Alexandria Drops Lab Conversion, Lists Boston Offices at Discount

Alexandria Drops Lab Conversion, Lists Boston Offices at Discount

Alexandria Drops Lab Conversion, Lists Boston Offices at Discount

By Jack Rogers | April 25, 2023 at 04:10 PM

In a sign that one of the strongest life sciences markets in the US is weakening, Alexandria Real Estate Equities is offering for sale a suburban Boston office complex valued at $170 million, a 28% discount, after a softening market changed plans to convert the property to life science labs.

The offered price is nearly a third of that the company paid for the property three years ago, according to a report in Green Street.

The REIT had planned to redevelop the property as lab space for life-science tenants, but demand for lab space in Boston started to soften last year as short-term interest rates increased and venture capital funding evaporated.

A heavy pipeline of new construction coupled with weaker demand has made conversions less appealing, Green Street said.

The 512K SF campus, at 227 Grove Street in Newton, is 69% occupied. According to the report, it’s being pitched as having steady income with no near-term lease expirations, along with the ability to lease up space once demand improves. JLL is marketing the property.

The estimated valuation for the Newton property, which translates to $332 per SF, would produce a 5.4% initial annual yield based on $9.2 million of net operating income. That valuation is a decline from the $235 million, or $461/SF, Alexandria paid in January 2020, when the property, known as Riverside Center, was 88% leased.

The former warehouse property was converted to office space in 2000 and was renovated with $39M of upgrades since 2017 to maintain its Class-A status. The property is adjacent to the Riverside MBTA station and a planned 1 million-sf development that will include apartments, retail space and labs.

The Newton property encompasses three office buildings connected by a four-story glass atrium. The vacancy is mainly concentrated in one 158K SF building that Alexandria largely emptied to convert to life-science space. Alexandria secured approvals, expiring next year, to redevelop 120KSF of the building into labs.

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