Author Archives: Tamara Small

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About Tamara Small

Tamara Small is the CEO of NAIOP Massachusetts.

Mass Historical Commission Needs Reform

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The Massachusetts Historic Commission (MHC) is an unusual agency of government, in that it frequently acts as if it is not accountable to the Governor or the Legislature – only to the Secretary of State’s Office.  As such, it often acts alone and in conflict with the other arms of government.

While most government agencies at least aspire to provide a transparent, fair, and predictable process, the MHC operates in a “black box.”  Although the MHC has regulations for the review of properties listed on the State Register of Historic Places, those regulations are not even available to the public on its website.  Furthermore, the review of the 180,000 sites that get listed on the MHC Inventory of Historic and Archaeological Assets of the Commonwealth is unclear and unpredictable.  The MHC has no regulations for submittal requirements, review timing and deadlines, or Memoranda of Agreement (MOA) for such projects so proponents are left without direction.

Project proponents must also deal separately with the requirements of the Mass Environmental Policy Act (MEPA) process and the MHC, often on different timetables, resulting in significant delays.  MEPA virtually always reaches its decisions in 30 or 37 days, as required by its regulations.  However, the MHC is required to make a determination within 30 days, and that deadline is rarely met.  The MHC staff and Director often do not respond to written notices, requests for information, or requests for meetings.  Further, they sometimes simply do not return phone calls to developers, other agencies, or the public.

Until recently, this was a dirty secret.  No one wanted to come forward to complain about the unreasonableness of the MHC’s actions (or inactions) for fear of retribution on a future project.  However, the recent episode involving Meditech has finally shown a bright light on this problem.

Meditech proposed to build a $65 million business park on 138 acres in Freetown near the new Route 24 interchange, eventually employing 800 workers.  No government funds or tax benefits are being used.  This facility would be their second project in the SouthCoast in the past two years. The first, located in Fall River, employs 500 workers.

Although Meditech agreed to leave 117 acres of the site undeveloped, the MHC still required Meditech to strip two feet of the remaining 21 acres to be sieved and inspected by archaeologists. Not surprisingly, with this requirement deemed impractical by the project proponent, the MHC refused to meet with them or representatives from the administration or legislature to discuss and resolve this problem.

As a result, Meditech may be walking away from a project in which they already invested $2 million.  The project would have provided needed jobs in a high unemployment area.  In response, Senator Michael Rodrigues just filed legislation that would limit the powers of the MHC. The proposed law would enable businesses, like Meditech, to develop their properties with input from the MHC, but it would reconfirm the statutory authority of the MHC only to properties listed on the State Register of Historic Places.

It should not be necessary to pass laws to require fairness and transparency from a state agency.  However, in this case, this seems to be the only way.

Seaport, the hottest neighborhood in Boston – Part Two

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In yesterday’s post I looked at the history of Boston’s Seaport Area and the new Innovation District, with insights from last week’s “Windows on the Waterfront” program. Today I finish up with a closer look at residential and retail activity, Liberty Wharf, and what to expect next as projects make the move from drawing board to construction site.

The Silver Line helped Boston's Seaport become a viable destination to work, shop, play, and live.

Interest in residential use dates back to artists’ lofts in Fort Point Channel, which  eventually led to Beacon Partners’ development of Channel Center with over 200 new condominiums.   Then came the award-winning FP3 residences and restaurants developed by Berkeley Investments.

It was Liberty Wharf, though, that brought a whole new group of visitors to the Seaport with its 70,000 sq. ft. office and retail development that includes Legal Harborside, Del Frisco’s, Temazcal Tequila Cantina, and Jerry Remy’s Sports Bar & Grille. Two-hour waits and a vibrant neighborhood buzzing with excitement are the result. Ed Nardi, working with Massport and the Jimmy’s Restaurant family was able to produce a concept that not only satisfied stakeholders, but far surpassed their expectations.  Hot off this success, Cresset recently committed to purchasing another property in the area for redevelopment.

