The Davis Cos CEO Jon Davis hopes his latest buy in Burlington—$109M for Burlington Centre—works out as well as the last one. (And we hope it works out better than our last trip to Burlington Coat Factory; are jackets supposed to shed?) In ’10, he bought Burlington Woods for $32M; in ’12, he sold it for $54M (a 60% upside), and it recently sold again for $60M.
Not bad, considering that in ’10, people said he overpaid. (People need to mind their own business, literally, in this case.) Now there’s another element in his Burlington equation: the possibility of new development, perhaps even on spec, says Jon (above with development director Enrico Bellido). “The market is moving into a new phase where new construction is starting to make sense,” he says. For one, Burlington Centre—a 487k SF park with four office buildings that Davis acquired Q4 in a JV with Principal Financial—has room for a new 120k SF building. Jon is talking with tenants about a build-to-suit.
At Burlington Centre (above), demand is solid. Existing tenants are expanding and Jon’s team is negotiating 40k SF of leases for the park’s 125k SF of available space. Throughout the submarket and the metro region, vacancies are gradually falling for commercial and multifamily properties, while rents are “absolutely” rising and will continue to do so at a rate greater than historic averages, Jon says. They’ve already jumped dramatically in two years: In Kendall Square, rents have gone from $35/SF to $60/SF and at the Seaport, from $25/SF to $45/SF. (If you're in the Seaport right now, stand still and start taking bids on the space you occupy... it could be a quick 50 bucks.)
Comparing suburban to urban dynamics, a tenant can expect to pay a rent premium of one third to one half for downtown Boston space, Jon figures. In Q4, Davis paid $43M for Tower Point, a 155k SF brick-and-beam office building in the Seaport that was 75% leased (above are Davis' acquisition team members, managing director John Frey and associate Sean Coffey). Of the remaining 40k SF, Davis is negotiating with tenants for 30k SF, and it’s likely to be stabilized by mid 2015, about a year ahead of schedule. At Davis ' other Seaport property, 24 Farnsworth St, the Unitarian Universalist Church will move into 40k SF in April, bringing the 74k SF building to 100% occupancy.
Jon, whose company owns about 12M SF and in '12 raised a $414M fund, recently moved his HQ downtown. The urban premium is worth it (above, director of operations Larry Lenrow shows us the new open-plan digs... we don't want to give him any bad ideas, but that hallway is perfect for desk chair drag racing). Jon says he often runs into business associates and has more dining and entertainment choices. He started working in real estate by renting apartments in ’72, while a sophomore at Brandeis. As a senior, he used a credit card for the down payment on his first property: a $28k, triple-decker in JP now valued at about $1.2M. Jon says he was captivated by the creativity of finding new uses for old properties and by the “art of the deal.”
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