Boston Properties was an active seller toward the end of the last real estate cycle, selling trophy office towers like 280 Park Avenue for $1.2 billion in 2006 and 5 Times Square for $1.3 billion in 2007.
But don’t expect the real estate investment trust to put any of its prime assets on the block anytime soon.
“We have been more reticent market-timer-sellers of our high quality assets this cycle,” CEO Owen Thomas said during his keynote address Thursday morning at the NYU Schack Institute of Real Estate’s annual REIT symposium.
Instead of cycling capital through selling and buying office properties, the company is adopting a strategy of selling partial stakes – such as the 45 percent interest in a trio of buildings it sold to Norges Bank in 2014 for $1.5 billion – and pumping that capital into new construction.
“Almost all our new investment is coming in development versus acquisition,” he added.
Thomas – who took over the CEO job in 2013 and goes by the nickname “O.T.” – kicked off the 22nd annual symposium at the Pierre Hotel discussing Boston Properties’ transition from a “founder-led” business at a time of uncertainty, both for the real estate industry in general and REITs in particular.
Thomas said that the strategy of buying low and selling high has become particularly difficult, so the company is instead focused on creating value through development.
Boston Properties had a deal in place to develop a new skyscraper on the site of the Metropolitan Transportation Authority’s Midtown headquarters near Grand Central Terminal, but plans appear to have fallen apart since officials last year questioned tax breaks being offered to the developer.
And the REIT is currently teaming up with Rudin Management to develop the 675,000-square-foot Dock 72 office building at the Brooklyn Navy Yard, which will be anchored by WeWork. In January they landed a $250 million construction loan for the project, which is expected to be completed next year.
Thomas added that uncertainty over policies coming out of Washington, D.C., and interest rate increases make it difficult to underwrite growth in the near term.
And when it comes to REITS, he said the industry is still waiting to see more dollars from general investors after S&P Down Jones last year created a new sector specifically for real estate.
“There was a view that this would create lots of flows into the REIT market, because generalist investors – not REIT dedicated investors – would have to get more market-weight in the real estate business,” Thomas said.
“Well, that has not happened,” he added. “At least so far, it hasn’t created significant or any fund flows into public real estate.”