About Tamara Small

Tamara Small is the CEO of NAIOP Massachusetts.

The Legislature Is Hitting the Halfway Point: What Does That Mean for Commercial Real Estate? From Housing to Climate Change, Key Issues Are on the Table

The following column was published in the September 15 edition of Banker & Tradesman.

With the 2019–2020 Massachusetts legislative session approaching the halfway point, it is a good time to take stock of where things stand and what legislative proposals could affect the commercial real estate industry.  

The current legislative session began in January 2019 and will conclude on July 31, 2020. With more than 7,000 bills filed to date – and more expected – Massachusetts legislators have the ability to make dramatic changes affecting every aspect of society.  

As legislators consider proposals affecting commercial real estate and economic development, in general, they must also consider the economy for the year ahead. The Greater Boston market is currently viewed as a stable market for investment; and while vacancy and unemployment rates remain low, warning signs of a coming economic downturn are on the horizon.  

The pace of economic growth in Massachusetts has not kept pace with that of the nation over the past year. In the second quarter of 2019, Massachusetts GDP grew at a 1.4 percent annualized rate, while U.S. GDP grew at a 2.1 percent rate. In addition, in August, the 10-year Treasury yields fell below the rate on 2-year notes for the first time since 2007. This inverted yield curve has been an indicator of coming recessions for the past 50 years.  

This, combined with escalating trade wars and geopolitical uncertainty, highlight the need for careful consideration of the potential statewide impact of legislative proposals.  

While it is nearly impossible to predict how the session will end, legislative leaders have expressed an interest in tackling some significant policy issues including tax revenue, housing and climate change. Given the impact these issues will have on commercial real estate, the details matter. 

Transfer Taxes  
Revenue has been a popular word on Beacon Hill in recent months, with numerous transfer tax proposals filed. The bills all seek to create revenue for a variety of funding priorities, including affordable housing, climate change, education and transportation.  

However, the transfer tax is not the best approach to adequately address these issues, particularly since the revenue will be pegged to the real estate market. 

With anticipated market instability, these taxes many not serve as a stable funding source. If passed, they will increase the cost of housing and commercial development, which has the potential for negative ripple effects throughout the economy. 

Climate Change  
Given the environmental, public health, safety and economic development threat posed by climate change, legislation on this issue is expected this session.  

The House passed H. 3846, An Act Relative to GreenWorks, in July. It is a $1.3 billion energy and resiliency bill designed to offset climate change, creating a new grant program for cities and towns throughout Massachusetts to fund projects focused on climate resiliency. It is modeled after the successful MassWorks infrastructure program and builds on the Environmental Bond Bill passed in 2018.  

Climate change affects all residents of the commonwealth. Therefore, the burden for addressing this issue should be shared.  

Unlike transfer tax proposals, which only target a subset of the population and may drive up the cost of housing, GreenWorks is a far more equitable approach and should be a top priority for the legislature.  

Housing  
Finally, one of the most significant economic issues in need of legislative action is the current housing crisis.  

The supply of housing is not keeping up with demand, which in turn is driving up rents and home sale prices. An Act to Promote Housing Choices (H.3507) provides a clear framework for cities and town to encourage new housing production.  

The bill, which has the support of the Massachusetts Municipal Association, the real estate industry, affordable housing groups like CHAPA and business leaders, allows cities and towns to adopt zoning best practices by a simple majority vote, rather than the current two-thirds supermajority.  

Whether it’s senior housing or multifamily housing, countless units are never built because of the need for a supermajority vote. Given the broad support for this bill, the legislature needs to act on this legislation in advance of spring town meetings, where countless projects will be up for review at the local level.   

While these are only a few of the issues expected to move this session, it’s clear that decisions made at the State House over the next 10 months will have a significant impact on the real estate industry for years to come. NAIOP will continue to work with legislators to ensure that the economic impacts of legislation are considered and that Massachusetts remains a great place to live and work.  

Planning for a Changing Climate is a Shared Responsibility: Private, Public and Philanthropic Sectors Must Work Together

The following column was published in the July 7 edition of Banker & Tradesman.

