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Boston Properties Bests Rivals With $616 Million Winning Bid for Santa Monica Business Park

Fierce Competition for 1.2 Million-SF Site Results in City's Highest Ever Sale Price, Reflecting Strength of Westside Office Submarket
April 24, 2018
In what could be one of the largest office sales ever in Los Angeles County, Boston Properties has agreed to pay Blackstone Group $616 million for its 1.2-million-square-foot Santa Monica Business Park.

The pending acquisition represents a major expansion into the Los Angeles market for Boston Properties, the newest of its five core markets. For Blackstone, the sale brings a high price for one of the last pieces of its 2007 acquisition of Equity Office Properties Trust, and stands as a testament to the continued strength of the Westside office market.

The publicly traded Boston-based office firm, one of the largest real estate investment trusts in the country, disclosed the blockbuster deal in its first quarter earnings report today.

The $616 million purchase, expected to close later this quarter, includes the entire 21-building office park, which is 94 percent occupied. Major tenants include disappearing messaging app Snapchat’s parent company, which occupies 300,000 square feet in the office park with an option to expand by an additional 100,000 square feet in the future. Other major tenants include Pandora Media Inc. and Activision Blizzard.

The majority of the 47-acre site at Ocean Park Boulevard and 28th Street in Santa Monica remains on a ground lease held by Transpacific Development Co., which built the office park in the 1980s. That lease, which holds an estimated value of about $250 million, has 80 years remaining on its term, but Boston Properties has the right to buy it out beginning in 2028.

When completed, the deal is expected to become the highest-priced office sale in the city of Santa Monica, and the highest total price paid for an office property in Los Angeles County since downtown’s City National Plaza sold for $858 million in 2013, according to CoStar records.

Boston Properties faced fierce competition from a handful of institutional and high net-worth investors for the right to buy the coveted office property.

Other bidders included Douglas Emmett Inc., Worthe Real Estate Group, Alexandria Real Estate Equities and Hudson Pacific Properties, according to brokers involved with some of those companies’ bids but not authorized to speak on the record.

Rumors that either Snap or SOHO China, a Beijing-based developer, had both made last minute bids on the property spread through the Los Angeles brokerage community over the weekend.

Final blind bids for the property were due last Friday and Boston Properties’ offer was selected Monday evening, according to a source involved in the deal.

The record-setting transaction shines a spotlight on the continued strength of the Santa Monica market, which is one of the stars of LA's Westside. The city is home to a number of start-ups and successful tech and media companies, ranging from Hulu to Riot Games that have helped earn the region the moniker "Silicon Beach." The area’s office market has been among the strongest in the country this cycle with both sale and lease prices at historic levels.

Steve Basham, senior market analyst at CoStar Group, publisher of CoStar News, said that, while office rent growth in the city has slowed since skyrocketing earlier in the cycle, the Santa Monica Business Park deal reflects bullish long-term investor views on the city, which is nearly fully built-out and development-adverse.

"The area is insulated from downturns," Basham said. "It’s a diversified area with high-credit tenants. This is a unique asset because no one is coming in to Santa Monica to build another 1.2 -million square foot office complex."

For Boston Properties, which owns about 50.3 million square feet nationwide composed of offices, residences, retail properties and a hotel, the Santa Monica Business Park will be an important expansion of its presence in the Los Angeles market.

Company officials has been eyeing an expansion in Los Angeles as its fifth core market since 2016 when it acquired its first foothold in L.A. after acquiring a 50 percent stake in an existing joint venture with Teachers Insurance and Annuity Association at Santa Monica’s 1.1 million-square-foot office complex Colorado Center for about $500 million.

Boston Properties’ portfolio includes the 1.2 million-square-foot Times Square Tower office building in New York, the 3.3 million-square-foot mixed-use Embarcadero Center in San Francisco and the 3.6 million-square-foot mixed-use Prudential Center in Boston.

The contract sale price of $616 million amounts to about $513 a square foot. In total value, this is the highest priced office sale in the city of Santa Monica since Worthe Real Estate Group’s sale of 2600-2800 Colorado Ave., a 315,000-square-foot office project, to Oracle Corp. for $368 million, or about $1,166 per square foot, in 2016, according to CoStar records.

In the county of Los Angeles, it will be the priciest deal since CommonWealth Partners Management Services LP bought the 3 million-square-foot City National Plaza complex at 515 S. Flower St. in downtown L.A. from CalSTRS in 2013 for $858 million, or $284 a square foot.

The seller is a unit of private equity giant Blackstone Group, which acquired the office property at 2850-3420 Ocean Park Blvd., next to the Santa Monica Airport as part of its $39 billion buyout of Chicago’s Equity Office Properties Trust in 2007.

Blackstone has been shopping the 47-acre property with Eastdil Secured since last year as part of a push to sell the three major properties acquired through that buyout. The others are a 32-story office tower at 100 Summer St. in downtown Boston and the rights to a ground lease under San Francisco’s Ferry Building.

Boston Properties is expected to close on the acquisition during the second quarter.
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