50 Milk St. Trades for $123M

The sale was privately arranged by TA Realty, an investment advisor for the buyer, who negotiated the deal with seller Challenger Financial, an Australian-based investment group, industry sources tell GlobeSt.com. The price represents a cost of $425 per sf, above the estimated $400 per sf replacement cost of the building, industry sources note.

"This just shows how strong the investment market is, especially for trophy or Downtown office property," David Begelfer, chief executive officer with the National Association of Industrial and Office Properties' Massachusetts Chapter, tells GlobeSt.com. "There is an almost insatiable market for high-quality property. There is so much money looking to real estate for investment that it is driving up property values."

Michael Smith, with Spaulding & Slye, tells GlobeSt.com that a strong tenant base made the property extremely desirable in a market that has left many office towers struggling to fill huge blocks of vacant space. About 80% of 50 Milk St. is occupied by Brown Brothers Harriman Co., the nation's oldest private bank, which has a lease on the property until 2013 with an option to renew.

"It's a good location with a solid tenancy," Smith notes. "When you have that sort of dynamics, as it has been proven time and time again, people pay up." Smith says it was not unusual for a firm to pay above replacement cost for an office tower Downtown, especially when rents promise to bring in a strong return.

"This is just another example of a single strong tenant driving the value," Smith says. "Given what they are paying for rent, someone said 'I'll take this return for the next 10 years.'"

The buyer anticipates a 7% return on the investment, according to a source familiar with the transaction. Begelfer says he expects to see other properties set records when they go up for sale later this year because of the strong investor interest in the Boston market. "I'll predict we'll have new record prices," he says. "And with record sales volume last year, I'll predict we will beat last year's record sales volume." Begelfer's prediction may not be far off. Already this year, Teachers Insurance and Annuity Association of America paid $272.1 million, or about $372 per sf, for 99 High St., a 32-story, 731,000-sf tower in the city's Financial District. The trading frenzy started last year with the record-setting sale of One Lincoln St., which traded for $705.4 million or about $694 per sf.