Strategy Play: Three Big Office REITs
We're deep enough into 2015 that the big office REITs have had a chance to step back, assess their year and look toward what's next. Here's an at-a-glace look at strategy for three of the city's biggest office REITs.
Boston Properties is flush with cash after a year that saw about $1.2B in proceeds from assets, including the recent sale of a 45% stake in 601 Lexington Avenue, pictured above. The firm will look to dump about $3.5B into new projects throughout this year, a recent report from Morningstar said. Boston has been expert at buying low and selling high, unloading more than $5B of its assets over the last two oh-so-frothy years. Analysts expect more of the same for Boston throughout 2015, but rental income will remain strong. CEO Owen Thomas told REIT Magazine in September that occupancy in Boston’s portfolio was strong at 93%, with most of the net absorption coming from “creative tenants” in industries like tech and media.
SL Green, Manhattan’s biggest office landlord, ended 2014 with a flurry of big deals on multifamily properties. They're also making progress on a major foray across the river in Brooklyn. SL Green has a 95% stake in the property at 175-225 3rd Street on the banks of the Gowanus Canal, with Kushner Companies and LVWRK holding onto the rest. It sits smack across the street from Brooklyn’s first Whole Foods location, and it’s zoned as-of-right for office and retail. They’ll have the option to apply for permits to add a residential component on the site. But don’t expect SL Green to put many of its eggs in the booming multifamily basket just because they’re making moves in Brooklyn. Using several metrics, including total private sector employment in the city, which is on the cusp of an all-time high of 3.5M people, SL Green projects a 50% increase in its office lease roll throughout 2015.
Earlier this month, Vornado finalized the spin-off of many of its retail assets into a new entity called Urban Edge Properties. Vornado is looking to sell off assets outside of the New York and Washington, DC markets, where about 90% of its earnings last year originated. The sell-off will likely include its 33% stake in Toys ‘R’ Us, which analysts say could be an uphill battle to monetize. Vornado made what should be a pretty shrewd acquisition in November with the $142M buy of the 437K SF Center Building in Long Island City, Queens, where land values have been exploding and office demand’s been surging.