One of the biggest changes from the beginning of 2007 to thebeginning of 2008, REIT president Douglas Linde noted was thedramatic turnaround in the credit markets. "Last year when we hadthis call, we were talking about the strong demand, rising rentsand--most importantly--robust capital flows," the BostonProperties' chief said. This year, by contrast, Linde said "overalldemand is still healthy, rents still seem to be rising, albeit at aslower pace, but the capital markets are anything but robust." Hecited an example of how unpredictable those markets have become inthe past year.

|

In November, Boston Properties locked in $525 million ofunderlying 10-year Treasuries at an average interest rate of about4.63%. "Clearly, we did not anticipate the turmoil and theresulting rally in bonds or the 100-plus basis points reduction inshort-term rates by the Fed that has occurred over the past 60days," Linde said. "Consequently, it is with some caution that wediscuss the impact of the current financial environment on ouroperating portfolio."

|

Although the financial markets turmoil has reduced theavailability of funds and raised the cost of capital, Linde said it"has not produced any discernible impact on our operations." Hesummarized conditions in New York City, Boston and Cambridge, SanFrancisco and Washington, DC, where occupancy in general is highand demand remains strong.

|

Although Boston Properties expects that unemployment will riseand job growth will slow, Linde admitted "at the same time, weconfess uncertainty in predicting the significance or the timing ofthese factors on our markets."

|

Location will remain a crucial factor this year as always, Lindesaid, pointing out that the importance of location "is not just bymarket, it's by street address or corner." For Boston Properties,he said "the good news is that the current availability is verylimited in our markets and there still is growing demand."

|

Linde cited a Midtown Manhattan vacancy rate that is still under5%, with an availability rate that is projected to remain under 8%in the next 12 months. Its market rents were up about 4% in thefourth quarter and more than 25% in 2007.

|

Just before the New Year, the REIT signed its first lease at 250W. 55th St., a new Midtown tower that it has under development. Thetenant is Gibson, Dunn & Crutcher, which will be expanding from170,000 sf at 200 Park Ave. into 222,000 sf at the top of the new250 W. 55th St. tower in 2010 when that building is delivered.

|

Boston Properties is in discussions with other tenants, alldriven by lease expirations that could potentially fill all of theremaining space at 250 W. 55th St. "My point is not that we arefully committed, but rather that there continues to be activity andthat there are tenants that must make leasing decisions," Lindesaid.

|

Linde cited generally sound conditions in the Boston, Cambridge,San Francisco, Silicon Valley and Washington, DC markets as well.He pointed out that in some cases, such as the Greater Boston area,vacancies have declined despite a number of larger corporatemergers that have dumped sublease space into the inventory.Washington, DC is probably the only market where supply is anissue, but it happens to be a market in which Boston Properties'portfolio is 99% leased and with its least amount of rollover in2008, Linde pointed out.

|

"There is no doubt that everyone is concerned about the economyand the boards of lots of smaller companies are being very cautiousabout major decision-making," Linde said. "I'm sure this is goingto start to slow things down."

|

Boston Properties, with a portfolio of nearly 44 million sf anda 95% occupancy rate in its operating portfolio, posted afourth-quarter FFO increase to $147.5 million compared with $141.9million in the previous year's fourth quarter. Its full-year FFOrose to $562.5 million from $527.7 million in 2006. Net income,which climbed to $123.8 million from $71.7 million for the fourthquarter, increased to more than $1.3 billion in 2007 versus $873.6million in 2006.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.