NYC CLIMATE TRIP JUNE 2019In June, a group of business leaders, philanthropists and environmental advocates joined Boston Mayor Marty Walsh and his environmental team on a “City to City” trip to New York hosted by the Environmental League of Massachusetts and the Greater Boston Chamber of Commerce. As the CEO of an organization that has made climate change resiliency one of its top policy priorities, I was honored to be part of this distinguished group.

The trip was designed to provide attendees with an inside look at how Lower Manhattan responded to Hurricane Sandy and how the public and private sectors are planning for the future. During the walking tour, it quickly became clear that building owners and developers were the “first responders” post-Sandy. Whether through the installation of flood protection measures, nature-based solutions, the elevation of mechanical systems or innovative design measures, the commercial real estate industry is spending millions of dollars on climate change resiliency.

While these types of investments are critical, having a “climate–proof” building in the middle of a neighborhood without power or transportation provides no real public or private benefit.

During Hurricane Sandy, a 9.5-foot storm surge flooded the Hugh L. Carey Tunnel, which connects Brooklyn and Manhattan, with 60 million gallons of contaminated salt water, causing extensive damage. After the storm, the city installed 50,000-pound steel flood gates to protect against a 500-year flood event. Watertight flood walls were installed around the tunnel’s ventilation shafts. Hundreds of millions of dollars in FEMA funds were spent on the project.

If that was the cost for just one project, then one thing is very clear – addressing climate change through mitigation and adaptation will require massive amounts of funding and collaboration between federal, state, local, private and philanthropic entities.

What Does This Mean Locally? 
Boston is taking this issue very seriously.

In October, Walsh released the Resilient Boston Harbor Plan, which is designed to protect the city against the impacts of rising sea level and climate change. The plan includes elevated landscapes, enhanced waterfront parks, flood–resilient buildings and increased access to the waterfront. The city of Boston also became one of the first cities to set a target of carbon neutrality by 2050. Flood overlay zones are being developed, which will affect new construction and existing buildings.

At the state level, aggressive goals for reducing greenhouse gas emissions have been set, new energy efficiency codes have been adopted and comprehensive adaptation and mitigation plans are now being implemented. Nearly all of these policies and plans will affect the real estate industry.

For commercial real estate developers in the Boston area, climate change resiliency is a top priority. Extreme weather events, eroding shorelines and sea level rise have the potential to impact properties and tenants. As a result, new development projects are the most climate resilient. They are designed to take on the storms of the future and often include measures that will protect surrounding neighborhoods from the impacts of climate change.

Recognizing that while climate change cannot be ignored, economic realities still apply. If one sector of the market is overly burdened with new regulations and costs, resiliency measures will fail.

What’s the Solution? 
As the state and cities move forward with their climate resiliency efforts, flexibility is required so that the real estate industry can effectively address climate change without restricting future housing and economic development, which produce crucial property tax revenue. Regulations should provide owners and developers with the ability to make decisions based on the needs of the individual properties, tenancy and product type. Both costs and risks must be evaluated when considering climate change-related investments or regulatory changes.

Given the impact of climate change on all residents of the commonwealth, the burden for addressing this issue should be shared equitably. While an increase in the transfer tax has been proposed as a solution, it’s not the right approach. It only targets a subset of the population and may have the unintended consequence of driving up the cost of housing.

Lowell’s Rep. Thomas Golden, with the support of House Speaker Robert DeLeo, recently filed H3846, An Act Relative to GreenWorks. This proposal is a $1.3 billion energy and resiliency bill designed to offset climate change, creating a new grant program for cities and towns throughout Massachusetts to fund projects focused on climate resiliency. It is modeled after the successful MassWorks infrastructure program and builds on the Environmental Bond Bill passed in 2018.

Given the magnitude of this issue, no one piece of legislation can fully address climate change, but the GreenWorks legislation will set the commonwealth on a path towards improved resiliency. Its passage, combined with public-private partnerships and innovative solutions, will ensure continued economic growth and quality of life in Massachusetts as we tackle one of the greatest challenges threatening the future of the planet.

