Boston Properties Declares $60M Impairment Loss Due To Slow Leasing At Dock72

Boston Properties took an impairment charge last quarter because of a protracted lease-up and extra costs at the brand-new office building Dock 72, the company said Tuesday.

The $60.5M non-cash impairment charge was declared on the real estate investment trust's Q4 2020 earnings statement. Boston Properties said the slower-than-expected leasing was due to the coronavirus pandemic, which has thrown cold water across the entire city’s office leasing market.

The current fair value of the property, which is only 33% leased, has been lowered, resulting in a sizable loss.

"While we had some promising leasing activity pre-COVID, there is little activity today and the market conditions in Brooklyn have weakened," Boston Properties Chief Financial Officer Mike LaBelle said on the company's earnings call Wednesday. "The extension of timing to achieve stabilization has a meaningful impact on fair value. We see Dock 72 as a unique situation and we do not anticipate any additional impairments in the portfolio."

The 670K SF building at the Brooklyn Navy Yard counts WeWork as its sole tenant. Boston Properties co-developed the building in a 50-50 partnership with Rudin Management, and it was described as a $410M project in 2017 when its $250M construction loan was announced, according to The Wall Street Journal. 

That financing, from a group of lenders led by JPMorgan Chase, was due to expire last month but was extended until 2023, per the earnings report. Dock72 registered a net loss of $19.7M in the last three months of the year, according to Boston Properties' supplement report filed alongside its earnings.

The REIT has invested $215.8M in the building so far, and it expects the property needs a total of $260M of investment before reaching stabilization, an increase from the $243M it had previously projected. 

The property opened in October 2019, with WeWork leasing 222K SF across half of the third through sixth floors and all of the seventh and eighth floors. At the time, WeWork’s much-hyped initial public offering was going south and was ultimately canned. The coworking behemoth has since taken another major hit as a result of the economic fallout of the global health crisis.

However, Rudin CEO Bill Rudin said on Bisnow’s podcast last week the coworking company is paying rent at the property, and he remains confident new tenants will start taking space there.

WeWork designated the property as one of its flagship headquarters for its New York employees.

“When people start coming back there in terms of their employees, they will locate a significant amount of their personnel there," Rudin said. "We can't wait for them to start bringing people into the building."

While the year was challenging across the board in the office leasing market, things are picking up, Rudin added.

“We have been starting to see some activity with prospective tenants in the market. It's a little slower than in Manhattan, but [Dock72] is one of the greatest products that we've ever created — if you ask our partner, the CEO of Boston properties, Owen Thomas, he thinks this is one of the Boston Properties' best buildings that they've ever built," Rudin said. "We're confident that this building will attract some tenants.”

UPDATE, JAN. 28, 4:15 P.M. ET: This story has been updated with comments from Boston Properties' earnings call.