Boston Properties Forms $2B Office JV with Two Sovereign Wealth Funds

On its Q1 2021 earnings call, CEO Owen Thomas announced that Boston Properties is forming a JV with two unnamed sovereign wealth funds to form a $2 billion investment venture.

The investment venture will help Boston Properties better compete for opportunities in its core markets, which remain competitive, according to Thomas. Thomas said the partnership will help the REIT enhance its financial resources, execution speed and return. The company will announce the completion of the alliance and the participants once documentation is complete. That is likely to occur in the next month.

The REIT and its partners will commit up to $1 billion each and have the opportunity to invest one-third of the equity in each identified deal at their discretion. In addition to providing all real-estate services, Boston Properties will commit its acquisition deal flow to the partnership subject to a specific carve-out.

“We believe this venture, with approximately $2 billion of investment capacity, provides us the financial resources and return enhancement to be an even more nimble and competitive participant in the acquisitions market,” Thomas said in the earnings call, which was transcribed by SeekingAlpha.

Despite questions about when and at what levels companies will bring people back to the office, Boston Properties remains bullish on the return of occupants. In fact, Thomas was confident of the market even in the darkest days of the pandemic last year when it seemed that companies were moving wholesale to remote working.

Based on data from VTS, Thomas says tenant requirements in its target markets in March were up 33% versus the prior month and 51% versus the previous year. Still, they are down 40% from pre-pandemic levels. While few employers are mandating in-person work, Thomas cites return-to-work announcements from large employers like Google, Goldman Sachs, JP Morgan, Ernst & Young, Facebook, Amazon and Apple as reasons for optimism.

Thomas sees Labor Day as a critical tipping point for employees returning to the office. “We hear repeatedly from our clients, as well as in interviews we have completed with large occupiers, that the key to future success and competitiveness is to successfully reintroduce in-person work,” he said. “Unlike most recessions, most of our clients are thriving and have not reduced headcount. In our leasing activity and renewal conversations with clients, we have not seen material reduction in space requirements.”

Recent data backs Thomas’ optimism. Office demand surged in March, rising 28% from February and 161% in Q1 2021, according to the VTS Office Demand Index (VODI). Demand is now just 9% below pre-pandemic levels.

If the current pace continues, demand for office space in April 2021 could meet or exceed pre-pandemic levels.