About David Begelfer

David Begelfer is the CEO of NAIOP Massachusetts, and the chief writer of NAIOP Trends & Policy Watch, a blog about commercial real estate, business, and politics.

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.

 

20 years later, Brownfields Act remains a pioneering policy

This op-ed originally appeared in Viewpoint on bizjournals.com on September 13, 2018. The joint op-ed was authored by Ned Abelson, attorney at Goulston & Storrs and co-chair of the NAIOP Brownfields Committee, and by David Begelfer, NAIOP Massachusetts CEO and an active participant in the passage of the Brownfields Act. 

Twenty years ago this summer, Gov. Paul Cellucci signed into law the “Brownfields Act,” establishing new incentives and protections to encourage parties to clean up and redevelop contaminated property in Massachusetts. This law provides comprehensive liability relief and financial incentives to attract new investment in these properties while ensuring a safe and effective cleanup. Simply put, without the passage of the Brownfields Act, many communities that are now thriving would be filled with vacant and contaminated properties.

Suburban Office Park

A Brownfield site is blocked from productive use because of potentially hazardous contaminants. Prior to the passage of this law, developers considering cleaning up and then redeveloping such a property often concluded the effort was simply too risky, too expensive and too time-consuming to offset future profits from leasing the property to retailers, businesses and residents.

A model for states across the country, the Brownfields Act allows innocent Massachusetts real estate owners and operators to apply to the Department of Revenue for a state income tax credit to offset the net cost of the cleanup. Any party that contaminated a property or owned the property at the time of contamination is not eligible for the tax credit. Depending on the extent of the completed cleanup, the taxpayer may apply for a credit equal to either 25 percent or 50 percent of the cleanup cost. If the site has an Activity and Use Limitation, or AUL — typically a use restriction placed on title as part of the cleanup process — then a 25 percent credit would apply; if no AUL, then eligibility increases to 50 percent. Without this tax credit, many contaminated properties would remain a public health risk and there would be no incentive to clean up and return these sites to productive use.

The credits have provided critical additional funding for community development corporations, or CDCs, and other community-based organizations. And a change to the law in 2006 has helped nonprofit organizations, which were previously not able to use all of their credits, to sell or transfer the credits to others. In recent years, the state Department of Revenue has distributed between $28 million and $61 million annually in Brownfields tax credits, benefitting between 40 and 80 development projects each year.

The Brownfields Act was created through a unique collaboration of Massachusetts policymakers and a truly diverse set of stakeholders. Developers, town officials, environmentalists, business association representatives, scientists and many others spent hundreds of hours negotiating the details of this landmark legislation.

For Massachusetts residents and businesses, the benefits have been significant. By cleaning up these sites, public health conditions improved, local communities were revitalized, housing was built in vacant areas, new jobs were created, and municipal real estate tax revenue grew. For developers and their partners in engineering, construction and architecture, redeveloping a former industrial site no longer posed a financial or legal death sentence.

For a very modest investment by the commonwealth, billions of dollars of investments have been made throughout the state, benefitting its citizens and municipalities. We commend the Legislature’s work this session to provide for a five-year extension of the Brownfields tax credit in the Housing Bond bill, signed by Gov. Baker on May 31. Twenty years later, the Brownfields Act’s approach to economic development and public health policy continues to be bipartisan, beneficial, bold and, most important, very successful.

 

My Top Ten Predictions for 2018

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The CRE industry kept smiling through 2017! Is anyone talking about innings anymore? We just keep doing deals.

So, here are my predictions for the coming year:
1. Amazon will pass on Boston for a campus, but leave us with a great consolation prize.
2. No Turnpike air rights project will start construction (ditto for 2019).
3. Fed. interest rates will be up 75 basis points by end of year.
4. In Boston, more condos will be permitted than rental apartments (other than the neighborhoods).
5. An office or lab lease will hit $100 per square foot in Cambridge.
6. Construction costs, on average, will be up 7%.
7. More than one million SF of commercial space will commence on spec.
8. The 128 office market will show more transactions (both numbers and SF) than the downtown market.
9. Foreign buyers will begin to acquire major CRE property outside of Boston/Cambridge.
10. And, yes, the Patriots will do it again.

Below were my predictions for 2017. Not the best batting average, but here is to a New 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 Industrial Average 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.

A Note of Economic Optimism

MassBenchmarks Current Economic Index, was recently released by MassBenchmarks, the journal of the Massachusetts economy published by the UMass Donahue Institute in collaboration with the Federal Reserve Bank of Boston.