NAIOP Files Amicus Brief in Marchese v. BRA: Brief Urges SJC to Uphold Superior Court’s Decision in Favor of BPDA

Law firm WilmerHale recently filed an amicus brief on behalf of NAIOP Massachusetts, The Commercial Real Estate Development Association, in the case of Joseph Marchese vs. BRA.  The amicus brief urged the Supreme Judicial Court to affirm the Superior Court’s decision in favor of the Boston Planning and Development Agency (BPDA), formerly known as the Boston Redevelopment Authority (BRA).

NAIOP chose to pursue this opportunity because the case addresses the “demonstrations clause” of the urban renewal statute, a critical economic development tool, which is often used for artistic, cultural and historical preservation in the City of Boston.  NAIOP believes that if the BPDA and similar agencies cannot use their statutorily granted powers of eminent domain to carry out demonstration projects and plans, it could chill development throughout the Commonwealth.

“We are grateful to the incredible team at WilmerHale for their work,” said Tamara Small, CEO of NAIOP Massachusetts. “Joseph Marchese vs. BRA has wide reaching implications for our industry and all of Boston. The BPDA’s success in this matter will benefit Boston’s continued economic development, as well as positively impact the City’s communities and public spaces alike.”

The WilmerHale team involved in the matter was led by Partners Keith Barnett and Michael Bongiorno and included Senior Associate Arjun Jaikumar and Associates Matthew Costello and Julia Harvey.

Oral arguments began on Thursday, May 9.

The Time to Act on the Housing Crisis is Now

This post was originally published as an op-ed in Banker & Tradesman on 3/17/19.

Apartment-InteriorSometimes data can simplify even the most emotionally charged and complicated policy debates. Housing policy is no exception to this rule. Recent data may provide some clarity on how we got to where we are today, as well as how we can begin to address the current housing crisis 

Today there are more people working in Massachusetts than at any other time in the commonwealth’s history. According to the University of Massachusetts’ Donahue Instituteby the year 2040 the Massachusetts population is projected to increase by 600,000, with the fastest increase projected in Greater Boston’s inner core. Boston’s population is growing more quickly than previously expected, with 759,000 residents expected to live in Boston by 2030.  

As a result, the Metropolitan Area Planning Council (MAPC) projects Eastern Massachusetts will need 435,000 new units of housing by 2040However, according to the Massachusetts Housing Partnership’s Center for Housing Data, annual housing production is only about half of what it was in the 1960s, 70s and 80s. Massachusetts permitting is 36 percent less housing than the national average (based on new housing per capita), ranking us 38th in the nation 

Words Not Enough to Address Crisis 

At the current pace of housing construction, the commonwealth will be more than 90,000 units short of demand by 2030  

At the same time, permitting requirements have become more onerous with local rules and special bylaws, making the development process longer and more unpredictable. Appeals frequently delay the start of a project by one to two years or often kill the project altogether. To complicate matters, construction inflation is at 6.5 percent in the Boston market – higher than the rest of the nation.  

The lack of housing is now approaching crisis level. The number of communities with median prices above $1 million has doubled in the past decade. As a result, the shortage of workforce housing is now significant threat to our economic growth. Business leaders frequently struggle to attract the best talent when competing with other states that provide more affordable housing opportunities.   

While tackling this issue will require a multi-pronged approach, the data show that this is, in large part, a supply and demand issue. Without more housing production it is becoming very clear that the state’s potential to grow its skilled workforce will be at risk.  

Many Massachusetts communities are now recognizing, some for the first time, they need to do more to encourage growth. The 15 members of the Metro Mayors Coalition late last year announced a target to create 185,000 new housing units across the region by the year 2030. It is a laudable goal and these communities should be applauded for their leadership. However, simply saying you want housing does not create itActionable steps are needed to achieve this goal.   

Fortunately, An Act to Promote Housing Choices (House Bill 3507), recently filed by Gov. Charlie Baker, provides a clear framework for cities and town to encourage new housing production.   

