MBTA On Track to a First Class System

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The MBTA has come a long way from the winter of 2015! With the formation of the Fiscal and Management Control Board and the waiver of the Pacheco law (regarding privatization), the T has reduced its operating expenses substantially, allowing more money to go to critical capital improvements. The growth in operating expenses averaged 5% annually over the last 15 years (against a 2% annual increase in revenue during the same period), but, for the first time, showed negative expense growth in 2016, with zero growth projected for 2017!

The reforms are working and consumer ratings are up. Here are some of the changes over the past 18 months that have been implemented to put the MBTA on a fiscally sustainable path:

  • Introduced monthly financial targets and manager accountability
  • Moved MBTA onto statewide contracts and payroll system
  • Streamlined corporate HQ/admin positions with 30% reduction
  • Strengthened and enforced overtime and attendance policies
  • Modernized cash-handling & warehouse through contracting
  • Restructured Carmen’s Union contract work-rules and wage rates
  • Launched Uber/Lyft and Taxi paratransit pilots
  • Restructured and refinanced debt portfolio; locked electricity rates
  • Rebid parking/advertising and raised system-wide fares
  • $100M winter resiliency investments / $140M in capital lock-box

In addition, the MBTA is in the process of privatizing the “cash room” operation and the manual route scheduling system. Both of these are projected to save the T over $12.2 million annually.

Another example of reforms is the pilot project for “The Ride”, providing access to the disabled community. An average ride has cost the T $46; however, the pilot using Lyft/Uber brought the cost down to $8.98. Along with that, consumer satisfaction shot to 79%. The transit industry standard is 12% and the MBTA, as a whole, has been a -1%.

The next proposal in front of the FMCB will be the privatization of Bus Maintenance.  A privatized machinists staffing is projected to be based on 200K miles per machinist versus 100k miles for the current MBTA staffing (requiring half of the current maintenance staff).

NAIOP has been a strong supporter of MBTA reforms and has been a part of a broad business and municipal “Fix Our T” coalition. We encourage the administration and the control board to continue bringing efficiency and cost savings to the T, while investing in its capital plan, providing the riders and the tax payers with a first class transit system.

With the Boston CPA Approved, How Should the Program be Administered?

Boston residents voted to adopt the Community Preservation Act by an overwhelming majority in November. The CPA is designed to create affordable housing, and preserve open space and historic sites through the creation of a local Community Preservation Fund. A one percent real estate tax surcharge on commercial and residential properties will go into this fund and will be administered by a nine-member Community Preservation Committee appointed by the city. Of the money generated by the CPA, at least 10 percent must be allocated to housing, 10 percent to open spaces, and 10 percent to historic preservation. The remaining 70 percent can be allocated to any one of those three uses at a different rate.

The City Council is responsible for creating the ordinance that will establish the Community Preservation Committee (CPC). The ordinance would establish the CPC’s composition, length of member terms, the method of selecting its members, and outline the responsibilities of the CPC.

NAIOP suggests that the CPC could be tasked with establishing the annual percentage allocations among the three categories of investments. Those budgets could then be provided to the City agencies best positioned, staffed, and experienced to review the proposals submitted through a “Request For Proposals” (RFP) process. The agencies’ recommendations for grants could then be reviewed by the CPC prior to submission to the Mayor and the City Council for final approval. This system would utilize the established expertise within the City agencies, rather than creating a parallel “review process” that might be limited by staffing and funding.

With respect to housing, it would be unusual for a CPC grant to be sufficient to fund new housing, rather than being a gap participant in the more complex financing structure. In that case, the Department of Neighborhood Development would be better suited to determine where these funds could best leverage the most housing (a similar arrangement exists under Somerville’s CPA). Again, their recommendations would still need to be approved by the City Council and the Mayor.

As with any new program, the devil is in the details.  For this to succeed, it is essential for the City to develop a rational, transparent, and cost effective process. Only then will the CPA be of the greatest good to Boston.

Immigration is a major driver of our economy

immigrationOn Friday, President Trump signed an executive order on immigration and refugees. It establishes federal travel restrictions stopping the issuance of visas to Syrian nationals, suspends all immigration from seven Muslim-majority Middle Eastern countries for 90 days, and extending the ban to citizens of those countries who hold U.S. visas or green cards.

There has been limited impact of this Executive Order on the real estate industry in Massachusetts. That said, besides the obvious humanitarian crisis that this only exacerbates, our region is dependent on, and benefits greatly from, the diverse immigration into our schools and industries. Our domestic population has never been able to fully meet the demands of our growing businesses, with almost every economic boom fueled by immigration.

Historically, refugees have contributed greatly to our Commonwealth. They are an integral part of our engine of innovation, working for our local companies and, in many cases, starting their own businesses, hiring many of our young, skilled resident talent.

We encourage the Trump administration to reconsider this abrupt change in policy.

My Top Ten Predictions for 2017

2017

2016 has been another great year for the commercial real estate industry.

