BXP Starts Construction On $2B Midtown Office Tower
BXP is moving ahead with the construction of 343 Madison Ave., a $2B, 930K SF office tower that will rise directly above and connect to Grand Central Terminal.
The REIT, formerly known as Boston Properties, announced Tuesday evening that it plans to immediately start vertical construction of the 46-story tower after securing a letter of intent with a “prestigious, investment-grade financial institution” to occupy 30% of the building in its lower and middle sections, or roughly 274K SF. Construction is expected to wrap up in 2029.
BXP had to decide by July 31 whether to start construction or terminate the 99-year ground lease it signed with the Metropolitan Transit Authority to redevelop its headquarters, which used to sit on the site. As part of the deal, BXP constructed a new escalator to Grand Central Terminal that will connect to the lobby of the all-electric 343 Madison.
“At the best positioned office development site in New York, BXP will deliver a premier workplace that represents a strong and significant value creation opportunity for BXP’s shareholders as well as a core long-term asset within our portfolio,” BXP CEO Owen Thomas said in a statement.
In conjunction with the start of construction, BXP has bought out its partner in the project for $44M, CEO Owen Thomas said on the company's earnings call Wednesday morning. Norwegian sovereign wealth fund Norges Bank acquired a 45% stake in the project in 2023.
Thomas said the reason for its partner's exit was that it wanted to focus more on existing assets rather than ground-up development. BXP Chief Financial Officer Michael LaBelle said on the call that the bulk of the construction costs will need to be spent starting late next year, allowing the REIT time to line up a new financing structure.
It could pursue several avenues to raise the money to build the $2B project, he said, including selling assets, raising equity via the private or public markets, securing construction or corporate debt, or “we can reset the dividend.” The REIT expects to sell roughly $600M of properties by the end of next year, Thomas said on the call.
“We have time to select which combination of these we will use,” LaBelle said.
Because of the run-up in construction costs since the pandemic, rents at the building will be among the highest in the country. On the lower floors, Thomas said he expects rents in the “mid to upper $100s” per SF, with the higher floors renting in the mid to upper $200s.
The average asking rent for Midtown Manhattan Class-A office space was $84.74 as of the second quarter, according to Cushman & Wakefield, although trophy rents are significantly higher and there is a dearth of availability, clearing a path for new construction.
There was 5M SF of office space under construction in Manhattan as of the second quarter, according to Cushman. Roughly 2.5M SF of that is being built by JPMorgan Chase for its own headquarters. The only ground-up trophy building that has started construction since the pandemic is Related Cos. 70 Hudson Yards, which kicked off this year after landing Deloitte as an anchor.
Underscoring the demand for new trophy offices close to Grand Central, Thomas said an additional six companies with requirements totaling 1.3M SF are in negotiations for the lower floors of the building. He expects to rent out the upper floors closer to the delivery date to more boutique tenants.
“Culminating 13 years of effort by our New York Region in securing and entitling the site, we believe it will be a core long-term holding for BXP,” Thomas said.
While the announcement of 343 Madison starting construction dominated the earnings call, BXP also reported better-than-expected performance from its portfolio. It raised its guidance for the rest of the year as a result.
