institutional investors, says Elam.

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