In an excellent overview of the neighborhood’s history and future promise, architect David Manfredi gave the NAIOP audience a summary of the last 10 years of development in the area:

  • Work:    2.3 million square feet of new office space
  • Live:       750+ new residences
  • Play:      +4.7 acres of new public park and the extended Harborwalk
  • Visit:      1,639 guest rooms
  • Learn:   ICA & BCEC
  • Dine:     40 restaurants, cafes, food venues
  • Shop:    Louis

What’s coming next?

  • 1,160,000 square feet of innovation space
  • 1,500+ residences
  • BCEC expansion
  • More restaurants, cafes, food venues
  • 360,000+ square feet retail

New apartments are arriving with John Drew and HYM Development at Waterside Place, Steve Karp with Hanover Company at Pier 4, and John Hynes at Seaport Square. Innovation centers for start-up companies will be built by Drew and Hynes. And retail is finally on the drawing board for Waterside Place and a major joint venture with W/S Development at Seaport Square.  Who will get the first supermarket?  Both companies report they are currently in talks with grocery chains.

The hotel question still lingers.  With the Waterfront Renaissance Hotel in foreclosure, it is clear the market is not ready for a new hotel right now.  Some feel the elephant in the room is the BCEC expansion and that new hotel(s) will be dependent on the deal cut with the convention center.

As for the office market, as Charles Reid from Boston Global Investors indicated, there are a lot of parking lots right now and it will take some time before the Financial District feels the pinch as the Seaport lots get transformed into new development.  Other than build-to-suits (e.g. Vertex), spec development is highly unlikely in the near future.  However, there are some large blocks of space coming up for renewal in downtown – it’s possible one of those businesses could decide to relocate to a new state-of-the-art building in the Innovation District.

The bottom line is that the Innovation District has come a long way from the days when Anthony’s, Jimmy’s, and the No Name were the only major draws to cross the Fort Point Channel.  And while it may be a long way from its final build-out, there is no doubt this hot new neighborhood is here to stay.

Seaport: The Hottest Neighborhood in Boston

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If attendance is any indicator, the record-breaking 700 registrants at NAIOP’s “Windows on the Waterfront” event confirmed that the newly-rebranded Innovation District in the Boston Seaport district is indeed hot.  This is the year when the long-awaited neighborhood became a reality, spurred in large part by two key events – Vertex’s initial commitment to lease two buildings ( 1.1 million sq. ft.)  on Fan Pier, and Cresset’s opening of Liberty Wharf to the wild acclaim of restaurant and bar aficionados.

Windows on the Waterfront

An aerial shot from David Manfredi's presentation

However, as the NAIOP audience learned, that is just the beginning for development in this area. In an outstanding overview of the neighborhood, David Manfredi described the “promise” of this new district as:

  • A vibrant, new mixed use neighborhood
  • A neighborhood driven by innovation
  • A place to live, work, play, shop, dine, learn and visit

Helping developers fulfill that promise are several massive infrastructure improvements over the past decade, including: access to a redeveloped highway system that includes the Big Dig; an upgraded Logan Airport; expanded water transit; and the construction of the Silver Line.  Add to that the Boston Convention and Exhibition Center (BCEC), the Federal Court House, the beginning of a local park system and Harborwalk, the ICA relocation, and the city’s energetic branding of the Innovation District, and it’s hard to imagine why anyone wouldn’t want to be there!

At the event, Mayor Menino indicated that the city did not want the development of this area to be rushed, avoiding a cold, uninviting commercial zone.  He wanted, and now sees forming, a 24-hour, mixed use area that will attract both families and entrepreneurs.

Despite the large amount of available, buildable land adjacent to downtown (rare for most cities), the redevelopment of this enormous land mass has taken quite a while to get moving.  Early in the last decade, Seaport Place developed 1 million sq. ft. of office space and a full service hotel.  Another 600,000 sq. ft. came along with Manulife’s headquarters.  The next few years were fairly quiet for commercial development, until Joe Fallon built the first office building on Fan Pier, a speculative 526,000 sq. ft. tower at One Marina Park Drive.  Fallon had previously developed the 465 unit Park Lane apartments and partnered on the convention center’s Westin Waterfront hotel.  Soon after, the 470 room Renaissance Hotel was built.