The bottom line is very positive with our local growth projected to continue.

Some highlights:

  • Massachusetts real gross domestic product grew 5.9% in the third quarter of 2017 (vs. nationally at 3.0%).
  • The Commonwealth exhibited very strong employment and earnings growth during the third quarter.
  • Payroll employment grew at a 2.1% annual rate in Massachusetts in the third quarter.
  • Wage and salary income in Massachusetts grew at a very robust 10.5% annual rate (vs. 3.8% growth for the nation).
  • Wage and salary income grew 5.8 percent year over year in the Bay State, significantly stronger than the estimated 2.7 percent growth for the nation.
  • “Labor markets appear to be nearly back to full employment levels,” noted Alan Clayton-Matthews, MassBenchmarks Senior Contributing Editor and Associate Professor of Economics and Public Policy at Northeastern University.
  • “Despite these low unemployment rates and anecdotes about a shortage of workers, employment growth continues unabated without clear signs of wage rate pressures. However, It may be that the rapid growth in wage and salary income in Massachusetts is signaling the beginning of an acceleration in wage rates, but it’s too early to tell.
  • As measured by regular sales tax receipts and motor vehicle sales taxes, spending in the state has been surprisingly weak given strong income growth and the surging stock market.
  • Spending on taxable items declined in the third quarter by 3.3%. Year over year, this spending grew by a relatively paltry 1.7% between the third quarter of 2016 and the third quarter of 2017.
  • The MassBenchmarks Leading Economic Index shows that the state’s economy is expected to continue to grow at a moderately robust pace.

Being cautious is a prudent business characteristic these days, but the data still shows a healthy Massachusetts economy.

To win over Amazon, it’s all about the people

This post originally appeared in the Boston Business Journal.

Since Amazon announced its plans to open a second headquarters location, the region has been abuzz, but, to date, the focus has been on real estate. Where can 8 million square feet of space be developed? Does it need to be in one location or multiple sites?

Amazon, however, is not really looking for space. It is looking for people. These are the skilled workers that fuel the local economy, due to the region’s exceptional ability to attract students and immigrants.

So, while we are spending so much time and effort to present the best site for Amazon’s real estate decision makers, we had better be equally as focused contemplating the human resource side. Where will Amazon’s workers come from? Will they be relocating from other areas around the country?

Reality paints a different picture. Other than the post 2009 recession years, Massachusetts has experienced consistent net domestic migration. We are currently close to full employment. There are few workers available and qualified for the jobs that are currently open. Therefore, it’s more likely that these Amazon workers will come from other local companies. The critical question is how will those companies survive and grow with an even tighter job market? Will they, in turn, be forced to relocate?

To make matters even more complex and challenging, there is a multiplier effect with a company like Amazon establishing a major local presence. Other companies will look to locate near this “mother ship” and many of the service companies in the area will have to bulk up to handle the additional demand. As a result, there may be a need for upwards of 150,000 more positions to fill over the next 10+ years.

The dog that chases the car, but then catches it, had better have a plan for what happens next. If we are serious about getting Amazon to choose Massachusetts, let’s strategize about what it would take to actually increase our labor force. As with the Olympics, planning for the possibility of success can be a beneficial, long term, strategic exercise. In any case, we should prepare ourselves for sustainable growth, whether, or not, any individual company locates here.

Three strategies for retaining more skilled workers and attracting others to come here should be pursued. The first deals with the issue of the high cost of living. The second is job training/retraining. The last is immigration policy.

The primary component of the cost of living is housing. We need to produce more affordable, urban housing, and also open up opportunities for “starter homes” for families in communities that are accessible to the new jobs and with good school systems. Schools, commuting time, and affordability are what drive home purchases (particularly for families). Unfortunately, local zoning in most of the Commonwealth discourages multi-family housing, as well as smaller, denser single-family homes.

As for job training, we will need to adapt our institutions and training pathways to help workers acquire new skills. We have not been sufficiently agile to respond to the needs of those businesses that are expanding and hiring. Even a college degree is not sufficient to guarantee a new job in the new economy. New training methods that can be adapted and adjusted in short order will be needed to fine tune a prospect’s skill set to match a company’s requirements. Lifelong learning that is priced right, available on demand, and responsive to the changing needs of the workplace must become the norm.

