Boston Properties In Talks To Buy First Office Building In London-Sources
March 06 2012 - 10:47AM
Dow Jones News
Boston Properties Inc., one of the nation's largest office
landlords, is in negotiations to buy Drapers Gardens, a trophy
office building in London's financial district, for GBP285 million
pounds ($450 million), according to people familiar with the
matter.
If Drapers Gardens sells, it would be the second time in two
years that the building changes hands. It was sold to Evans
Randall, a private equity firm, in 2010 for GBP242.5 million ($385
million) by Canary Wharf Group, a unit of Morgan Stanley Real
Estate Fund, and Exemplar Properties, a London developer.
The deal would mark Boston Properties' first acquisition of an
office building in London and comes as foreign buyers have
stampeded into London's office market in recent years. Nearly 60%
of the buyers of London office buildings were foreign investors
between 2008 and 2011, according to CBRE Group. Most of the foreign
investment came from Canadian pension funds, private equity money
from Malaysia, and investors in South Korea and elsewhere.
Boston Properties declined to comment, but the company has said
in the past that it was eyeing Britain's capital and largest city.
"We have looked seriously at London ... as a possibility of another
market opening up to us," said Mort Zuckerman, chief executive of
Boston Properties, according to a transcript of the company's
third-quarter conference call. "But we're going to be very careful
about how (we) go into markets."
Demand has been strong for London office buildings in part
because it's perceived as ultra safe. London tenants usually sign
long-term leases that aren't subject to rent reductions, unlike New
York and other cities where tenants can often request and receive
rent concessions during weak economic times.
Even though rents in London have been relatively flat in the
past few years at around GBP55, or $87 per square foot, investment
bankers say big investors are drawn to London. "The upward only
rent ... provisions and the ... long-term leases are important
factors in attracting capital," said Simon Barrowcliff, executive
director of Central London Investment for CBRE.
The London acquisition isn't the first time that Boston
Properties has sought new markets. The company, which is known
mainly as an office landlord, was among a handful of REITs to
recently make a foray into developing and operating apartment
buildings.
Some analysts remain wary of companies entering markets with no
on-the-ground training or local partners to guile them. This is
"not the first time we question a U.S. REIT management's appetite
for overseas adventures," wrote David Harris, an analyst Imperial
Capital in a recent report. He noted that Drapers Gardens is so
safe and low yielding that Boston Properties isn't likely to get
much bang for its buck.
Drapers Gardens' sole tenant is investment firm BlackRock, which
signed a 25-year lease agreement in 2010 that calls for modest rent
increases after five years ranging between 2.5% and 4.5%.
Mitch Germain, an analyst at JMP Securities, said playing it
safe is probably a wise move because it gives Boston Properties
room to soak in the market first without risking a serious misstep.
"I rather that (they buy) a stable property ... to get their foot
in the door and then follow up when they really get a sense of the
operating history there," he said.
-By A.D. Pruitt, Dow Jones Newswires; 212-416-2197;
angela.pruitt@dowjones.com
Boston Properties (NYSE:BXP)
Historical Stock Chart
From Mar 2024 to Apr 2024
Boston Properties (NYSE:BXP)
Historical Stock Chart
From Apr 2023 to Apr 2024