Read more about the city’s hottest neighborhood in Part Two tomorrow – use the buttons at right to subscribe by email or RSS.  Among the topics: residential and retail uses, Liberty Wharf, and what’s next for the Seaport/Innovation District.

Filene’s Site Back in Play?

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In today’s Boston Globe, it was reported that Peter Meade, Director of the BRA, indicated a willingness to work with the REIT, Vornado, to move forward on the stalled Filene’s Franklin Street development.  This is good news for the Washington Street corridor and the city. 

The reality is that the problem with this project has never really been the developer; it has been the deep recession that put a freeze on all speculative commercial development in the country.  There was a thought that the city could permit a downsized project for a new buyer.  The problem with that is two-fold.  First, it was unlikely from the start that Vornado was going to sell the site at a deep discount.  They are not being pressed by a lender to sell –it’s their own money sitting in this hole (all $200 million of it!) Secondly, the city would be shorting themselves of substantial real estate taxes that would have eventually come from the office and hotel towers when the market returned.

This location is a premium one and when office vacancies start to fall and rents rise, this will be one of the first sites to see a crane.  In the meantime, there is demand for retail, parking, and apartments.  It sounds to me like the approval for a phased project allowing for a future tower could be a win-win for the city and the developer.

Let’s just hope the talks continue.

Commercial Real Estate Bubble?

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Is the investment market for core commercial properties cooling a bit? If so, what does this mean for Boston?

According to Pensions and Investments newsletter, the California Public Employees’ Retirement System (CalPERS) is considering dropping its real estate allocation to 8% from 10% by year end.

The buying pressure for core “trophy” properties from pension funds, foreign investors, REITs, and private investment pools are pushing acquisition pricing back to the pre-recession highs.  Locally, 33 Arch Street traded at a sub 5 cap rate ($530/sf.)  Earlier, Boston Properties acquired the Hancock Tower at an initial 4.6 cap ($475/sf.) Most recently, Landmark Center was purchased by Samuels for $530.5 million ($558/sf.)

The Blackstone Group told investors it had raised another $4 billion for its latest real estate fund with a target of $10 billion.  It has already invested/committed $4.4 billion to real estate deals during the first six months of this year.  Blackstone believes that the opportunities lie with the relatively low prices and the sluggish global economy.

At some point, investors will need to ask whether these investments have been worth the high prices paid for them.  Will they achieve the projected rental increases and vacancy decreases that the investments were based on, if the economy continues to remain sluggish with nominal job growth?

According to Colliers’ Boston office , although the vacancy rate in Boston only dropped from 16.6% to 16.3% during the second quarter, the Back Bay submarket showed an overall 8.0% vacancy, with class A space at a very low 5.8%.  Rents have improved with Class A asking rents averaging slightly above where they were before the rental spike that occurred in mid-2007. However, Boston Class B space and the suburban markets are another story. Vacancy rates are still high with the Route 128 submarket at 19.3% and Route 495 at 25.6%. With Boston class B space discounted 30% off class A space and suburban rents having dropped 20%, properties in these markets are clearly going to be challenged for some time.

The good news is that Massachusetts is actually doing better than the rest of the nation, but even here there may be fears of another bubble – especially in light of recent market events.  Could we have a “double-dip” downturn in commercial real estate?  If the world economy does not show some initial stabilization followed by real growth, we may see some of these recent property acquisitions reselling at a loss. Only time will tell.

Floods and Hope in Vermont

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I was in Vermont when Irene hit and the devastation that resulted is hard to fully comprehend.  We have certainly had our share of storms and Nor’easters, but it wasn’t the high winds that were the problem – it was the flooding of most every river in the state.

Waitsfield, VT Begins Clean Up

Rivers became lakes, overflowing across roadways, through homes and businesses, hitting owners – few of them with flood insurance.  Flooding is not a normal event here – they call this a “500 year” storm!

