If BXP's return to the capital markets wasn't enough, the national office landlord is using its recent downtown Washington, D.C., acquisition to set the stage for its first major post-pandemic office development, signaling that it is no longer waiting on the sidelines of the sector's recovery.
The Boston-based developer, formerly known as Boston Properties, plans to break ground later this year on a 320,000-square-foot trophy office redevelopment three blocks from the White House. The project would replace the existing 12-story property at 725 12th St. NW that BXP acquired for $34 million in the final days of 2024 from a joint venture between Hines and Swift Creek Partners.
As a cherry on top, the developer has already cemented a 15-year prelease agreement with global law firm McDermott Will & Emery. The company committed to 150,000 square feet across the top five floors of the future property. What's more, BXP said it is "currently negotiating" with a potential tenant interested in taking on most of the project's remaining space, details for which have yet to be publicly disclosed.
The prelease interest, combined with BXP's ability to finance the deal on its own — avoiding the need for a mortgage or joint venture partner — created the runway for what Pete Otteni, executive vice president and co-head of BXP’s D.C. region, called a "creative deal."
The plan "underscores BXP’s uniquely competitive position in the property and financial markets,” he said in a statement.
Demolition work on the roughly 331,500-square-foot building will begin in the second half of 2025, BXP confirmed, and will take about a year to complete. The property has been sitting empty since high-powered D.C. law firm Williams & Connolly relocated to The Wharf development on the southwest waterfront in early 2022.
Meeting high-quality demand
While taking on an entirely vacant building would be a challenge for most new owners, for BXP, it will make it all the easier to kick off its overhaul plans.
The development — slated to finish construction sometime in 2028 — will be one of only two office projects moving through downtown D.C.'s pipeline, echoing dried-up activity across the United States as the cost of capital and weak fundamentals have pushed construction levels to all-time lows.
Less than 45 million square feet of new office space was constructed across the country last year, according to CoStar data, the lowest amount since 2014 and far below the 10-year average of about 70 million square feet. Depressed leasing demand, the ongoing impact of flexible work policies and the increasing cost of capital have pushed developers such as BXP to postpone or altogether ditch a majority of their groundbreaking plans as many hoped to wait out any future turbulence and uncertainty.
Now, however, loosening capital markets are making some deals more palatable, and rising demand for high-quality office space among tenants could be enough to tip the scale.
For McDermott, BXP's East End plans will give it the new, upgraded space the law firm has been on the hunt for but, until now, has been unable to find.
The Chicago-based law firm currently anchors the building at 500 N. Capitol St. NW., also owned by BXP, and its relocation plans underscore a surging corporate sentiment that high-quality office space is a worthwhile investment that reflects a company's branding power.
"From the time we first opened our office in the District in 1978, our D.C. team has been an indispensable partner to clients in both the public and private sectors, consistently raising the bar in all that we do," McDermott Chairman Ira Coleman said in a statement. "It's clear that 725 12th St. also promises to set a new standard for excellence, and [it will provide] an exemplary space for our clients and people."
For the record
CBRE's Lou Christopher, Jordan Brainard, Rob Copito and Clay Hammerstein represented McDermott Will & Emery in the lease agreement. Evan Behr of JLL represented BXP.