The Real Estate “Dark Web” and Fiduciary Duty – Strange Bedfellows
Located in the outskirts of Boston’s Back Bay on Commonwealth Avenue, the Ayer Mansion got our attention when it changed hands in an “off market” transaction last December. The $12.5 million purchase included two buildings, 395 Commonwealth (Ayer Mansion) and the neighboring building, 397 Commonwealth. We were surprised by the low price and when we learned that the seller was a non-profit entity and the buyer was a sophisticated real estate developer, our fiduciary antenna shot up.
According to a Wall Street Journal article, the buyers of the property were Boston based Sea-Dar Construction and CNW Capital Partners. The seller was the Trimount Foundation, a non-profit corporation affiliated with the Catholic organization, Opus Dei. The original asking price for both buildings was reportedly $22.5 million.
The plot thickened last month when the developers brought in the auction house Christies and their affiliated Boston real estate broker LandVest who rebranded the Ayer Mansion the “Tiffany Ayer Mansion.” The duo are now offering just that building for a whopping $17.0 million.
The $17 million price tag does not include the cost to convert the building back to single family residential use. According to the Journal article, the developers estimate that cost to be an additional $10–20 million. The developers are hanging on to the neighboring building (397 Commonwealth) which they intend to redevelop into luxury condominiums.
The Ayer Mansion – Property History
The Ayer Mansion was built in 1902 as a Boston home for the Ayer family. The family made their fortune producing “Ayer’s Cheery Pectoral,” an opium derived respiratory cure all – kind of a snake oil. Later generations parlayed the fortune into successful textile manufacturing. Frederick Ayer commissioned architect Alfred Manning for the project and Louis Comfort Tiffany was retained for design elements of the house.
The Ayer family sold the property in 1925 and it was converted to a medical office building. In the mid-1950s, the property was acquired by Hearthstone Insurance Company which combined it with the abutting property (397 Commonwealth Avenue) that they also owned. In the mid-1960s, both properties were sold to the Association for Cultural Interchange, which later changed its name to the Trimount Foundation.
Under Trimount’s ownership, the Bayridge Residence and Cultural Center used the property as a dormitory for local college women. The residential program fell victim to the pandemic and Trimount put the property up for sale in the spring of 2021.
Over the years, Trimount and local groups made efforts to preserve the historic features of the Ayer Mansion. In 1966, the property was added to the State Register for Historic Places. In 2005, it was designated as a National Historic Landmark, and in 2013 Trimount entered into a Preservation Restriction Agreement with the Massachusetts Historical Commission.
According to The NonProfit Times, Trimount received more than $3.0 million in recent years (both public and private funds) for restoration and general maintenance of the property. Some of these funds were raised through paid tours of the property.
Off Market Deals – The “Dark Web” of Real Estate Brokerage
Real estate sales agents love “off market” transactions for a host of reasons, not the least of which is that it makes their job easier. Just one advertisement on the real estate dark web and you have a shot of getting a deal done without endless showings, telephone calls, questions, etc. It rarely works out that way, but when it does the results are generally not great for the buyers or sellers, or both.
Marketing real estate is largely an exercise in price discovery. When listing sales agents take the off market shortcut, they’re effectively denying their clients the full price discovery process. It’s a pretty good bet that clients in these situations aren’t getting a fiduciary level service.
The Boston Globe ran a story about the sale of the Ayer Mansion last December and we were shocked by comments from the William Raveis Real Estate listing sales agent. The agent stated that:
“We knew if we put it in the public marketplace we would have many people interested that didn’t understand the way the property needed to be preserved, or wasn’t [sic] familiar with development on [sic] downtown Boston… We didn’t really want it on the open market.”
Huh? A listing real estate broker (and their sales agents) has a fiduciary obligation to get their clients the highest price with the best deal terms possible. The burden of future preservation of the property or being familiar with downtown development falls squarely on the buyer of the property – after all, Massachusetts is a buyer beware state.
Importantly, the Ayer Mansion is covered by a very stringent deed restriction covering the preservation of both the interior and exterior of the property. In essence, the Massachusetts Historical Commission will be a de facto partner with the next owner and they will ensure that the property is properly preserved.
In stark contrast to the William Raveis marketing strategy, LandVest and the auction house Christies are pitching the Ayer Mansion, with its Tiffany provenance, to a global audience as “one of the most important houses to hit the market.” Beyond the PR blitz and events, the marketing team is pulling out all the stops to hype this once in a lifetime opportunity to own, and live, in a piece of art history.
395 + 397 Commonwealth = $30 Million?
Based on where similar Back Bay properties have traded, we’d conservatively peg the unrenovated fair market value of the second building (397 Commonwealth Avenue) to be about $1,050 per square foot, or approximately $13 million. The developer has submitted renovation plans for this building to the City that will increase the square footage by about 60%. This looks like the single biggest Back Bay/Commonwealth Avenue development opportunity in decades.
Assuming LandVest and Christies are correct and the Ayer Mansion is worth $17 million (pre-renovation), and our estimate that 397 Commonwealth is worth about $13 million as it sits, it looks like the developer picked off $30 million worth of real estate for just $12.5 million. Who was watching out for Trimount’s interests?
A Breakdown of Fiduciary Duty?
It’s not uncommon to see outlier transactions in private real estate deals, albeit not to this extreme. But when a non-profit entity sells a significant asset, it’s not a private matter. Non-profit corporations don’t have shareholders – in essence the assets belong to the general public.
When a non-profit entity liquidates a significant asset in Massachusetts, they’re required to get advanced approval from the State Attorney General. The Attorney General reviews the proposed transaction to ensure, among other things, that fair market value is being paid for the asset and that it’s an arms distance transaction.
We reached out to Trimount and they confirmed that they got approval from the Attorney General for the sale of the properties. Trimount refused to shed any light on how they determined fair market value or if they got an independent fairness opinion.
It’s clear to us that the Trimount Foundation did not receive fair market value for the properties. As we see it, there was a fiduciary breakdown on the Trimount side of the equation. It’s not clear if the problem lies with the Trimount Foundation Trustees, Trimount’s real estate broker, or with the Attorney General’s office. We also think that the off market nature of the transaction casts a cloud over the arms distance nature of the sale.
If the developer gets anything close to their asking price for the Ayer Mansion, and using our valuation estimate of the second building, they’re looking at a gain of about 140% – before any renovation work begins. Keep in mind that developers are not in the business of just trading real estate, they make their money by improving the properties. This may go down as one of the most lucrative real estate deals in Back Bay history.
Fiduciary Duty in the Gig Economy
The lesson here is that it’s critically important that parties to real estate transactions (institutional or individuals) work with a broker who truly understands their fiduciary obligations. We highlighted some of these issues in our report “You’re Not Getting Paid to Think, the Illusion of Fiduciary Duty in Real Estate.” When you’re working with the sales agent of a real estate broker, you’re trafficking in the murky world of the gig economy – proceed with caution.
About Batterymarch Group LLC – Batterymarch Group is an independent full service real estate brokerage and advisory firm focused on the downtown Boston high-end residential market. We represent both sellers and buyers with a sharp focus on valuation. We also offer sub-advisory and owner’s representation services to financial institutions, family offices, and trustees.
About Andrew Haigney – A 25 year Wall Street veteran, Andrew held senior positions at leading global investment banking institutions where he routinely valued and negotiated complex securities transactions on behalf of institutional clients. Andrew has been an outspoken advocate of a universal fiduciary standard. In founding Batterymarch Group, Andrew brings that same discipline and passion to the real estate brokerage.