Boston Properties Inc. (BXP), the largest owner of Class A office space in the U.S., is thriving as it embarks on significant development projects in New York City.
With a portfolio that currently boasts 53.7 million square feet across 186 properties, BXP is set to further expand with three new development sites in the city: 3 Hudson Boulevard, Site K at 418 11th Avenue, and the former MTA headquarters at 343 Madison Avenue.
Hilary Spann, the executive vice president overseeing the New York region, indicated that there is a critical shortage of high-quality, premier workplace spaces in Midtown.
This shortage is particularly significant in the case of the new development at 343 Madison Avenue, for which BXP recently announced that vertical construction has officially commenced.
The project will consist of a 46-story, 930,000-square-foot tower featuring offices, dining spaces, terraces, and a wide array of amenities.
Moreover, a notable achievement for BXP includes signing a letter of intent with a prestigious financial institution to anchor and occupy nearly 30% of the building, translating to 274,000 square feet.
Spann considers this deal very meaningful for the property, highlighting the increasing attraction of prime office space in Manhattan.
As part of its ambitious plans, BXP is also developing a 1.8 million-square-foot office tower at 3 Hudson Boulevard, which is anticipated to host a multitude of financial services tenants.
Additionally, Site K will feature 1,349 residential apartments and a potential 400-key hotel, developed in collaboration with The Moinian Group and BRP.
These developments emerge following a prosperous second quarter for BXP, which recorded revenue of $868.5 million, surpassing last year’s figure of $850.5 million.
In a recent interview, Spann elaborated on the progress of 343 Madison and the overall landscape of BXP’s projects in New York.
Construction at 343 Madison began with an agreement to provide an entrance to the new Madison Concourse for the Long Island Rail Road.
BXP has already completed the excavation and poured the foundation for the building, with steel delivery scheduled for next week.
The tower is projected to be completed by the third quarter of 2029, with stabilization expected in 2031.
Spann noted that tenants will have the opportunity to begin customizing their spaces from the second quarter of 2028 onwards.
Given that this is one of the few office projects currently underway in Manhattan, Spann reflected on the decade-long journey that led to this development.
The MTA owned the site, which previously housed three prewar buildings. After requests for proposals were issued around 2012, it took 10 years to finalize negotiations, with BXP signing the ground lease in 2023.
Spann expressed that the lack of high-quality space in Midtown drove tenant interest to their project, leading to an influx of potential tenants who felt compelled to scout availability as soon as possible.
Currently, BXP has letters of intent for over 1.5 million square feet in circulation, with Spann optimistic that another anchor tenant will be secured.
The anticipated rental rates for the upper floors of the structure are expected to reach the high $200s per square foot, targeting private equity firms and hedge funds.
When discussing tenant improvement allowances, Spann noted that for long-term leases in high-end existing buildings, packages are approximately $175 per square foot, consistent with previous years.
However, construction costs have surged significantly since 2019, leading to higher tenant improvement costs to accommodate such demands.
Despite worries about potential price increases due to tariffs, Spann observed a leveling off of construction costs recently.
The current construction market provides favorable conditions for BXP, with some bids coming in below budget as major projects wrap up.
In addition to their office developments, BXP is also progressing with construction at 290 Coles Street in Jersey City and is working on pre-development for Site K, expected to include residential units and a hotel.
At 3 Hudson Boulevard, foundational work is completed, but Spann mentioned awaiting predefined leasing activity before moving to vertical construction due to the project’s significant scale and capitalization needs.
While expressing interest in various potential tenants across different sectors, Spann emphasized that a majority of inquiries for the Madison Avenue project have been from high-end financial services firms.
In contrast, the user base for Hudson Yards is attracted by the extensive amenity options that customizable spaces offer, allowing tenants to tailor their environments extensively.
Spann acknowledged that Midtown East has seen a decrease in vacancy rates, dropping close to 5%, with rent increases driven by limited availability pushing demand further.
BXP has raised rents across its Midtown portfolio by double digits, as prospective tenants are compelled to consider new builds due to comparable costs with existing buildings.
Regarding adaptive reuse trends, while Spann noted that office-to-residential conversions enhance the vibrancy of neighborhoods, she believes that the demand for quality office spaces predominates current rental trends.
Spann expressed confidence in New York’s potential, particularly in terms of AI’s impact on high-rent markets.
BXP recently signed a lease with an AI-driven company and is in discussions with another, suggesting a strategic alignment with emerging industries.
When comparing New York to other markets on the West Coast, Spann conveyed that New York remains the leader.
Boston’s Back Bay and certain D.C. submarkets also show promising performance, while West Coast markets have historically catered more to tech and media, complicating their post-pandemic recovery.
Spann expressed optimism over the long-term outlook for markets like San Francisco, recognizing the city’s continuing strength in talent acquisition.
Reflecting on the decade-long development cycle for 343 Madison, Spann reiterated BXP’s long-term investment strategy and confidence in New York’s recovery and growth.
Amid external incidents affecting its projects, like the recent shooting at 345 Park Avenue, BXP has been proactive in reassessing its security protocols.
BXP prioritizes employing former law enforcement for their security teams, employing a comprehensive approach to safety, including registration processes for building access.
Spann’s background in real estate, beginning with an architecture and urban planning education, has led her through various roles in the industry.
Her journey spans consulting, acquisitions, and her current position at BXP, where she connects deeply with New York’s real estate landscape.
Regarding the REIT landscape, Spann sees New York-centric firms benefiting significantly from the city’s unprecedented demand for quality spaces, highlighting the correlation between talent, economy, and market performance.
BXP plans to continue focusing on its current asset classes: office, multifamily, and life sciences, prioritizing deep engagement in existing high-value markets.
Looking ahead, Spann emphasized that New York City remains a prime location that aligns with top talent’s preferences, solidifying its status as a leading economic epicenter.
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