LOS ANGELES—Boston Properties has entered into a binding agreement with Blackstone to acquire a 49.8% interest in the Colorado Center, a six-building 1.2 million square foot office property in Santa Monica. The transaction is valued at $511.1 million, and will be funded through the firm's existing cash balances. This deal marks Boston Properties' foray into the West Los Angeles market.

The transaction is expected to close in July, and in the interim, Boston Properties has put up a $25 million deposit. Blackstone had obtained the property as part of the Equity office portfolio, and according to industry sources, the total value of the property is $1.03 billion. The other ownership entity at the property is a joint venture between Teachers Insurance and Annuity Association. Boston Properties will serve as the joint venture manager.

This was an attractive opportunity in a high profile and stable market, according to Aleks Trifunovic, president of Lee & Associates West Los Angeles and a market expert who was not involved in the transaction. “This is a safe play coming into the market. Santa Monica is probably the most stable market in Los Angeles in terms of office; it is where most people want to be,” Trifunovic tells GlobeSt.com. “The Colorado Center is really one of only a few options where you could get large floor plates, and that lets investors have the types of tenants that they want. There are not a significant amount of negatives here if you are a fund looking to place money. This will always be a staple in the market.”

Blackstone brought the offering to market in January of this year with a value of $600 million or $1,000 per square foot. “You have seen velocity in the marketplace,” adds Trifunovic. “I know that they wanted to get $1,000 per square foot, and they didn't get there. But, they still sold the property, and I am sure that they did just fine on their returns.”

The property is currently only 68% leased, largely due to Yahoo's 256,000-square-foot exit from the building last year, but the firm has big plans to drive occupancy and value. It believes it can lease up 370,000 square feet of space at $10 per square foot greater than the weighted-average rental rate on in-place leases, according to the company. This will drive net operating income at the property, which the firm believes will boost its projected 2016 diluted Funds from Operations by approximately $0.05 per share.

With limited options in Santa Monica for large floor plates, the firm will have an easier time driving leasing at the property. “In terms of competition, you are really looking at Playa Vista, where you are have seen tenants flow down from Santa Monica, but that space is full for the most part,” says Trifunovic. “From a competition standpoint, if there is a 50,000-square-foot to 200,000-square-foot user, you are going to see every one of those users look at the Colorado Center. So, you are always going to have an opportunity because you are one of the few options in the market.”

The massive property includes a three-level underground parking garage as well, but its main pull is clearly the location. It sits on a 15-acre site in the media district of Santa Monica, and is only one block from the Bergamot Station for the new light rail, adding additional value.

Boston Properties did not respond to a request for comment.

Instant Insights /

Boston Properties Buys $511M Stake in Colorado Center

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