Boston Properties' undeveloped land increased by 45% over the last 18 months, but its developed and under construction properties increased by only 23% during the same period. "Their land bank is starting to grow at a faster rate than the rest of their assets," explains SEIU Researcher Martin Thomas. "A [land bank] buildup typically causes a drag on a REIT's resources – they make an investment acquiring land and pay property taxes, but they're getting little or no income." The company's core markets are Boston, Washington, DC, Midtown Manhattan and San Francisco.

The report--based on a recent Boston Properties Securities and Exchange Commission filing--comes from SEIU-sponsored Boston Properties Watch, an information service that provides news on the Massachusetts-based REIT to shareholders, tenants and relevant officials; it operates independently of Boston Properties. "We think it's important for investors to know that they're accumulating a lot of land on which they're not making any profit," Thomas says. "It could have an impact on dividends or on their profits."

Changes in the economy have led to soft markets in some of the areas where Boston Properties holds undeveloped land. As of the end of the third quarter, US office vacancies have increased to 12.3% from less than 10% for the same period in 2000. Metropolitan areas are sustaining the hardest hits. The company owns 64 undeveloped acres of land in Boston, where vacancy rates can be as high as 20%. And in San Jose, California, where vacancies have climbed steadily over the last year, Boston Properties owns 3.7 such acres of land.

But not all analysts concur with the SEIU view. According to David Loeb, senior analyst at Friedman, Billings, Ramsey & Co. Inc. the report is essentially a tactic. " A number of the unions in the real estate industry use it. When they're in battles over something, they often go to investors with something like this. It's a union-commissioned piece designed to influence investors."

Furthermore, Loeb encourages investors to add Boston Properties stock to their portfolios. "I currently have a "buy" rating for Boston Properties. I think people should buy [their stock].That's my current advice."

The REIT is also vulnerable due to litigation on properties in Framingham, MA and Montgomery County, MD. The company may be able to counter some of the effects of its accumulated land bank, through revenue from many of its leases. Thomas notes that, "in some ways, they're well positioned because they've logged lots of long-term leases."

Adds Loeb, "I'm not overly worried about their land bank. This is a multi-billion dollar company."

Boston Properties did not return calls for comment.

Instant Insights /

Washington Analyst Says Boston Properties' Land Bank is Dangerously Large

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