The Real Deal New York

Boston Properties sees market ripe for asset sales

REIT is also toying with entering residential market in a bigger way

July 31, 2013 06:00PM
By Hiten Samtani

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Mort Zuckerman and the GM Building at 767 Fifth Avenue

Mort Zuckerman and the GM Building at 767 Fifth Avenue

The capital markets’ hunger for trophy assets has led Boston Properties to focus on investment sales rather than acquisitions, executives for the real estate investment trust said during its second-quarter earnings call.

“Cap rates are very low, while rent growth is still in the early stages,” CEO Owen Thomas said. “What this means for us is that we are finding new acquisitions challenging.”

The growth potential of some assets in Boston Properties’ portfolio, Thomas added, is less than what it would be to another buyer, creating an environment ripe for sales.

Chairman Mort Zuckerman added that despite a floundering economy, Boston Properties’ strategy of zeroing in on core assets in top-tier cities had helped them prosper.

“Although we are not happy to be part of a national economy that is so weak,” Zuckerman said, echoing his recent scathing op-ed in the Wall Street Journal, markets such as New York City had outperformed the U.S. economy. The REIT has actively been building its financial clout and positioning itself to pick up more assets in the future, he added, “just as we did in ’07, ’08 and ’09.”

A major focus of the call was the GM Building at 767 Fifth Avenue. Boston Properties enjoyed a net gain of about $363.4 million on its 60 percent stake in the building, due to the Safra and Xin families’ recent $1.4 billion purchase of a 40 percent stake that increased the market value of the property to $3.36 billion, as The Real Deal and others have reported.

President Doug Linde asked participants to let him know if his voice started to tremble during the call, a tongue-in-cheek reference to his 50th birthday today. He discussed the potential sale of the 48-story Times Square Tower at 7 Times Square, which industry analysts believe could fetch north of $1 billion.

“This transaction could ultimately be in the form of a 100 percent sale or a partial interest with a new joint venture partner,” Linde said, though he declined to name potential buyers.

Other highlights of the quarter include the $470 million sale of 125 West 55th Street – in which the REIT had a 60 percent stake – to JPMorgan Asset Management, and increased leasing activity at its under-construction tower at 250 West 55th Street, including the signing of a major 260,000-square-foot lease with law firm Kaye Scholer.

“As we got to the point where the building was ready to be opened, it sort of naturally became more real to the marketplace,” Linde said, explaining the uptick in activity at the million-square-foot tower slated to open in 2014.

The REITs’ New York City portfolio stood at 95.2 percent leased at the end of the second quarter, a year-over-year increase of 1.5 percentage points. In total, Boston Properties signed 152,000 square feet worth of leases during the quarter and another 56,000 square feet in the first few weeks of July.

Thomas indicated that a greater play for residential properties could be in the cards for the REIT, but declined to identify specific markets. He did mention, however, that the REIT knew “fully that we do not have either the competency at the moment or the portfolio size to be a great operator of residential properties,” and that it would not be a focus of their portfolio.

Investing in residential properties “gives us another arrow in our quiver,” Zuckerman noted, adding that the REIT would keep its eyes open for the right assets.

  • ralphpetrillo

    Wow if he is getting out, then this is a major sell signal.

    • edward lohr

      Castle Brands Inc. (ROX) a Philip Frost MD., company is searching for
      new headquarters

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