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Boston Properties, the largest publicly traded owner, developer, and manager of Class A office space in the U.S., has long had a presence in Boston (where it was founded in 1970), New York City, Washington D.C., and San Francisco. These major cities have been the REIT’s focus, excluding a more recent entry into Los Angeles. As more Americans migrate to the Sunbelt and cities like Dallas, Atlanta, and Austin, real estate money has followed them. Boston Properties could’ve chased the crowd and moved into these cities, but executives say the logical expansion of their investment strategy was in another city: Seattle. Seattle is known by some as a secondary real estate market but is on the cusp of becoming a gateway market as its economy and population grow.
In July 2021, Boston Properties announced its acquisition of the Safeco Plaza, a 50-story, 800,000-square-foot Class A office property in Seattle. The purchase marked the REIT’s initial entry into the Seattle market, and, true to the company’s form, the property is LEED-Platinum certified and has a prominent position in the city’s skyline. Boston Properties acquired the building through a joint venture with a participant in its recently announced Co-Investment Program, and the gross purchase price for Safeco Plaza was about $465 million.
Safeco Plaza occupies an entire city block in Seattle’s central business district and is billed as a highly desirable location for tenants because of its superior walkability and transit access. The property was 90 percent leased when Boston Properties purchased it, with a 17-year average tenure among the biggest tenants. “Safeco Plaza is an important initial foray into the Seattle market, reinforcing our rich history of owning, managing, and improving premier, Class A properties in each of our chosen markets,” Boston Properties’ CEO Owen Thomas said in 2021. “This acquisition provides an excellent platform for BXP to expand and grow in one of the strongest office markets in the United States.”
The company’s initial foray into the Seattle market was big, but its second acquisition was even larger. Boston Properties made a splash in May 2022 when it acquired Madison Centre, a 760,000-square-foot, 37-story office tower, for $730 million from Barings and Schnitzer West. Newmark brokered the deal, the largest multi-tenant office sale in the nation at the time it was completed. The asset had garnered significant interest from foreign investors, a trophy building in a Seattle market many believe has improving fundamentals. Madison Centre was 93 percent leased at the time of sale and houses 20 diverse office tenants, along with a boatload of amenities like a rotunda with a three-story fireplace, a 5,200 square-foot fitness center, and a private rooftop deck. The office tower is also in Seattle’s central business district, just five blocks south of the city’s retail core.
The deal for Madison Centre was initially financed through a $730 million bridge loan, but Boston Properties lined up property sales in Boston and Washington, D.C., to fund the major acquisition through a 1031 exchange. The REIT said this was the best way to transfer capital between properties because it enabled them to defer capital gains taxes on the sales. Boston Properties described the Madison Centre as a “showpiece and foundational asset” for its expansion into the Seattle market, a move the REIT made after its characteristically careful analysis.
Despite flipping two Boston and D.C. properties to make the deal, Boston Properties executives didn’t voice any negative sentiments about those two markets. Executives at the REIT said they’re experiencing strong growth by expanding its life sciences portfolio in Boston, a city with the largest concentration of life sciences researchers in the nation. Colliers reports that with tens of millions of square feet either underway or proposed, Boston’s life sciences construction pipeline is also the nation’s largest.
In Washington D.C., Boston Properties recently sold a Mount Vernon Triangle office property to a Japanese investor for $531 million, the city’s largest property sale of the year so far. The sale to Tokyo-based Mori Trust Co. is a building Boston Properties developed in 2013 at a cost of $350 million. D.C.’s office market has struggled with sagging tenant demand, but foreign investors are flocking to the asset class in the city. Uncertainty in global markets and inflation have driven foreign investors to American real estate, especially in D.C., according to Avison Young. Boston Properties owns and manages 36 properties in the D.C. area, totaling 9.8 million square feet, and they remain bullish on that market.
San Francisco is possibly Boston Properties’ biggest trouble spot, where they manage 7.7 million square feet of real estate. In January, company executives talked about the impact crime and homelessness is having on the city’s office market during an earnings call. “There’s clearly an outcry from the business community that things have changed,” said Robert Pester, Boston Properties’ executive vice president of the San Francisco region. “And hopefully, the DA gets recalled, and we get somebody in there that will start enforcing the laws.” 