Bridges were washed away and roads disappeared.  In our town of Waitsfield, the river rose almost 20 feet and undermined the historic covered bridge.  A key historic building that lost its foundation may be condemned.  The flood ran through the local stores, leaving behind 4-6 inches of sludge and an unhealthy film on everything inside.

But on Monday morning, under a bright sun, hundreds of volunteers in Waitsfield and Warren lined up to help.  (And I know that this was the case throughout the state.) Fulltime residents and vacationers joined together to help by emptying homes and businesses of endless buckets of sludge and all sorts of debris.  People worked to scrape away the muck from the streets.  This work has continued and a headquarters has been established in the center of town for volunteers to find out where they are needed next.

It is frustrating to see so many suffer through a natural disaster like this, but it is also inspirational to see the unrestrained community response of neighbors, friends, and visitors.  I don’t know if all of the businesses will be able to recover from this setback, but for those that do,  it would not have been possible without the help they received from these generous volunteers.

Development Opportunities May Arise Out of Anglo Irish Sale

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As I discussed in today’s Boston Herald, the announcement of the sale of Anglo Irish Bank’s portfolio to Lone Star Funds, JP Morgan Chase and Wells Fargo, means that some of the Boston market’s premier development projects will be changing hands.  Although the bulk of the performing loans will be acquired by the two traditional banking companies, much of the action will come from Lone Star’s share of the nonperforming loans.

Anglo Irish was the go to bank for much of the development action over the past decade.  It provided funding to the region’s top developers for some of the best located projects.  Unfortunately, the 2008 downturn and the continuing recession put a chill on all speculative developments across the country.

The big question is who will get the rights to start these developments when the market begins to improve?  Will it be the existing borrower negotiating a deal to stay with the project or will it be a new player?  It seems clear that Westwood Station will be the latter with a transfer that came close before the whole portfolio was put on the market.

The Greater Boston market has not recovered, but there are pockets of demand that will justify some new development occurring over the next 12-24 months and it is very likely that some of that product will come from this newly sold portfolio.

The Risks and Rewards of Waterfront Development

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On August 17th, NAIOP had its first “Boston by Sea” Harbor Cruise along the waterfront, featuring commentary by Barry Hynes of FHO Partners, Lowell Richards of MassPort, and Kairos Shen of the BRA.

Besides the unique view of the many waterfront development projects, what stood out for me was the extreme difficulty of permitting and building projects on the water, as exemplified by the many projects that have failed financially, in some cases bankrupting the developers.

Attendees get the scoop on the Boston waterfront of the past, present and future

For all its benefits (views, access, etc.), waterfront development has plenty of obstacles and costly surprises for those who want to build.  There is the Chapter 91 law that regulates most of the city’s coastal areas, the Municipal Harbor Planning process, Boston’s Article 80 permitting process, input and review from neighborhood Impact Advisory Groups, pier piling replacement, and, frequently, costly hazardous waste issues.  To top that off, there is the developer’s dilemma of timing the project to match market demand.  With all of the uncertainty associated with getting a project financed and approved in a timely manner, it is difficult to know in advance if there will be the necessary demand for the completed product at a price that will justify the costs.

That can result in prime development locations lying fallow.  During our waterfront tour, we saw a number of development sites in East Boston that have still not started, even though they were planned for construction 5-10 years ago.  Portside at Pier One, New Street, Clippership Wharf, and Hodge Boiler Works have languished for years.  Most were fully permitted.  However, there is talk that Portside at Pier One, proposed by Roseland Property Company, may begin a first phase.

Many properties have changed hands numerous times before being developed.  Prime examples are Fan Pier and the former McCourt assemblage, both having remained primarily parking lots for three decades until the current owners purchased the land.

Clearly there have also been several successful projects.  Without question, Rowes Wharf stands out as one of the premier mixed use development projects in all of Boston.  It also looks like the “tide has turned” for Boston’s Seaport/Innovation Zone, which has many development projects underway.  With one office building up, Joe Fallon and Cornerstone are now starting construction on two more buildings for Vertex.  A hotel is in the works for Pier 4 with New England Development, and an adjacent apartment project is being proposed by Hanover.

