Hartford Business Journal

6 HARTFORDBUSINESS.COM | JUNE 14, 2021 Deal Watch Greenwich investor sees upside after $40M Blue Back Square bargain buy By Matt Pilon mpilon@hartfordbusiness.com R etail property investor- operator Charter Realty & Development has long coveted West Hartford's Blue Back Square as a potential crown jewel for its Connecticut portfolio, and now the Greenwich-based firm's patience has paid off. Charter saw the 450,000-square- foot mixed-use center slip through its fingers eight years ago when it was outbid by Greenwich neighbor Starwood Capital Group, which paid nearly $105 million for the upscale development with anchor retail tenants like Crate & Barrel, West Elm, Barnes & Noble and Cinépolis Luxury Cinemas, as well as 48 apartments and 200,000 square feet of office space, all adjacent to trendy West Hartford Center. "Since that time, we've obviously done a lot of other work, but we've always had an eye on Blue Back and always felt it was a terrific asset," said Paul S. Brandes, Charter Realty's co-principal. Being the runner-up bidder in 2013 may have been a blessing in disguise, it turns out. Charter and its joint partner Rialto Capital of Florida recently scooped up Blue Back for just $40 million, according to public land records. Why the drop-off in value? "We purchased the property at a market price and I would tell you that is dictated by the fact that there is a significant amount of vacancy that needs to be filled and there are a number of weaker merchants that over time we suspect will be replaced," Brandes said. Charter posted Blue Back's leasing map on its website this month, showing nearly 57,000 square feet of commercial and retail space — approximately 27% of the total — available for lease. Available space doesn't necessarily equate to vacant space (for which rent is not currently being paid). Brandes declined to disclose the property's vacancy rate, which has historically been low at Blue Back (less than 10% when Starwood bought it in 2013). Blue Back bargain Many retail properties face increased uncertainty, but it's not exactly clear why Starwood would sell Blue Back at such a discount — 62% less than what it paid in 2013. Starwood didn't respond to a request for comment for this story. However, its CEO Barry S. Sternlicht told investors in February that more retail tenants in general have sensed greater leverage during the pandemic and used it to push for rent concessions from landlords anxious they wouldn't be able to refill the space if the tenant walked away. The quickly-evolving dynamics have made it more challenging for Starwood, which competes in a number of other real estate sectors, to underwrite loans for retail properties. "Having said that, I believe people are going to shop again in physical retail," Sternlicht said. "It's just, where will it stabilize? Rents won't be higher. I don't see that happening." Tim McNamara is a retail broker with Farmington-based SullivanHayesNE who has represented several Blue Back tenants, including a recent lease signed by Sola Salon Studios. He said Blue Back has fetched high rents during many of the 14 years since it was built, and the rates have priced out some would-be tenants. "It's a great space, but the rents in Blue Back have been prohibitive for some folks," McNamara said, citing restaurants as facing particular challenges. West Hartford's upscale mixed-use Blue Back Square development sold in May for $40 million, well below its previous 2013 sales price of $105 million. Tim McNamara Paul Brandes HBJ FILE PHOTO

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