Alexandria Real Estate to Buy One Kendall Square for $725M

DivcoWest acquired One Kendall Square back in 2014 for $395 million from Rockwood Capital and Related Beal.

EAST CAMBRIDGE, MA—Alexandria Real Estate Equities, Inc. reports it has entered into a definitive agreement to purchase the life science One Kendall Square complex here for $725 million. The Pasadena, CA-based urban office REIT is purchasing the 644,771-square-foot property from DivcoWest of San Francisco. Alexandria Real Estate states in a 8-K filing on July 6 ^th with the SEC, that the deal to acquire the seven-building science and technology campus includes the assumption of a secured note with an outstanding balance of $203 million. The note matures in February 2024 and bears an interest rate of 4.82%. Alexandria states in the filing that it is in the process of obtaining approvals for the assumption of the secured note and expects to close on the purchase of the property in the next several months. DivcoWest acquired One Kendall Square back in 2014 for $395 million from Rockwood Capital and Related Beal, which paid $211 million for the complex in 2006. The seven-building complex is currently 98.5% occupied and consists of 48% office, 36% laboratory, 16% retail or other space. The property also features a 1,530-space parking garage. The company touts One Kendall Square’s proximity to the company’s Alexandria Center at Kendall Square, Alexandria Technology Square, as well as MIT. The firm says the deal provides an “excellent opportunity to expand our urban innovation campus strategy in Cambridge and significantly increase One Kendall Square net operating income and cash flows post acquisition.” The company notes that it has the opportunity to increase the cash flow in the neat term because the average $47-a-rentable-square-foot in-place rents is below market and 55% of the property’s contractual lease expirations run through 2019. Alexandria also notes that there is opportunity for conversion of office space to lab space, which would thus generate significantly higher rents. Other positives include solid market demand for space with very limited supply as well in Cambridge as well as an entitled land parcel that could yield near term ground-up development of an additional 172,500 square feet. “We believe the One Kendall Square Acquisition provides the opportunity for us to grow the initial stabilized yield from 5.8% to 6.4% and initial stabilized cash yield from 4.7% to 6.2% upon completion of the ground-up development and near term lease renewals and re-leasing of space,” Alexandria Real Estate tells the SEC in its filing. Alexandria Real Estate currently owns approximately 5.6 million square feet of science technology space in the Greater Boston/Cambridge market. The company announced last week that it had closed on the public offering of 7,475,000 shares of the company’s common stock at a public offering price of $101.00 per share, including 975,000 shares sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares of the company’s common stock. In connection with the offering, Alexandria entered into forward sale agreements with Bank of America, N.A., Citibank, N.A. and JPMorgan Chase Bank, N.A Alexandria Real Estate reports it will not initially receive any proceeds from the sale of shares of its common stock by the forward purchasers (or their affiliates) in the offering. Alexandria states that it expects to use the net proceeds, if any, it receives upon the future settlement of the forward sale agreements to fund the pending acquisition of One Kendall Square.