Blackstone scores rare premium in Boston office building sale
The investment firm has also offloaded certain office properties
[BOSTON] Blackstone sold an office building in Boston’s Back Bay neighbourhood, eking out a modest premium over its original purchase price in a rare deal for the city’s struggling commercial property market.
The investment firm sold a 13-storey office building located at 399 Boylston St to DivcoWest for US$125 million, according to a deed filed on Tuesday (Nov 4). Blackstone acquired the property for US$117 million in 2014. The purchase price works out to more than US$500 per square foot, significantly higher than other recent deals in Boston’s commercial centre, albeit with a limited sample size.
Office vacancies in Back Bay, which also includes the retail destination Newbury Street and some of the city’s priciest brownstones, are lower than they are in downtown Boston. About 18 per cent of Back Bay office space was available to rent in the third quarter, compared with nearly 27 per cent for the central business district, according to CBRE Group.
Representatives for DivcoWest and Blackstone did not immediately have a comment on the transaction.
The Boylston St building, located a half block from Boston’s Public Garden, is just the second office property of at least 200,000 square feet (18,580 square metres) to be sold in the city this year, according to CoStar Group data. Office investment activity in Boston dropped off starting about three years ago, when interest rates began rising and the permanence of the Covid-19-fuelled shift to hybrid and remote working arrangements became clearer.
Boston’s fiscal health is particularly vulnerable to the decline in office demand, with about a third of its tax revenue tied to commercial property levies. By comparison, cities such as Chicago, Miami, New York and Washington rely on such taxes for between 5 and 15 per cent of their revenue.
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Boston Mayor Michelle Wu has sought to counter the squeeze on the city’s finances by temporarily raising commercial property taxes. She was thwarted by state lawmakers last year but is still seeking ways to revive the push in order to prevent homeowners from bearing a greater share of the tax burden.
Wu is poised to cruise to reelection on Tuesday after beating Josh Kraft, her top challenger and the son of New England Patriots owner Robert Kraft, handily in September’s preliminary contest.
Boston is lagging other US cities in the post-pandemic return of workers to offices. Office visits this September were less than two-thirds what they were in September 2019, according to data from tracking firm Placer.ai. Cities such as New York, Miami and Dallas are much closer to pre-Covid-19 activity levels.
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Blackstone has invested in some office deals over the past year, after an extended period in which the firm retreated from the property type and reduced its exposure. In January, Blackstone president Jon Gray said that the office market had “bottomed”, specifically in stronger markets and higher-quality buildings. Its real estate business recently purchased stakes in two offices in Bellevue, Washington that are leased by Meta Platforms and acquired an interest in a Midtown Manhattan office tower.
The company and its BioMed Realty affiliate last year acquired three life sciences lab buildings in Kendall Square in Cambridge, Massachusetts. BioMed is co-developing Biogen’s new Kendall Square headquarters on land owned by the Massachusetts Institute of Technology.
Blackstone has also offloaded certain office properties. The company struck a deal last month to offload Manhattan’s Park Avenue Tower to SL Green Realty. BLOOMBERG
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