The company got its wish in June when city voters overwhelmingly recalled District Attorney Chesa Boudin, who had been one of the nation’s most progressive and ineffective top prosecutors. Even with San Francisco being a thorn in Boston Properties’ side, the office REIT has put a stake in the ground in Seattle, another West Coast city, one that’s faring much better but still has some similar problems.
Both big office purchases in Seattle are a vote of confidence for the city’s real estate market and a new city that Boston Properties plans to expand into. During an earnings call last year, a Morgan Stanley analyst asked Boston Properties’ President and Director, Douglas Linde, if the company may look at not just Seattle but any key Sunbelt markets in the next 2 to 3 years. For now, Boston Properties seems focused on the markets they’re in. “We believe in our Gateway strategy; we think Seattle was the logical expansion as a gateway market, and there is plenty to do in the six markets we’re in now,” Linde replied to the analyst. “The New York market is three times the size of Seattle – it’s multiple cities in and of itself.”
Linde said during the earnings call that Boston Properties recently expanded into Park Avenue South and Midtown South in Manhattan, echoing his statement that New York is so big that submarkets exist within it. The REIT’s Washington, D.C., team also recently expanded into neighboring Montgomery County’s life science market, where they hadn’t been before. “So, I think those deals are evidence of all the robust opportunities we have to expand our footprint in our existing regions,” Linde continued.
Boston Properties’ gateway strategy has been consistent for a long time: grab the biggest skyscrapers in the downtown areas of a few key gateway markets that the REIT heavily analyzes. Until entering Seattle, Boston Properties was only concentrated on five U.S. markets, where they maximize value and let other real estate firms take their chances in emerging markets. And despite the turmoil in the office market, the company is still dead-set on its core strategy and doesn’t look ready to change. Owen Thomas, the company’s CEO, said in a recent interview he believes a more robust return to the office will happen, especially in high-quality buildings with amenities and in close proximity to transit access, the focus of the REIT’s two Seattle acquisitions.
Out of all the metro areas Boston Properties could’ve chosen to focus on, the question some are asking is, why Seattle? Executives at the company revealed some of their strategies during the second quarter of 2021 earnings call soon after they announced their first Seattle investment of the Safeco Plaza. 
Boston Properties CEO Thomas explained that the Seattle region is the headquarters for global tech giants like Amazon and Microsoft and has one of the largest concentrations of tech workers in the U.S. “Seattle has experienced high levels of population and rent growth given its expanding technology and life science employment base and is much more affordable than other major tech markets given those State of Washington income taxes and lower real estate costs for both office space and housing,” he said.
Thomas claims that rents, land, and building values are lower in Seattle than in any other of the company’s core gateway markets. Boston Properties had an executive, Kelly Lovshin, based in the city for more than a year, laying the groundwork for the REIT’s expansion into the market. The company has a pipeline of investment opportunities in Seattle currently under review, and it’s building a full-service real estate team there.
According to Thomas, Boston Properties’ strategy in Seattle is not to “buy stabilized, beautiful assets” but find properties where they can create value through their operating prowess. He mentioned the Safeco Plaza purchase as an example: a tower built in the 1960s but one that has “great bones” and excellent ceiling heights. Thomas noted some vacancies in the building, but the company is “not in a rush to lease the space because we want to make sure we understand what the building could become and sell what it will be and not what it is.”
Seattle has been an attractive commercial real estate market for quite some time. Trepp, a commercial real estate data provider, recently ranked the city as the top secondary metro statistical area for commercial real estate development nationwide in 2022. Seattle struggled during the early days of the pandemic, but it has bounced back, for the most part. But the picture in the Emerald City, especially for the office market, isn’t entirely rosy. Many of the same concerns impacting major real estate markets nationwide are affecting Seattle, including worries about crime and public safety and office occupancy rates that are improving but still not at pre-pandemic levels.
By most measures, Seattle is a solid commercial real estate market, but Boston Properties is entering a city with some of the same concerns as San Francisco, a city in which the REIT has a significant presence with 37 properties spanning 7.7 million square feet. According to reports, some developers in Seattle have lost their patience with rising crime rates and the city’s politics. Seattle had 11 homicides in August, making it the single deadliest month in the city since 2008. The city has also had more than 500 shootings so far this year.
Seattle Citywide Violent Crime Rate, 2017-2021
Seattle’s downtown is coming back, with 3 million visitors to the area in August, the most since the pandemic started. But the threat of crime is a real concern for many in the city. Seattle’s Police Department is struggling with hiring and recruiting police officers, and reported crimes increased 10 percent last year from 2020 levels, with violent and property crime increasing. Downtown Seattle, where both of Boston Properties’ recent office acquisitions are, is one of the most crime-ridden parts of the city. “There’s no getting around it — downtown Seattle is in rough shape,” Gene Balk, a Seattle Times columnist, recently wrote.
