Blackstone Said to Sell Offices in Boston for $2.1 Billion

May 19, 2014 2:40 pm ET

(Updates with office sales in sixth paragraph, fund flows in last paragraph.)

May 19 (Bloomberg) -- Blackstone Group LP agreed to sell five office properties in Boston to a venture led by Toronto- based Oxford Properties Group for about $2.1 billion, according to two people with knowledge of the transaction.

The buildings total almost 3.3 million square feet (306,000 square meters) and are mostly in downtown Boston, said the people, who asked not to be named because the sale is private. The sale is Blackstone’s largest of U.S. office properties since the real estate market crash.

Oxford plans to purchase 100 High St. and 125 Summer St., and team with JPMorgan Chase & Co.’s asset-management unit to buy three other properties: 60 State St., 225 Franklin St. and One Memorial Drive in nearby Cambridge, the people said. Blackstone also is selling its roughly half-stake in Boston’s Rowes Wharf to part-owner Morgan Stanley for about $200 million, according to one of the people.

Peter Rose, a spokesman for New York-based Blackstone; Claire McIntyre, a spokeswoman for Oxford Properties; Matt Burkhard, a spokesman for Morgan Stanley; and Kristen Chambers, a spokeswoman for JPMorgan, all declined to comment. The Wall Street Journal reported the transaction yesterday.

Blackstone has been selling assets from its 2007 takeover of Equity Office Properties Trust as real estate in prime U.S. coastal markets rebounds. Office prices in central business districts jumped 25 percent in the 12 months through March, for the best performance of any core commercial-property type, according to Moody’s Investors Service and Real Capital Analytics Inc.

Blackstone Sales

Blackstone sold $8.9 billion of office buildings globally last year, up from $1.7 billion in 2012, according to New York- based property-research firm Real Capital. Sales last year included a 50 percent stake in London’s Broadgate office complex for more than $2.8 billion.

Blackstone, the largest private-equity investor in real estate, had held talks with several potential buyers besides Oxford Properties. The sales price of about $2.3 billion for the six Boston assets was in line with its target for total proceeds of about $2.5 billion, which had assumed that 100 percent of Rowes Wharf would be sold.

Rowes Wharf, the pink-hued building with an arch overlooking Boston’s harbor, includes a hotel as well as office space.

Chicago-based Equity Office was the largest U.S. office landlord at the time Blackstone acquired it for $39 billion from billionaire Sam Zell. The private-equity firm immediately flipped many of the buildings to pay down debt.

Oxford Properties

Oxford Properties, the real estate unit of the Ontario Municipal Employees Retirement System, oversees about $20 billion of assets that it manages for itself and on behalf of partners. It has stakes in about 50 million square feet of office, retail, industrial, apartment and hotel properties, mainly in Canada, the U.K. and U.S.

In the U.S., the company is focusing on office and retail investments in New York and Washington, while exploring diversification into other cities, including Boston, Los Angeles and San Francisco, according to its website.

Canadians were the largest cross-border buyers of U.S. office buildings from 2010 to 2013, according to Real Capital. They were involved in $5.6 billion of such acquisitions last year, more than twice the next-biggest group, from China. So far this year, buyers from Singapore and Norway are ahead of Canadians.

Property Availability

“Most of the major properties in Canada are already institutionally owned and don’t come up for sale often,” said Real Capital President Robert M. White. “The availability of high-quality investments and the desire to diversify their holdings are the main reasons behind the cross-border appetite of Canadians.”

Demand has been climbing for core real estate, the stable, well-leased properties that typically attract pension funds and other institutional investors. Net inflows to core funds jumped to $1.4 billion in the first quarter, up 35 percent from a year earlier, according to the Chicago-based National Council of Real Estate Investment Fiduciaries.