Finally, we have benefited greatly by the historic flow of immigrants. Were it not for immigration, we would not have accommodated the strong economic growth over the last 20 years. Local and state leaders must flex their political muscles to ensure that our national policies do not impede the beneficial impact that comes from a wide range of skills entering and fueling our economy.

Yes, we can benefit from a thoughtful strategy to attract Amazon to our region. But, over time, we will be well served with a realistic plan to increase our skilled workforce that will be the honey that easily attracts many more companies to locate and expand here.

GOLF FOR GOOD: NAIOP Raises $200,000 for Heading Home

checkNAIOP Massachusetts held its 29th Annual Charitable Golf Tournament on June 22nd, raising $200,000 to support Heading Home, Inc.’s programs to end homelessness. The amount brings the total amount donated to Heading Home to more than $2.9 million and maintains NAIOP’s role as Heading Home’s largest corporate donor. Heading Home’s mission is to end homelessness in Greater Boston by providing a supported pathway to self-sufficiency that begins with a home, together with critical services such as life skills, financial literacy, and job training. To learn more about Heading Home and the vital services it provides, please visit www.headinghomeinc.org.

Our industry continues to come together, in good times and bad, to show support for the homeless families and individuals served by Heading Home. We are especially proud of our member volunteers, our staff, and our generous donors who helped us reach our goal for this donation. Special thanks goes to our Golf Committee and John Myers of Redgate, in particular, who chaired the event committee.

Held at a new location this year, The International, this signature CRE tournament drew nearly 270 golfers from all sectors of the commercial real estate industry for a day of fun, networking, and fundraising. The International is a golfer’s paradise that features two award-winning 18-hole golf courses, including The Pines, designed by Robert Trent Jones.

NAIOP Massachusetts thanks this year’s many sponsors and donors who gave so generously to this event, particularly Redgate, who served as Platinum Sponsor; Gold Sponsors National Development, New England Development and Newmark Grubb Knight Frank; and Pin Flag Sponsor Callahan Construction Managers. It is only through their support that the tournament is able to raise funds needed to help Heading Home accomplish its goal of ending family homelessness.

We are already looking forward to June 14, 2018 for another great tournament and, together, taking one more step towards ending homeless.

Choosing Massachusetts for Business: Key Factors in Location Decision Making

Zakim_SkyA study commissioned by the non-partisan economic development organization, MassEcon, and conducted by the UMass Donahue Institute‘s Economic and Public Policy Research group, was recently released. The good news is that the vast majority of companies that chose Massachusetts as a place to expand their business would do it again. This consensus was largely based on Massachusetts’ innovative economy, industry clusters, and skilled workforce.

As with all good news, there are some troubling challenges and concerns that were voiced by the businesses about future growth in the Commonwealth:

  • TRANSPORTATION: Companies in Greater Boston are concerned about highway congestion and public transit capacity, while businesses outside the urban core worry about a shortage of public transportation. MBTA reliability is vital to the ability to attract and retain workers, expressing concerns that not enough is being done to accommodate a growing population.
  • HOUSING: The availability and affordability of housing was a significant concern statewide, a challenge to attracting and keeping employees, especially younger employees. Costs in Greater Boston, in particular, are inordinately high, limiting options for low and middle-income workers.
  • BUSINESS COSTS: In general, for companies locating in Greater Boston the advantage of skilled labor outweighed various higher business costs; but labor, health care, and energy costs were identified as challenges to business in Massachusetts. Business costs seemed to be of less concern to those companies that considered and compared other states than to those already doing business in the Commonwealth. Companies engaged in manufacturing were more sensitive to cost challenges of health care and energy than companies in Greater Boston.
  • QUALITY OF FUTURE LABOR SUPPLY: Although more than 90 percent of survey respondents said the availability and quality of the workforce were important to their decision to locate in Massachusetts, some companies are struggling to find enough technically trained workers and those with middle-level skills. Continuing to produce talented labor must be a priority for the state, respondents indicated.
  • ECONOMIC DEVELOPMENT ASSISTANCE: While over half of the businesses surveyed were solidly favorable about the effectiveness of economic development officials in helping them become established in Massachusetts, others reported that the system is confusing.  Some said they sought a “roadmap” with which to navigate the various economic development organizations.

The Commonwealth has been experiencing one of the best periods of economic growth in its recent history. The problem with success is that it sometimes breeds complacency. If we are to maintain and enhance our position as one of the best locations to grow a business, we had better heed the warnings and fix our own house before it begins to lose its luster against all the many worldwide competing centers for growth.