Boston Properties Buys Out 3 Partners As It Doubles Down On Office
As other investors are trying to get out of the office market, Boston Properties is leaning further into the beleaguered sector.
The real estate investment trust, which trades as BXP, bought out the interests of joint venture partners for office properties in New York City, D.C. and Santa Monica, California, it revealed in its fourth-quarter earnings release.
Although the office market has continued to underperform, BXP executives said on the company's quarterly earnings call Wednesday they see new opportunities emerging in the form of buyers selling at discounts and lenders offloading properties.
"We said last quarter we intended to shift to offense on capital deployment, and this has started," BXP CEO Owen Thomas said on the call.
Thomas said that the main priorities for the company this year will be signing leases and pursuing new investment and development deals, adding that he hopes interest rate cuts will begin to happen in the next six months.
Boston Properties last quarter completed three joint venture buyouts of office properties, which Thomas said were precipitated by renewals with tenants.
"These transactions were sparked by anchor client renewals BXP achieved at two of the assets, requiring capital for tenant improvements, leasing commissions and building upgrades," Thomas said. "In the current environment, these two joint venture partners decided they wanted to reduce their exposure to office."
"When we did our own math ... we think it's very attractive and it's very accretive to our company, and we think it makes a lot of sense," Thomas said of buying the partners' shares.
On Jan. 8, the REIT bought an undisclosed partner's 50% share at the 548K SF building at 901 New York Ave. NW in D.C. for $10M, according to the earnings release. It also assumed the partner's share of the $207M in outstanding debt on the property. This buyout happened after the landlord completed a renewal of Finnegan, Henderson, Farabow, Garrett & Dunner's 214K SF lease, Thomas said.
The REIT also acquired joint venture partner Canada Pension Plan Investment Board's 45% interest in the 1.2M SF Santa Monica Business Park. That deal had a $38M purchase price, and it assumed the partner's share of the outstanding $300M debt on the property. The two bought the 47-acre campus in 2018 for $628M, Commercial Property Executive reported.
Tech company Snap announced last week it would renew its 467K SF lease at the Santa Monica campus.
The REIT also completed the acquisition of a 29% share of 360 Park Ave. S. in New York for $1, also assuming its share of the $220M mortgage, increasing the REIT's ownership to 71%. The joint venture bought the property in 2021 for $300M, The Real Deal reported.
"We obviously have a very different perspective on the long-term value that's going to be created by doing these transactions, or we wouldn't be doing them," Boston Properties President Doug Linde said. "It was the disconnect between what they wanted to do and what we want to do. That really created the opportunity, from our perspective, to deploy capital in a very accretive way."
While it bought out its partners' interest in three office properties, BXP also sold stakes in two of its life sciences developments in Kendall Square. It announced in November that Norges Bank Investment Management paid $746.4M for a 45% stake in the the under-construction projects at 290 and 300 Binney St. in Cambridge, Massachusetts.
In the fourth quarter, Boston Properties signed more than 1.5M SF of leases across all sectors, finishing the year with 4.2M SF, according to the REIT's earnings statement. Over the year, the company raised $4B in new capital, including securing a $600M mortgage in Cambridge and a $750M equity raise.
The REIT's revenue increased 5% year-over-year to $829M last quarter, and it reported $120M of net income in the fourth quarter. Its stock price fell 5% after the earnings release Wednesday, underperforming the 1.6% decline in the S&P 500.
