One Kendall Square in Cambridge Trades for $725M

DivcoWest's sale marks the biggest real estate deal, year-to-date, in the Boston area.
One Kendall Square, Cambridge, Mass.

One Kendall Square, Cambridge, Mass.

Cambridge, Mass.The East Cambridge life science submarket continues to be one of the hottest in the United States as Alexandria Real Estate Equities closes on One Kendall Square for $725 million, making it the biggest real estate deal in the Boston area so far this year.

The $725 million price tag was 83 percent more than seller DivcoWest paid for the 7.9-acre complex of 670,000 square feet of office, laboratory and retail space nearly three years ago and is a testament to the current and future strength of the property and submarket. DivcoWest bought One Kendall Square, which also includes a nine-screen movie theater, 1,500-space garage and development parcel, in January 2014 from a joint venture of Rockwood Capital LLC and Related Beal for $395 million. Rockwood and Related Beal paid $210.5 million for the site in 2006.

In its third-quarter earnings report released Oct. 31, Alexandria stated the purchase price of $725 million included the assumption of $203 million in debt. The REIT said it expected to pay for the acquisition by selling 7.5 million shares of common stock.

NGKF Capital Markets represented DivcoWest in the sale of the 11-building campus to Alexandria, boosting the Pasadena, Calif.-based urban office REIT’s Boston-area holdings to about 6.3 million square feet. U.S. Head of Capital Markets Robert Griffin, Vice Chairman Edward Maher and Executive Managing Director Matthew Pullen lead the NGKF Capital Markets Boston team on the record-setting transaction. They were joined by NGKF Executive Managing Directors Mark Winters and David Townsend. The team said the deal set a record for both total transaction size and for per-square-foot basis, which was $1,124 per square foot.

“One Kendall Square offers a critical mass of best-in-class, institutional-quality real estate,” Maher said in a prepared statement. “Combined with nearly $100 million in capital improvements throughout the past 10 years, the campus clearly represents a generational opportunity within the white-hot East Cambridge submarket.”

Alexandria, which specializes in science and technology campuses in locations including Boston, San Francisco, New York City, San Diego and Seattle, revealed in a securities filing in July that it had agreed to buy One Kendall Square and expected to close the deal in the fourth quarter. At that time, Alexandria stated the acquisition would be “consistent with our disciplined strategy of allocating capital into projects in key urban innovation clusters with opportunity for organic growth and future value-creation.” The firm noted that the deal included an entitled land parcel for a 172,500-square-foot building.

The REIT also noted that the campus, although 98.5 percent occupied now, has upside because 55 percent of those leases expire through 2019 and it expects to convert office space to lab space “at significantly higher rents.” The current mix is 48 percent office, 36 percent office/lab, and 16 percent retail/other.

One Kendall Square is also in close proximity to the REIT’s other Boston-area holdings including Alexandria Center at Kendall Square and Alexandria Technology Square. It is also located near the Massachusetts Institute of Technology. The site was originally developed as the Boston Woven Hose & Rubber Co. in the late 1800s. Now a Class A property, many of the buildings are restored historic structures. It is home to tenants such as Akamai Technologies, Abcam, Cogo Labs, Merrimack Pharmaceuticals, InVivo Therapeutics and MIT.

Image courtesy of Yardi Matrix