Boston Properties CEO Owen Thomas said the company’s recent foray into Los Angeles – with the $500 million-plus acquisition of a stake in Santa Monica’s Colorado Center – is the first step in establishing L.A. as its fifth core market.
Speaking at NAREIT’s REITWeek 2016 Investor Forum at the Waldorf Astoria in Manhattan on Wednesday, Thomas said L.A. fits the bill as the Boston-based real estate investment trust’s next market because “highs are generally higher, and lows are generally higher, from a rent perspective.”
The nation’s largest office REIT is already active in its hometown, as well as in New York, Washington, D.C., and San Francisco.
Thomas said that while “pricing for core leased assets in our markets remains robust,” the Colorado Center acquisition is “an opportunity for Boston Properties to do what it does well” in a new environment.
It plans on creating new value at the six-building, 1.1 million-square-foot Colorado Center. The company acquired an almost 50 percent stake in the property from Blackstone Group for north of $500 million last month, as The Real Deal first reported.
While financial services giant TIAA owns the other half of the complex, Boston Properties will be responsible for managing and leasing the property. Thomas said the REIT will look to “create additional yield” at Colorado Center via increasing the complex’s occupancy and replacing current, below-market rents as leases roll up.
It also intends to use the acquisition as an opportunity to gradually step up its presence in Los Angeles. Thomas said the company will look to grow its team and personnel in the market “incrementally over time,” with the goal of having L.A. “become the fifth market for Boston Properties.”
Boston Properties president Doug Linde also spoke at the forum, discussing the REIT’s other core business areas. He outlined expectations for “a more moderated market” in New York City.
“Big picture, what we’re seeing in Manhattan is what we expected to see 3-4 years ago,” Linde said, noting how an influx of new office supply in Manhattan’s Downtown and Far West Side office submarkets – via developments like the World Trade Center and Manhattan West, respectively – has led to a game of “musical chairs” among large-block office tenants. This has “created a big, large block of unleased space” in the traditional Midtown office market, Linde said.