BXP Closes In On Next D.C. Office Development As It Shrinks Assets
The one developer building new office in Washington, D.C., is going for a triple.
BXP is nearing its third deal in two years to build a trophy office project in the city, executives disclosed on the company’s second-quarter earnings call Wednesday. They said the REIT is working with an institutional owner to put together a joint venture and hopes to have a lease commitment by the end of the year.
“We’re working on what we hope will be a third in the series here of opportunities in downtown D.C. with inbound clients,” BXP Executive Vice President Pete Otteni said on the call.
One possibility is that the deal revolves around 1133 Connecticut Ave. NW, a 184K SF office that Stream Realty’s second-quarter report says BXP is involved with. The prior owner's lender, the New York State Teachers’ Retirement System, took the keys at a foreclosure auction earlier this year.
“1133 Connecticut Avenue has emerged as the next Trophy redevelopment candidate following NYSTRS’ foreclosure acquisition and BXP’s involvement,” the report says. “BXP has issued a term sheet to an undisclosed anchor tenant with redevelopment dependent on securing a major prelease.”
A spokesperson for BXP didn't respond to a request for comment in time for publication.
The prospective deal is part of an ongoing development opportunity BXP sees in D.C. — law firms are searching for large trophy blocks, but little exists, and few developers are capitalized in a manner to execute such deals.
In the past year and a half, the REIT has inked deals to build two 320K SF trophy office properties for anchoring law firms — one at Metro Center and one in the West End. Those developments, set to deliver in 2029 and 2031, respectively, are the only office development projects known to be underway in the city.
“The D.C. team continues to field inbound requests from law firms that want us to identify sites and develop new projects like what we’ve achieved at 725 12th and 2100 M,” BXP President Doug Linde said on the earnings call.
Otteni said the company is “fielding conversations with clients directly, with the brokerage community and with site owners and, in some cases, lenders on those sites and thinking about those different opportunities.”
As the company looks for new opportunities, it is also in the process of offloading some of its D.C. assets. The REIT has two D.C. office buildings under contract to sell, scheduled to close next quarter, BXP Chairman and CEO Owen Thomas said.
“With the expected sale of two office assets, we are shrinking our District portfolio prior to adding our newly leased development,” Linde said.
One of those assets is likely a property at 17th and M streets northwest, also known as Sumner Square. In its Tuesday earnings release, BXP alluded to the “anticipated disposition” of the 210K SF property. It had disclosed at the end of May that it had agreed to offload the leasehold to the property for $63M, the Washington Business Journal reported at the time.
The other asset could be BXP's 1330 Connecticut Ave. NW, anchored by law firm Steptoe, which Stream's report says is under contract to Jemal Equities.
BXP, the largest publicly traded office owner, has holdings in five other markets besides the District: Boston, Los Angeles, New York, San Francisco and Seattle. But its best development returns have come from its D.C.-area projects, according to a Piper Sandler report published in October.
For its development at 2100 M, Sidley Austin is paying $98 per SF for its 240K SF triple-net prelease, according to Stream's report.
