Boston Properties Invests in NYC, LA Assets

The office transactions, which total more than 3 million square feet and involve partnerships, give the REIT a stake in Manhattan's 3 Hudson project and West Los Angeles' Santa Monica Business Park.
3 Hudson Boulevard (Image courtesy of The Moinian Group)
3 Hudson Boulevard (Image courtesy of The Moinian Group)

Boston Properties recently made notable office investments in New York and Los Angeles, two of the five markets on which the REIT focuses its activities. The company’s new portfolio additions, which total 3.2 million square feet, include the 3 Hudson Boulevard project in Manhattan and Santa Monica Business Park in Santa Monica, Calif.

Boston Properties entered into an agreement to acquire a minority interest in a partnership with The Moinian Group, developer of 3 Hudson, which fits the bill for “new development opportunities.” The approximately 2 million-square-foot office project hasn’t reeled in any early lease commitments just yet; however, the partners anticipate that in the second quarter of 2018, the FXCollaborative-designed property will be prepped for vertical construction for an anchor tenant. If all goes as planned, 3 Hudson could welcome its first occupants by mid-2023. Commercial real estate services firm JLL orchestrated the capital transaction and will handle leasing for 3 Hudson.

“Our investment strategy remains mostly unchanged,” Boston Properties wrote in the REIT’s first quarter 2018 earnings report. “Other than possible acquisitions of ‘value-add’ assets that require lease-up or repositioning, and acquisitions that are otherwise consistent with our long-term strategy, we intend to continue to invest primarily in higher yielding new development opportunities with significant pre-leasing commitment.” 

“If they sign a tenant, they’ll go vertical; if not, they can sit on it,” Alexander Goldfarb, a managing director with investment banking firm Sandler O’Neill + Partners, told Commercial Property Executive. “It’s sort of a land play [for Boston Properties]. The indication is the financial commitment is pretty low at this point. They have the capital, they can afford to take the position and they’re not taking much risk at this point.

Committing coast-to-coast

Santa Monica Business Park (Image courtesy of Yardi Matrix)
Santa Monica Business Park (Image courtesy of Yardi Matrix)

Three thousand miles to the West, Boston Properties wrapped up the acquisition of Santa Monica Business Park, purchasing the 1.2 million-square-foot asset in a new joint venture with Canada Pension Plan Investment Board. The partners picked up the 21-building property for a net purchase price of roughly $616 million, $300 million of which was provided through financing. Sited in the Ocean Park area, Santa Monica Business Park is currently 94 percent occupied, and with the majority of the leases featuring below-market rents, it provides a value-add opportunity.

The 47-acre Santa Monica Business Park offers additional potential through the ground lease that covers approximately 70 percent of the low-rise complex’s rentable square footage. The ground lease gives the joint venture the right to acquire the land as early as 2028.

“Developing in Santa Monica is like being a Republican in Santa Monica, so it’s a tough proposition, but that doesn’t mean you can’t make it work,” Goldfarb said of the low-density market. “The park is a long-term project for Boston Properties.”

Boston Properties will invest $180.1 million in the Santa Monica Business Park joint venture with CPPIB and spearhead the operation, management and leasing of the property.

“Boston Properties is stocking their pantry with the next cycle of projects,” Goldfarb noted of the 3 Hudson and Santa Monica transactions. “Right now, they have their current pipeline delivering and they have a next round. They have a bunch of stuff they’re working on so everything takes time, and because they work in places that are tough to get entitlements, you have to plan far out and try to stagger it and that’s how these projects fit—they fit into the timing.”