 Bill Helps Communities That Want to Change 

The legislation, which is supported by a broad coalition including the Massachusetts Municipal Association, NAIOP – The Commercial Real Estate Development Association and the Smart Growth Alliance, among others, makes it easier for communities to work with developers to encourage sustainable growth.   

The legislation allows cities and towns to adopt certain zoning best practices by a simple majority vote, rather than the current two-thirds supermajority. This would be allowed in situations where the zoning change will encourage more concentrated development including the adoption of 40R “Smart Growth” districts or starter homes, reduced parking requirements, accessory dwelling units and/or reduced minimum lot sizes.  

This legislation also includes a provision, added during the last legislative session by the Joint Committee on Housing, that would reduce the voting threshold for a local special permit to a simple majority. This would apply to multifamily or mixed-use projects with at least 10 percent affordable units that are near transit or in commercial centers.  

While there is no one silver bullet to solving the housing crisis, the supermajority threshold has long been a barrier for needed housing developments throughout the commonwealthThis legislation would make it easier for communities to rezone property to encourage more housing production  

During the legislative session that concluded in July 2018, the bill came close, but did not pass.  Since then, housing advocates, planners, developers and municipal officials have come together to support the passage of this legislation. On behalf of this remarkable coalition, we urge the legislature to pass this bill as quickly as possible. The time for action is now.  

It Has Been An Enjoyable and Satisfying Career Advocating for the CRE Industry!

The following is an excerpt from the acceptance speech I gave for the Edward H. Linde Public Service Award at the recent NAIOP Distinguished Real Estate Awards event. It summarizes the feelings I have about leaving NAIOP after 28 years as its CEO.

A way to judge any organization is to contemplate whether it would be missed.  When I consider what we have accomplished over these past 28 years, I know that all of you in the commercial real estate industry would agree that what we have done on your behalf, and for the Commonwealth, is remarkable.  Please note that I say “we” for very important reasons.

It certainly starts with a top professional staff, with Debbie Osheroff, Rachel Meyer and Taylor Pederson. In addition, there are two exceptional professionals who are now stepping into new leadership roles, Tamara Small & Reesa Fischer. I have tremendous confidence in both of them and I know they will take this organization onto even greater successes. They are all-stars who have earned the respect of their peers, the industry’s leaders, and the greater community.

But our success goes beyond our excellent staff. NAIOP’s unique entrepreneurial DNA has driven its Advocacy, Education, and Networking. And that is a direct result of our engagement with an extensive network of exceptional volunteers, what I call NAIOP’s very “special sauce”. We have been fortunate to have some of the best and brightest professionals in our industry giving their time, knowledge and experience. That includes all of our past Presidents, Board members, executive committee members, and numerous volunteers on our operating committees.

In particular, I would be remiss if I did not call out the Governmental Affairs Committee. Our influence in the legislature, regulatory agencies, policy centers and the courts has been achieved directly through the active commitment of so many members over the past 30 years. They have helped draft bills that became law, offered comments on regulations that were then revised, produced position papers that helped direct policies, and presented amicus briefs that helped guide court decisions.

I am so proud to have worked with these professionals to impact major legislative initiatives, including drafting the District Improvement Financing statute, initiating the effort for the Permit Extension Act, partnering in the passage of the Brownfields Act, and influencing so many areas of regulatory oversight. Currently, and for the foreseeable future, we have also committed to continue focusing on three important issues: Transportation, Housing, & Climate Change.

I also want to thank and recognize the many business association leaders that we have worked with over these many years. To have the kind of successes we have enjoyed only comes with active collaborative partnerships. No one organization can succeed without the give and take of working together with a common agenda – a better Commonwealth.

It has been a true labor of love to lead this organization. I have enjoyed the challenges, the successes, and the many close friendships I have made along the way. I am also very proud of the impacts we have had over the years.

Back in 1991, as I transitioned to the advocacy role from being a developer, I anticipated a relatively short interlude in my career. It clearly was not short. Developers have a vision and an optimism that is critical to producing a successful project. I always tried to maintain both as I led this organization over the years.