Increased interest rates have also impacted office valuations and have increased material and labor costs, which have driven up tenant improvement costs in new office leases. The Broderick Group’s Seattle office reports that before the pandemic, there were roughly 5.5 million square feet of active tenant demand for office space. The active demand in the second quarter of this year has fallen to around 2.2 million square feet. 
Despite that sobering statistic, office leasing activity is still significant, and Seattle’s fundamentals seem strong. In the second quarter, there were 380,000 square feet of “significant” office leases across the entire Seattle market, defined as new and existing tenants growing and expanding long-term. And the Broderick Group is monitoring about 400,000 square feet of pending office leases they expect will close by the end of 2022.
One thing that works to Boston Properties’ advantage in Seattle is that like most markets nationwide, the office sector is split between high demand for Class A buildings and lower demand for B and C properties. Class A office assets in Seattle remain highly desirable to occupiers, and buildings in the B and C asset classes struggle the most. Most signed leases during the second quarter in Seattle were in Class A buildings close to major transit lines and amenities, the type of properties that Boston Properties specializes in. 
The impact of remote work means office occupancy rates in the city are still hovering around 40 percent, and vacancy and sublease rates are stubbornly high. But despite low occupancy rates, June and July had the highest number of office workers returning to the downtown area since the pandemic started.
Seattle’s office market has had setbacks, but downtown continues to see significant office investments that show confidence in the market. Along with Boston Properties’ acquisitions, other big investments include the sale of the 770,000 square foot former Macy’s building for $580 million in April 2021. Kilroy Realty also recently bought a 28-story office tower for $490 million, and 2021 saw nearly 2.5 million square feet of office space delivered downtown. Biotech property sales have remained strong, too, as the Puget Sound area ranks third nationally for life science growth, an asset class that Boston Properties has been focusing on more as of late. 
Despite some downsides, other aspects of Seattle are strong. The metro area’s unemployment rate was 3.1 percent in August, lower than the national average of 3.7 percent. While cities like San Francisco have seen an “exodus” of tech talent, many in Seattle appear to be staying, at least for now. Employment migration data from LinkedIn showed that Seattle added 2.2 tech workers for every worker that left from March to October 2020. Venture capital dollars also flowed into the region in 2020 and 2021 and started a slew of life sciences, health care, and software firms. The region’s venture capital increased 200 percent during the past 5 years and rose 300 percent to reach $1.1 billion in the first quarter of 2021 compared to the previous year.
The population of King County, Washington, home of Seattle, declined by more than 20,000 people between July 2020 and July 2021, according to new estimates from the U.S. Census Bureau. But the decrease in population from 2.27 million to 2.25 million was just one-third of 1 percent, less than other major metro areas in America. According to some surveys, Seattle also ranks high among folks in the youngest generation, Gen Z. CommercialCafe, a real estate listing service, ranked Seattle as the 7th-most popular city for members of Gen Z, mainly because of the city’s low unemployment rate and high internet speeds.
Boston Properties is very slow and deliberate when they enter new markets. It took several years before they entered the Los Angeles market for the first time five years ago, and they’ve also been conservative about their entry into Seattle, despite the splashy purchases. Many real estate firms are running full-speed ahead toward hot markets like Nashville, Atlanta, Austin, and other emerging cities, but this doesn’t seem to be something Boston Properties is interested in. 
Thomas, the CEO, said in a recent interview that they think their regional footprints are established for the foreseeable future. “We went into Seattle last year and Los Angeles four or five years ago, and both of those regions are contributing 2 to 4 percent each of our total result, and we want those regions to be bigger,” Thomas said. “We have a life sciences opportunity that we are also investing in, and that will be a bigger part of our company. So we’ve got plenty of opportunities.”
Behemoth tech companies like Microsoft and Amazon call Seattle home and now Boston Properties has planted some roots as well with these recent acquisitions. The REIT’s core investment strategy has remained consistent for decades, and its team spends a great deal of time analyzing opportunities. The company may face challenges in the Emerald City, one still struggling with high crime rates and the impact of remote work, but the nation’s largest Class A office space owner has given it a vote of confidence.

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