Can we keep it going through 2017?  Here are my predictions for the coming year:

  1. Cap rates will finally start to rise in the Boston/Cambridge markets.
  2. A new Fortune 500 corporate HQ will relocate to Boston.
  3. Apartment construction starts will drop in downtown Boston.
  4. The Dow Jones Industrials will finish the year down.
  5. Fed interest rates will be raised twice.
  6. Foreign investment will increase as a percentage of total CRE sales in Boston.
  7. There will be a noticeable business migration from 495 to 128, 128 to Boston, and Cambridge to Boston.
  8. Drones will pilot consumer product delivery.
  9. An infrastructure bill will pass Congress and be signed by the President.
  10. No viable candidate will step forward to run against Mayor Walsh.

Bonus prediction:  Patriots will win the Super Bowl (I’ll be right this time!)

Below were my predictions for 2016. Okay, I blew the Patriots, but 2017 is a new year!

  1. Neither casino (Springfield and Everett) will get their final clearances and will certainly not start construction.
  2. The Fed will make another move up in the interest rates.
  3. Foreign investment will dominate investments in commercial properties in the Greater Boston area, but local buyers will still be the major high-end condo buyer.
  4. The Green Line extension will be redesigned at a lower projected cost and will move forward.
  5. Some Boston or Cambridge office leases will hit $90 PSF gross.
  6. The Northern Avenue Bridge will be approved to accommodate vehicular access.
  7. A major office lease will be penned for either of the spec Seaport buildings (Pier 4 or 121 Seaport Boulevard).
  8. A developer will be selected for the Winthrop Square garage site.
  9. Patriots win the Super Bowl!
  10. The Republican presidential convention will not reach consensus on the first 5 ballots.

Boston Business Leaders React After Trump Election Victory

This originally appeared as part of Boston Business Journal’s article, Boston business leaders react after Trump election victory, on November 9, 2016.

white-houseWe talked to a wide variety of Boston-area business leaders to understand what the surprising victory of billionaire businessman Donald J. Trump means to them and business in general.

From David Begelfer, CEO, NAIOP Massachusetts:

The election of Donald Trump as President was a surprise to most business leaders, whether they were Democrat or Republican. If there is one thing that business does not like, it is uncertainty.  With a Trump campaign based on sound bites, no one really knows what to expect with respect to his choice of advisors and cabinet members, policies, and international agreements.

That said, one can assume that there will be a fairly quick move to propose tax cuts (and possible tax reforms) and to attack the regulatory environment. For business, in general, and real estate, in particular, it is likely that the recent effort to increase capital gains and go after “carried interest” will be replaced by a plan to reduce corporate income tax rates, eliminate the corporate alternative minimum tax, and ensure the immediate deductibility of capital expenses.

It is not unreasonable to assume that the Trump administration will focus on the EPA and potentially curb some of its oversight and regulation. Areas that could see relaxation may include climate change and stormwater. Also, energy exploration, drilling (e.g. fracking), and pipeline expansion could be encouraged.

There is no question that any changes to trade or immigration policies would affect the New England economy. The region’s economic growth has fed off a very successful set of trade agreements. In addition, the growth of jobs in the region has relied upon a strong flow of immigrants into the area.  If, as promised, the current trade agreements are in question and if immigration is further restricted, we could see a serious impact on the region’s future growth.

Finally, given that the support of the Republican-controlled House & Senate will be needed to accomplish anything beyond Executive Orders, it will be interesting to see how he is able to work with a divided party.

2016 Greater Boston Real Estate Confidence Index

­This post originally appeared on Solomon McCown’s blog.
Greater Boston’s real estate market has been on a bender – record-shattering sales, huge demand for office space in key submarkets such as Kendall Square and the Seaport and massive amounts of new luxury residential filling up in record time. But will these trends continue?

Solomon McCown and NAIOP Massachusetts teamed up on our first Real Estate Confidence Index to check the pulse of the industry and see if this run will continue – or are we “in the seventh inning?”

From a pool of more than 200 real estate industry respondents, 63 percent feel the Boston market is still rising (either quickly or slowly) and only ONE percent thinks we are already on the decline. Just about a third of respondents (31 percent) say we’ve plateaued. A whopping 76 percent have a positive outlook for our city just one year from now, with almost 56 percent continuing to be confident for the next three years.

See below to dig in on the confidence factors for the submarkets, new vs. existing construction and specific sectors. How confident are you? Let us know in the comments below, or on Twitter at @SMCRealEstatePR or @naiopma.

confidenceindex2016

Massachusetts Adopts New Energy Code & Stretch Energy Code

The Board of Building Regulations and Standards (BBRS) voted in July to adopt several changes to the energy provisions of the existing building code (8th edition). The BBRS adopted the next edition of the International Energy Conservation Code (IECC 2015) as the base energy code in non-stretch code communities and adopted a new stretch energy code (approximately 15% more energy efficient than the current base energy code), which will automatically take effect in existing stretch code communities without a vote by the city or town.

NAIOP was pleased that the BBRS did not advance the solar rooftop readiness or electric vehicle readiness requirements that had been proposed (and opposed by NAIOP), but disappointed that a new stretch energy code was adopted.

A concurrency period will run from August 12, 2016 – January 1, 2017 which allows persons seeking building permits to submit plans and other required documents that conform to either the energy provisions in effect prior to August 12, 2016, or the amended energy provisions effective August 12, 2016, but not a combination of the two. Beginning January 2, 2017, all building permits and submitted documents must conform to the amended energy provisions only.

Public hearings on the next (9th) edition of the building and energy codes are expected this fall. NAIOP will continue to advocate on behalf of the industry on these important issues.