Boston Properties, CPP Investments, GIC Form Co-Investment Program

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Boston Properties Inc., Canada Pension Plan Investment Board and GIC, Singapore’s sovereign wealth fund, have established a co-investment program to acquire office properties in the U.S.

Through the program, the partners reportedly intend to “selectively acquire and operate office properties in BXP’s (Boston Properties’) core markets—Boston, Los Angeles, New York, San Francisco and Washington, DC, as well as Seattle.”

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The partners have targeted a total of $1 billion of equity to the platform, with BXP and CPPIB each allocating $250 million and GIC allocating $500 million. With appropriate leverage, this should allow for an initial investment capacity of about $2 billion, according to the partners.

“This new co-investment program underscores the attractiveness of Class A office investment opportunities in our markets,” BXP CEO Owen Thomas said in a prepared statement. BXP is the nation’s largest publicly traded developer, owner and manager of Class A office properties.

Adam Gallistel, managing director of Americas Real Estate, GIC, added that the program is intended to “capitalize on an uptick in demand stemming from a return to the office and the reopening of America’s great cities.”

Under the agreement, BXP will over the next two years provide CPPIB and GIC with exclusive first offers to form joint ventures with BXP to invest in acquisition opportunities that meet the program’s target investment criteria, subject to certain exclusions (including ground-up development). BXP will act as general partner and provide customary property management, leasing and other services.

Hodes Weill & Associates was exclusive advisor to Boston Properties on the co-investment program.

Caution warranted

Early last year, BXP made a rather different play, by teaming with Alexandria Partners to create a life sciences campus in South San Francisco, Calif., that will combine both existing buildings and developable land the two REITs had owned separately.

Around the same time, BXP broke ground on 325 Main St., a 420,000-square-foot office building in Cambridge, Mass. Google had already signed on to be the anchor tenant.

READ ALSO: How the Economic Recovery Is Shaping CRE’s Future

The overall U.S. office vacancy rate rose by 100 basis points in the first quarter to 14.2 percent, partly because of net negative absorption topping 45 million square feet, according to a market outlook released by Colliers in May. In addition, the nationwide sublease market hit 200 million square feet for the first time.

All this was despite progress with vaccinations, federal stimulus payments and broad improvements in the economy and employment. However, asking rents have remained steady for the most part, according to the report.