Exclusive: DicvoWest Dives into Boston Offices
DivcoWest made a splash with its recent $395M purchase of One Kendall Square in the heart of Cambridge’s hot tech market. Turns out, this team has spent approximately $670M to acquire 1.5M SF since '12. Managing director Keith Wallace spoke to us about his strategy.
As a San Francisco-based company, DivcoWest always has its radar on markets with a tech focus, says Keith (here with Michael Cummings). That fits with East Cambridge, a longtime tech haven, the Seaport, a fast-growing new economy enclave, and the Financial District, the newly cool lower-rent refuge. Earlier this month, they closed on One Kendall; in '13 on Seaport Wharf and and One Winthrop Square; and in '12 on the Seaport Portfolio and The Davenport. These properties will satisfy the shift in tenant preferences toward brick and beam. They want high volume and open space where they can set up a more dense office, Keith tells us.
“We’re value-add guys,” says this Holden native who’s worked here throughout his career. So even though One Kendall (above) is 90% occupied, leases will rollover with new deals being signed at existing market rents. The difference will be substantial since average asking rents there rose in two years from $35/SF to $60/SF. Given that One Kendall is within the halo of MIT, Keith says there are already two or three tenants for every space coming available. (It's the Hunger Games for office space.)
Divco's Tim Canon and Jeff Longnecker snapped on a balcony at One Kendall (we repelled down the side of the building to get that shot), which is equally divided between office and lab space. With the Vertex relo to the Seaport and Pfizer consolidating, the East Cambridge lab vacancy is 19%. Even if it takes a while for labs to get absorbed, Keith isn’t worried. Office rents have increased enough that space there could be converted from lab to office and DivcoWest “won’t miss a beat,” he says. The reason: the Kendall Square office vacancy rate is 1.1%. Conventional wisdom posits that labs are the highest and best use of space. Now, it “isn’t that clear,” Keith says.
DivcoWest doesn’t do much new ground-up development and the commercial properties being developed in Boston and Cambridge are mostly built-to-suits. But One Kendall does present an opportunity; some sites with unoccupied buildings at the back of the campus-like property could be developed over time, he tells us. Meanwhile, look for his team to buy more here. “We love this market.” (The building in this pic is normally an ivory color, but it's blushing.)