As I now turn to my next chapter professionally, I know that I will remain active in advocating for the same big issues that continue to challenge our Commonwealth. However, whatever direction I do go, I will look forward to enjoying all the close relationships I have developed through the years and the knowledge that the future for our industry and NAIOP will be bright.

Once again, thank you so much for the privilege of serving this industry.

My Top Ten Predictions for 2019

2019Here are my last predictions as CEO of NAIOP (but not my last predictions)!

  1. Wayfair will double their occupancy in Boston.
  2. Boston and Cambridge Office rental rates will rise to record levels for new space surpassing $120 psf.
  3. Apartment rental rates will be flat.
  4. WeWork will make a move to the suburbs.
  5. Electric bikes & scooters will be allowed in Boston (and then regretted).
  6. Bitcoin value will fall, other Cryptocurrencies will rise.
  7. Foreign investment in commercial real estate will drop.
  8. The stock market will hit an all time low and an all time high.
  9. The Fed will raise rates ¼% only once during the next year.
  10. Tiger Woods will win a major.

Below were my predictions for 2018. Not too bad!
1. Amazon will pass on Boston for a campus, but leave us with a great consolation prize. [Yes and 1mm sq. ft coming to the Seaport]
2. No Turnpike air rights project will start construction (ditto for 2019). [None, so far]
3. Fed. interest rates will be up 75 basis points by end of year. [50 basis points]
4. In Boston, more condos will be permitted than rental apartments (other than the neighborhoods). [Rental approved by BPDA: 33%/Condo: 67%]
5. An office or lab lease will hit $100 per square foot in Cambridge. [Boeing office, 314 Main St.: $106.63 Net effective rent]
6. Construction costs, on average, will be up 7%. [ to date, 6-7%]
7. More than one million SF of commercial space will commence on spec. [Office: Boston & Cambridge: 1,008,000 SF; Lab: Boston & Cambridge: 1,226,000 SF]
8. The 128 office market will show more transactions (both numbers and SF) than the downtown market. [Downtown wins]
9. Foreign buyers will begin to acquire major CRE property outside of Boston/Cambridge. [No]
10. And, yes, the Patriots will do it again. [Almost!]

Luxury Residence Report Misses the Mark

A report was recently issued from the Institute for Policy Studies that has attracted significant media coverage and editorials from virtually all of the local print and broadcast outlets.

Elisif_20161213_5514.jpgCredit: Elisif Brandon

It’s a great story: the ultra-rich, international money launderers have descended on the Boston real estate scene, crowding out poor and middle-class residents.

However, when you go beyond the buzz and dig into the content of the report, there is much to question. The report implies that owning condos through a trust or LLC is done to hide the owner’s identity. This form of ownership is actually a very common practice for tax, estate, and transactional reasons. Furthermore, while some buyers may choose to remain anonymous, it’s rather uncommon and to imply that anyone who does this is somehow laundering money is factually incorrect.

If these higher priced apartments or condos were not built, middle income apartments would not be replacing them — the economics just do not work with the current high construction costs. Furthermore, these buildings are already paying a tax devoted to the production of affordable housing, with a requirement to provide for at least 15 percent of the units built on site as affordable or a fee to produce those units off site. In addition, the city’s office buildings must also pay a “linkage fee” for affordable housing and workforce training.

Virtually all of these new developments are built on vacant land or in commercial areas where there had not been any housing, so they have not displaced existing residents. In fact, many of these developments have been the catalyst to creating new 24/7 neighborhoods.

If these condo owners are not here full-time to justify a residential tax break, so what? Do we want to discourage retirees living in Florida from living here for six months? Do we want to tell the penthouse owner, Michael Dell, to take a hike and take his jobs with him? I don’t think so.

The real issue is that it will take federal and state resources, communities working with developers, and overcoming NIMBY-ism and fear of affordable housing at the local level to truly address this housing crisis. Rather than drawing false conclusions and creating easy scapegoats, it’s time we all come together to find economically feasible solutions.

This letter to the editor originally appeared in the Boston Business Journal on September 20, 2018, as written by NAIOP Massachusetts CEO David Begelfer.