Liberty Wharf has transformed the neighborhood with its restaurants – making it the new place to be any night of the week.  In addition, The Drew Company’s project is getting closer with a key residential component and Seaport Square is expected to move forward with a major retail development handled by John Hynes and WS Development (developers of the enormously successful Legacy Place in Dedham.)

Despite the uncertainties in the financial markets, the Seaport area seems to have found the necessary momentum to attract businesses, residents, shoppers, and tourists.  If the developers and the city can keep up the pace, soon the Seaport will no longer evoke memories of failed developments and abandoned plans.  Instead, it can stand as an example of what can be achieved with vision and persistence.

(Editor’s Note: Hear more about the Seaport at NAIOP’s “Windows on the Waterfront”, Sept. 21, featuring Seaport developers John Drew, John Hynes III, Stephen Karp, along with David Manfredi, John P. Fowler, and special guest Mayor Thomas Menino.)

Air Rights Over the Mass Turnpike

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Could this be the right time to finally heal the remaining gashes to the Boston cityscape caused 45 years ago by the construction of the Mass Turnpike?  I am optimistic that the answer is yes. The Boston Redevelopment Authority has reopened the process to review certain air rights project proposals. Although the focus is on the sites at the corner of Boylston Street and Massachusetts Avenue, there are also two other major development sites that could and should move forward: the Kenmore Square project proposed by John Rosenthal and the former Columbus Center project.

There are no redeeming features to having a highway canyon in the middle of one of the most historic and architecturally vibrant cities in the country.  The neighborhoods that were split by this chasm deserve better and the city certainly could use some new, exciting, revenue enhancing developments.

There is no question that residents should have input into the process.  However, the city needs to be a strong advocate for these complex and costly developments to become realities.  Set guidelines that offer sufficient density to allow these projects to work financially and give investors sufficient confidence that they will get through the approval process in a timely fashion.

It’s time to heal the traffic wound and create a thriving community.

What’s the Impact of the US Debt Downgrade on CRE?

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Everyone is trying to determine the impact that the recent S&P downgrade will have on the economy, their businesses, and their  personal investments.  I personally do not think it will have a substantial impact beyond the stock market’s roller coaster ride over the next few weeks.  That does not mean I believe the economy is in good shape, far from it.  I think this particular event is a distraction from the anemic job recovery across the country (granted that Massachusetts is finally outpacing the rest of the country after being the poor performer in the last few recessionary recoveries.)  Add to that the financial disasters within the European Union states, and the political unrest from London to Damascus, and you do not come away with much optimism for the next few years.

As for commercial real estate, we are in the “people business” in that the only way we can fill our buildings is to have businesses employ workers and expand that base.  With the uncertainty in the marketplace, we are not seeing any great surge in employment.  Some of the recent drop in the unemployment rate was unfortunately due to unemployed workers who gave up looking for a job.  The question is how do the businesses in the Commonwealth feel about their prospects?  Prior to the S&P announcement, AIM’s business confidence index for Massachusetts remained neutral at around 50 points out of 100 (not very encouraging.)

However, in our industry there may be some winners.  Investment funds have purchased commercial properties at a discount these past couple of years and more properties may come up for sale (either willingly or forced by their bankers.)  There will be exceptions to the dismal economic forecast in all real estate market categories with build-to-suits leading the way (e.g. Vertex, Novartis, Liberty Mutual) and a number of multi-family apartment projects benefitting from a robust rental market
locally.  The Seaport District will be an important bellwether.  After years of waiting for its “turn” there is some real momentum with Fan Pier, Liberty Wharf, and talk of multi-family housing, a hotel, and long-awaited retail. (Save the Date – NAIOP will be hosting a conference on the Seaport’s development plans on September 21st.)

Today’s Boston Globe had a good overview of the industries in Massachusetts and their reaction to the downgrade.  As I indicated in that article, as the industry that houses these businesses, we are “holding our breath” for the time being and hoping that what modest momentum we have had in Massachusetts does not get slowed any further.