GIC, CPPIB and Boston Properties Launch $2B US Office Joint Venture

Singapore sovereign wealth fund GIC and the Canada Pension Plan Investment Board are headed back stateside, joining with commercial developer Boston Properties to create a co-investment programme targeting acquisitions of US office properties.

The trio are committing an aggregate $1 billion in equity to the programme, with GIC allocating $500 million and CPPIB and Boston Properties chipping in $250 million each. The partnership foresees an initial investment capacity of $2 billion after leverage.

The partners intend to selectively acquire and operate office assets in Boston Properties’ core markets of Boston, Los Angeles, New York, San Francisco and Washington, as well as Seattle, CPPIB said Wednesday in a release.

“We are delighted to expand our relationship with CPP Investments and to begin a new relationship with GIC, two highly respected and experienced real estate investors,” said Boston Properties chief executive Owen Thomas.

First-Offer Privilege

Despite reports that the COVID-19 pandemic could permanently diminish the central role of office properties in work culture, the partners have agreed that, over the next two years, Boston Properties will provide CPPIB and GIC with exclusive first offers to form joint ventures with the US firm to invest in acquisition opportunities.

Boston Properties, which is the largest publicly traded developer, owner and manager of Class A office properties in the US, will act as general partner and provide property management, leasing and other services.

“We firmly believe that top companies need collaborative workspaces to build culture, innovate and win the war for talent,” said Adam Gallistel, managing director of Americas real estate at GIC. “We are confident that Boston Properties will identify assets that serve this need and position our venture to capitalise on an uptick in demand stemming from a return to the office and the reopening of America’s great cities.”

The partners are setting up their $2 billion venture despite average office vacancy rates climbing nearly a full percentage point across the US during the second quarter, according to a report by Cushman & Wakefield. However, rents in major US markets are already on their way back up as tenants leased 15 percent more space from April through June than they had during the preceding three months, the property brokerage said.

Investment brokerage Hodes Weill & Associates advised Boston Properties on the joint venture.

Buying American

Separately and together, GIC and CPPIB have sought investment opportunities in the US real estate market in recent years, with the latter striking a couple of joint venture deals with Boston Properties.

In March, GIC announced a joint venture with New York-listed RPT Realty, hedge fund Zimmer Partners and investment firm Monarch Alternative Capital, targeting the acquisition of over $1.2 billion in retail assets.

CPPIB’s collaborations with Boston Properties have included a project to develop a 1.1 million square foot (102,000 square metre) office campus in San Jose, California in 2019 and a $628 million joint acquisition of a business park in the city of Santa Monica near Los Angeles in 2018.

GIC and CPPIB had also teamed up for a US residential investment in early 2018, when they formed a joint venture with investment firm Cortland Partners with a targeted equity amount of $550 million to acquire and renovate 8,000 to 10,000 multi-family units in the US.