BOSTON-Tenant cautiousness, the shrinking footprint of office users and greater efficiencies have all taken a toll on commercial real estate throughout the country, but core markets – like New York, Boston, Washington, DC and San Francisco’s Silicon Valley – have all remained steady from a development and leasing standpoint, chief executives explained during Boston Properties’ third quarter earnings call on Wednesday morning.
The REIT reported FFO of $176.1 million in Q3, compared to $190.3 million in Q3 2011. While the decline was related to the impact of early extinguishment of debt, the company noted a robust development pipeline, totaling 2.7 million square feet of construction across the portfolio. Notably, BXP formed a joint venture with an affiliate of Hines to acquire a development site in San Francisco that could support a new 61-story, 1.4-million-square-foot skyscraper, which will be called Transbay Tower. In addition, the REIT also acquired a development project at 680 Folsom St. and 50 Hawthorne St. from Rockwood Capital and TMG Partners in San Fran, which when completed, will comprise approximately 522,000 net rentable square feet of office space and retail space.
Other current construction projects in BXP's pipeline include Annapolis Junction Building Six in Annapolis, MD; 500 North Capital Street NW in Washington, DC; Two Patriots Park in Reston, VA; Seventeen Cambridge Center in Cambridge, MA; and the Avant at Reston Town Center, a 359-unit multifamily project in Virginia.
The leasing front, however, is slightly different. Describing the Manhattan market as “stuck in neutral,” company president Douglas Linde said while the city’s availability rate is 12% and companies are generally more cautious from a tenant perspective, the REIT managed to “slug it out and do leases.” Linde expects that 250 W. 55th St. – the company’s 1.1 million-square-foot office development expected to be completed in 2014 – will be 50% leased by year’s end. Following commitments by large corporate tenants, he said the company is now heavily focusing on the building’s multi-tenant floors on 25 through 38, which are geared toward users under 100,000 square feet. In 2011, law firm Morrison & Foerster committed to anchor the tower, and this year, rumblings of a second law firm tenant – Kaye Scholer – swirled around real estate circles.
Further east, Linde said the company leased 134,000 square feet at 399 Park Ave., achieving rents in the mid to upper $90s. Overall, he explained that while cautiousness remains in New York, tenants are either expanding or renewing. “This is a segment of the market that is about business confidence, and it is slow and steady,” he said. “We continue to see velocity."
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