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.

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.

Prepare to be automated out of a job

robotIsn’t there a civic responsibility to plan for massive dislocation?

What should we do if we knew that, in the near future, a large sector of our country’s workers, currently employed with good-paying jobs, would be put out of work by new technologies? Would we ban the new technology to save those jobs? Or, do the scientific breakthroughs and related increases in growth and productivity outweigh the job-loss negatives?

These questions are not theoretical. Thomas Friedman explores these issues and others in his 2016 book, Thank You for Being Late: An Optimist’s Guide to Thriving in the Age of Accelerations. And a December 2015 study by the McKinsey Global Institute found that the US economy is only reaching 18 percent of its “digital potential.”

The McKinsey report projects that “about half the activities people are paid almost $15 trillion in wages to do in the global economy have the potential to be automated by adapting currently demonstrated technology. While less than 5 percent of all occupations can be currently automated, about 60 percent have at least 30 percent of constituent activities that could be automated. ”

Going forward, McKinsey projects, more occupations will change than will be eliminated through automation. Even a 4-year-old study done at the University of Oxford’s Martin School “estimates that 47 percent of jobs in the US are ‘at risk’ of being automated in the next 20 years.”

As the studies illustrate, it is very clear that technological advances are now coming faster and faster and starting to supplant even white collar skills.

Take, for example, the potential impact of autonomous vehicles. In the US, there are 3.5 million professional truck drivers, in addition to all of the drivers for mass transit, local deliveries, taxis, etc. One out of every 15 workers in the country is employed or associated with the transportation industry. Clearly, the impact of this new technology could be devastating to a large part of the nation’s workforce and their families.

If these disruptive technologies keep probing for efficiencies in our economic system and accelerate the obsolescence of certain classes of workers, isn’t there a civic responsibility to prepare for that inevitability? Living in a world reminiscent of Ayn Rand’s philosophy of positivism, where it is the survival of the fittest and “tough luck” to anyone else, is not going to sit well with the millions of the soon-to-be-unemployed Americans.

“When the rate of change eventually exceeds the ability to adapt, you get dislocation – when the whole environment is being altered so quickly that everyone starts to feel they can’t keep up,” Friedman writes in his book. “There is a mismatch between the change in the pace of change and our ability to develop the learning system, training systems, management systems, social safety nets, and government regulations that would enable citizens to get the most out of these accelerations and cushion their worst impacts. This mismatch is at the center of much of the turmoil roiling politics and society today.”

Bill Galston from The Brookings Institution suggests that many of the displaced workers have not been able to find new jobs that pay as much as the previous ones, with wages dropping an average of 40 percent when they do find a new job.

Eric Teller, CEO of Google X Research stated, “We certainly don’t want to slow down technological progress or abandon regulation. The only adequate response is that we try to increase our society’s ability to adapt.” For workers going forward, the only way to retain a lifelong working capacity is to engage in lifelong learning.

Governments (federal and state) are going to have to do better in two areas. First, they will have to provide a much improved “safety net” for the unemployed.  There will be more of the unemployed and these workers will be out of work for a much longer period of time. It will certainly take longer to find a comparable job that meets the worker’s skills (with fewer of these jobs available). And it will take longer for the worker to get additional training to qualify for those jobs that are available.

I suggest that we need a new system of wage insurance to minimize the negative effects of extended unemployment. The system would provide workers going through a training program with supplemental wages over what they would be currently receiving to give them time to be retrained for a higher-paying job.

Secondly, the US will need to adapt its institutions and training pathways to help workers acquire new skills.  The nation’s educational system and job training programs 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 online training modules 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.

According to Friedman, the new workplace employers will value workers who can demonstrate the needed abilities for the job. These employers will need to provide multiple avenues for lifelong learning that are priced right, available on demand, and seamlessly responsive to the changing needs of the workplace. They also need to be fueled by a regulatory and tax policy to assure their widespread adoption.

What is very clear is that the status quo is not an option. Government will soon have to acknowledge that one of the greatest threats to our society will be the wasting away of our human resources. If there is no hope for the future (a job, a family, a home) for everyone in America, then the golden age of America, as a land of opportunity for all, will be a thing of the past.

NAIOP Mourns the Loss of Howard Elkus

elkus

The  real estate industry is mourning the loss of an extraordinary professional, Howard Elkus, who passed away April 1st in Palm Beach, Florida. Howard co-founded the firm Elkus Manfredi Architects in 1988 in Boston, specializing in workplace design, large-scale developments, and urban planning. Under his and David Manfredi’s leadership, the firm has worked on signature projects throughout the United States and around the world.

Probably, no other firm has had such an impact on the cityscape of Boston over the last 10 boom years, while also spearheading major global commissions.

On its website on April 3, the firm released a statement:

“It is with great sadness that we share news of the unexpected passing of Howard Elkus. We grieve the loss of Howard as a co-founder of our firm, as a visionary architect, as a mentor, and as a friend. We extend our condolences to his wife, children, and immediate family. Information regarding conveying condolences and participating in remembrances is forthcoming. Our sincere appreciation for your concern and expressions of sadness.”

Howard was warm, creative, caring, and loved what he did. All of us who had the privilege of working with him will feel his loss on a daily basis, but we will always be reminded of his influence as we walk the city he loved.

A Housing Plan That Works

The business community is generally a bit skeptical when it comes to grand plans to cure critical deficiencies in the marketplace. One of the most pressing problems for Boston, and many other major cities around the country, is the lack of affordable housing and the inflationary pressures on existing housing stock. In 2014, Mayor Marty Walsh commissioned a new housing plan to confront the city’s problem of a population growth outpacing its production of housing.

The plan that resulted set a target of 53,000 new housing units to help rebalance the market and decrease the pressure on rents and housing prices in the city’s older (and more affordable) housing stock.

Through a cross department plan allowing for streamlined and expedited permitting, expanding the offerings of city-owned real estate, promoting innovation in housing production, and adding significant resources to housing production, the city has worked collaboratively with the development community to achieve real, measurable success.

Through December 2016, nearly 20,000 units were either completed or in construction. Over 21,000 units are currently in the permitting process. Housing unit completions have finally outpaced the city’s population growth.

Has the housing plan worked? For the first time in many years, rents in older units decreased or stabilized in the neighborhoods with the most new development in the past 5 years. The sharpest decreases were with studios and one bedrooms, with two bedroom units seeing modest decreases and three bedrooms rents stabilizing.

It is a serious challenge to develop a program to create new affordable, work-force housing without deep subsidies. However, we can now see that producing new market rate units can actually dampen the inflationary trends for the existing older housing stock. As long as the city can continue to work closely with the development community to keep the housing pipeline flowing, we may be able to keep Boston accessible to everyone.

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.