What Else Is Boston Properties Up to Here?

WASHINGTON, DC—Boston Properties has been busy in the Washington DC market, busier than perhaps many realize. With the release of its second quarter earnings, the market caught a glimpse of what it has been doing. For one transaction it has formed a joint venture to acquire Fountain Square, an 811,000-square-foot, three-building complex in Reston. The building is trading for $413 million, or $509 per square feet with an in place cap rate of 5.6%.

It also has a binding agreement to sell 505 9th St. NW, a 321,943-square-foot office building that built and developed by Boston Properties in 2007 for $318 million, or $985 per square foot. For this deal the in place cap rate is expected to b 4.4%.

What else is the REIT planning for its local assets, or would-be assets? Boston Properties did not return a request for further information so we examined recent comments executives have made at recent industry events and in earnings conferences to get a sense of where it is headed.

For starters, and actually a quick look at its holdings also tells us this, the REIT does like Reston's fundamentals. As CEO Owen Thomas said at the recent NAREIT REITWeek Investor Forum, of the company's 45 million square feet, 80% is located in the CBD. The rest are suburban assets and a roughly half of that 20% is Reston Town Center.

We also learned from comments made by president Doug Linde that the company is "in the throes of fighting for a 650,000 square foot build-to-suite for the TSA on a site the company owns in Springfield, VA.

The DC team is also engaged in a "heated battle" for a tenant that would take up the 500,000 square feet for a site on 1001 Sixth St., NW, in the Mount Vernon Triangle. Right now the site is a parking lot co-owned with Steuart Investment Co.

"So really good activity in the face of a pretty weak demand picture," Linde said.

You get the sense, however, that the REIT's heart belongs to Reston, at least for the local market. In an earlier earnings call, one of the executives told listeners that "Reston Town Center continues to be the best performing market in the DC region. Its combination of walkable retail, high-quality new multi-family, community programming and improving access to Metro all continue to draw new tenants to that market."

Reston Town Center is where the REIT has its eyes on another development for the area: a 600,000 square foot residential and retail project. That, plus three different potential build-to-suit opportunities in the market represent an aggregate of 1.3 million square feet of possible development in the foreseeable future.