Blockbuster Deal Shows Boston Firing on All Cylinders
Yesterday’s announcement that Boston Properties is selling a stake in two downtown offices—Atlantic Wharf and 100 Federal St, and one Manhattan asset—for $4B (at a 3.8% cap) guarantees a lively exchange among the expert panelists at Bisnow’s fifth annual State of the Boston Market event next Wednesday at the Westin Waterfront.
Not every asset would draw sovereign wealth investor Norges Bank to pay $1,075/SF for a 45% share of the buildings, but these are “deep-core,” Class-A properties in Boston’s supply-constrained market, says Intercontinental chairman Peter Palandjian, who'll be speaking at our event. Post recession, there’s been few cranes in the sky building offices, but as tenants recover and need space, banks and developers are catching up, and rents are soaring.
Sovereign wealth funds aren't the only investors coming into Boston aggressively. Pension funds, which drive so much real estate behavior, aren't doing particularly well in bond portfolios, says Peter, whose firm recently purchased Watermill Center in Waltham (above) for $57M. They’re pivoting and in a “secular shift” are allocating more assets to commercial properties. Pension fund decisions can move markets since they're such major real estate investors, even if their involvement isn't always visible.
While growth is good and the economy stable, property here is expensive, says Taurus Investment Holdings CEO Peter Merrigan, another speaker. In addition to Boston’s strong fundamentals, low interest rates are a main market driver; when they’re substantially altered, it will be a game changer. Taurus is buying and selling a mix of asset types. Recently, it sold its own historic HQ downtown, a warehouse in Andover, and an office building in Wakefield. It's also purchased offices in Waltham and multifamily in Lowell and Chelmsford. Generally, Taurus prefers core to suburban properties, but does like apartment buildings in the ‘burbs, he tells us.
The capital markets view The Hub as top tier and are presenting ample opportunities and choices for financing projects, says Samuels & Associates principal Leslie Cohen, who's also speaking. Projects in Fenway, like The Point (which she’s managing) are very sought after, she tells us. The condo market is rebounding, but there’s some concern that in a few years, there may be a surplus of luxury rental apartments. The challenge for developers and the city is to find a financially sound way to develop more mid-market housing.
With $1B worth of buildings to be completed within a year in Seaport Square, it’s going to look like a different place, Boston Global Investors CEO John Hynes III, another panelist, tells us. Offices, residences, hotel, a park, and a chapel are in construction or slated to start soon. Along with the new buildings will come about 6,000 workers and residents, says John, whose firm is building the $3.5B, 6.3M SF complex with Morgan Stanley.
The capital markets and regional tenants, too, are showing great interest in the emerging neighborhood (it'll be the new home of PwC, currently in the Financial District). If an investor is looking at Boston, it's likely to be looking at Seaport Square, he says. Most buildings include ground-floor retail. And 260k SF of multi-level stores and restaurants are coming with One Seaport Square, a $625M residential complex being developed by BGI, the Berkshire Group, and WS Development. As more retail opens, he expects to see more companies wanting to relo.
We can't forget the quality job growth, very fast absorption of residential, solid rent growth, and strong retail sales, says Federal Realty Boston prez Don Briggs, a panelist whose firm is developing the $1.6B Assembly Row mixed-use project in Somerville. He’s got reason to be optimistic: In Phase One, the 330k SF of retail is 95% leased and 85% open, AvalonBay's first 200-unit apartment building is almost completely leased, and the second 250-apartment building expects first occupancy this month. Hear even more from our speakers next Wednesday, which will include great networking opportunities. Register today!