Oxford Properties Group and J.P. Morgan Global Alternatives have announced the largest single office trade in North America so far in 2021, selling One Memorial Drive in Cambridge, Mass., for $1.05 billion (all figures Cdn).
The complex, fully occupied by Microsoft and InterSystems, is a 17-storey tower and podium containing 409,422 square feet of class-A office space. The LEED Silver-certified property has been acquired by a joint venture between MetLife Investment Management and Norges Bank Investment Management.
The transaction, which values the property at over $2,536 per square foot, sets a record benchmark for office pricing in the Boston region. The sale process attracted numerous bids from institutional, private equity and REIT capital, the announcement says, illustrating “the depth of demand for well-let, high-quality office product among institutional investors.”
Oxford and institutional investors advised by J.P. Morgan Global Alternatives acquired the property in 2014 as part of a multi-asset office portfolio. It has a prime location next to the city’s MIT campus.
Oxford expanded One Memorial Drive by 10 per cent
“This transaction perfectly encapsulates Oxford’s investment and asset management strategy,” said Chad Remis, Oxford’s executive vice-president, North America, in the announcement. “We acquired this property with high conviction in the market’s growth potential and an intention to enhance its value through our direct management capabilities.”
The complex was constructed in 1986. In 2017, Oxford increased the lettable area of the building by over 10 our cent, converting an entire floor of under-utilized parking space into office space. It was then leased to InterSystems.
Long- term renewals were also secured with the building’s occupants to drive net operating income over 55 per cent higher than at acquisition.
“We took a creative approach to developing additional office space at the asset through the conversion of excess parking in the boutique tower, as well as securing long-term renewals by providing first-class service to the building’s customers,” Remis said in the statement.
“The vision, actions and capabilities of our local team have created significant value at the property, successfully de-risking the asset. The sale of One Memorial Drive capitalizes on the strong global institutional demand for prime office product and crystallizes the value created at the asset by our team on behalf of our owner and co-investor.”
MetLife sees urban commercial opportunity
“We continue to see significant areas of opportunity within the commercial real estate sector despite the challenges posed by the pandemic over the last 18 months,” said Robert Merck, global head of real estate and agriculture at MetLife Investment Management, in a separate announcement issued by his firm.
“We are delighted to have once again partnered with Norges Bank Investment Management on a landmark transaction for the U.S. commercial real estate market, one which we believe will create strong value in the years to come.”
The transaction is the latest joint venture between Metlife and Norges Bank, expanding a program established in 2013 to invest in class-A office properties in key U.S. markets. The joint ventures received a five-star rating from Global Real Estate Sustainability Benchmark (GRESB) in 2020.
“One Memorial Drive reflects our continued strategy to pursue top commercial real estate assets in highly coveted markets,” said Ashleigh R. Simpson, regional head of acquisitions and joint ventures at MetLife, in the announcement. “Located in a city where demand for office space significantly outstrips supply, and with reliable tenants in resilient industries such as technology and life sciences, we believe One Memorial Drive will be a trophy property within our portfolio.”
Oxford focuses portfolio
The move is a continuation of Oxford’s efforts to adjust its portfolio and allocations. The investor has been increasing its weighting in the life sciences, logistics and residential sectors, which now comprise 37 per cent of Oxford’s U.S. assets under management. Oxford wants to lift that to 45 to 60 per cent of its global AUM by 2025.
“The sale allows Oxford to continue to diversify our U.S. holdings and redeploy the proceeds to fund growth in the Boston market, where we continue to have a favourable long-term view,” Remis explained in the statement.
“This growth includes our high-conviction thematic investing in life science, multifamily and logistics that we have undertaken in Boston as well as future opportunities in the local office market where we can create value.”
So far in 2021, Oxford has acquired six life sciences assets in the U.S. for more than $1.5 billion, including development opportunities. They include three fully leased Boston-area properties, supplementing Oxford’s existing lab and innovation space in the market.
Oxford is also planning to develop a 350,000-square-foot life science research and development building at 125 Lincoln in downtown Boston.
On the logistics side, Oxford is acquiring a 149-building, 14.5-million-square-foot light industrial portfolio across 12 U.S. markets from KKR for $2.8 billion. The distribution buildings are primarily located in urban infill locations and will complement Oxford’s U.S. big-box logistics platform, IDI Logistics.
To support its aim to build a portfolio of 15,000 multifamily units in the U.S. by 2025, Oxford has been acquiring properties across the Sunbelt region this year, including 1,200 units in Austin and Phoenix.
About Oxford Properties Group
Oxford is a global real estate investor, asset manager and business builder. Established in 1960, Oxford and its portfolio companies manage approximately $70 billion of assets across four continents on behalf of its investment partners.
Oxford’s owned portfolio encompasses office, logistics, retail, multifamily residential, life sciences and hotels; it spans more than 150 million square feet. The firm invests in properties, portfolios, development sites, debt, securities and real estate businesses across the risk-reward spectrum.
Together with its portfolio companies, Oxford is one of the world’s most active developers with over 100 projects underway globally across all major asset classes.
Oxford is owned by OMERS, the Canadian defined benefit pension plan for Ontario’s municipal employees.
EDITOR’S NOTE: This article was updated after publishing the significant new building and strategic information and quotes from Metlife.