Category Archives: Economic Development

Boston Still Riding the Wave for Growth

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Although recent article in The Boston Globe, “Rents soaring in city’s Innovation District”, gives the impression that the Seaport is competing head-on with Back Bay, one needs to look closely at the two markets. The majority of the increases in rents from Class A, high-rise space are from existing properties in the Back Bay, while it is the newly constructed buildings in the Seaport that are contributing to its high rental rates.

Obviously, any tenant committing to newly built office space will be paying a premium to occupy the space, due to the high costs of land and construction.  More telling is the solid rental increases within the existing office building environment occurring in the Back Bay with renewals and new leases.

There is no question that the Innovation District is now on the map and is a credible locational choice for growing businesses.  However, the Back Bay is the established work/play/live neighborhood that will continue to be attractive to a full range of businesses. As time goes on, demand for space (and rents) will be more similar in those districts as well as in the “new” downtown market (formerly referred to as the Financial District).

The good news is that Boston is still riding a wave of growth and construction, setting it apart from most other CBD’s in the country.

Climate Change Preparedness: A Shared Responsibility

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Climate change can have significant impacts affecting the overall economy; directly, by damaging structures, and indirectly, by compromising transportation systems, communications, and utilities. An increasing number of extreme weather events and future sea level rise may lead to more frequent and extensive flooding along the coast and inland waterways.  In response, local and state agencies, building owners, lenders, insurance underwriters, and tenants are now considering how to prepare for and respond to such events.

NAIOP has developed guiding principles regarding climate change preparedness and the commercial real estate industry:

  • Preparing for storm related events should be a shared responsibility between the public and private sectors. The primary role for city and state governments should be to ensure the continuity and protection of public infrastructure and public safety. (Having a “climate change proof” building in the middle of a flooded neighborhood, without power or adequate transportation, provides no real public or private benefit.)  Stakeholders should be at the table with state and local decision makers early on in the process to prioritize short-term and long-term public and private responses.
  • Best Management Practices developed in other cities should be shared among public and private sector stakeholders, and their applicability to the Commonwealth should be carefully considered.
  • Not all properties will be affected by climate change in the same way. Owners should have the flexibility to make decisions based on the needs of the individual properties, ownership, tenancy, and product type. Tenants will have varying expectations for building accessibility during and after severe weather events. (e.g., Institutional owners, such as hospitals, may be more likely to make significant investments in order to prevent a shutdown of any kind, while commercial offices may not need the same investments since a safe shutdown and simple return to service would be sufficient).
  • Both costs and risks need to be evaluated by the ownership when considering climate change-related investments or upgrades to buildings, as well as regulatory changes (e.g., if the costs are high and the risks are low, owners cannot be expected to incur unsustainable expenses that result in uncompetitive rents).
  • A combination of incentives and regulatory flexibility may be needed to make the investments in storm preparedness measures viable for the commercial real estate industry (e.g., Zoning changes that would allow for increased building heights, exceptions from gross floor area calculations, or allowing fuel tanks to be stored on a floor above the basement.)
  • The real estate industry, through the actions of owners, investors, lenders, and insurance carriers, will lead to appropriate property preparation and responses to existing and projected weather trends. Regulatory mandates from the government are not the best way to address this issue, because they inappropriately assume industry inaction, and lack the necessary flexibility to accommodate building and site specific variables.

This is an important issue, but the solution should not be aimed solely at commercial building owners.  If we are all affected by the challenges, we should all be doing our part to protect our residents and businesses.

Patience for a 1,000 Foot Tower

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In a recent BBJ article by Thomas Grillo, there seems to be some interest from the BRA to renew its search for a developer of the city-owned Winthrop Street Garage site on Devonshire Street between Winthrop Square and Federal Street. The previous proposal was to build a 1,000-foot tower with 1.3 million square feet of office space on the approximately one acre parcel.

It’s always exciting for a city to talk about the prospects of having the tallest tower in the city built. However, historically, this city sometimes lacks the patience to allow the marketplace to support the new venture.  It is difficult enough to build an office building a quarter of the size of this dream project without substantial pre-leasing at rents that justify the expense of constructing a tower. A delay in development does not equate with a lack of expertise or, even, capital. It just means that there are economic cycles that affect these decisions. To ignore market demand would be at the owner’s financial peril.

If we want to attract serious interest from developers in this site, the BRA and the new Mayor will have to understand that giving a permit to build a project of this magnitude will require the patience of Job!

Konnichiwa from Tokyo – Low Vacancy Rates & New Development

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I came to Tokyo expecting to find an aging office stock with little new construction and extremely high vacancy rates. I am surprised to report that not only are there magnificently designed, new, mixed-use projects, especially in the Shiodome area, vacancies are at levels that would make us envious. It turns out that vacancy rates in the 7% range (including the older stock) are considered dangerously high. Historically, rates have been under 4% in the Tokyo prime markets, only rising in response to major global impacts like the “dot com bubble” or the recent recession started by the U.S. subprime mortgage crisis. Curiously, real rents have not grown that much. With vacancies like this in Boston, rents would be spiking. Clearly, it’s a different economy!

Where Did All the Parking Go?

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The city-owned Winthrop Square Parking Garage, at 240 Devonshire Street, recently closed due to serious structural problems. Built in the 1960s, this Boston garage accommodated 550 cars at discounted rates from the much higher priced private facilities.

This now further exacerbates the commuter parking problem, already destabilized by the continuing loss of surface parking spaces due to the heated development activities in the Seaport area. Employers may soon start to hear the complaints, as workers begin to personally absorb these increased costs.

The “dirty secret” is that the only reason the Financial District’s parking freeze has worked for so long was that there was a large surplus of low-cost parking nearby.  The same goes for the Seaport’s parking freeze.  As more buildings eat up the surface lots, fewer spaces will remain – as demand increases substantially.

Commercial parking freezes are an ineffective means of providing cleaner air, especially when they are targeted exclusively at a particular municipality.  An unintentional result of a parking freeze is its negative effect on economic development, limiting the ability of new businesses to create jobs, existing businesses to expand, and leading, in many cases, to shifting growth to areas without such restrictions.

Maybe now is the time to rethink this outdated method of controlling auto emissions.

 

NAIOP Pursues Ambitious Government Affairs Agenda in 2013

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The following appeared in the February 24, 2013 edition of Banker & Tradesman:

Cranes are once again dotting the landscape.  Boston, Cambridge and the suburbs are bustling with new economic development opportunities featuring office, retail, residential, lab, and mixed use projects.  Absorption rates are up and previously proposed developments are seeing new life.  The commercial real estate industry in Massachusetts is alive and well.  Through its government affairs efforts, NAIOP Massachusetts, the Commercial Real Estate Development Association, worked diligently in 2012 to stimulate the industry’s recovery.  Increasing predictability and eliminating red tape were top priorities. Advocacy-sm

As an example, NAIOP strongly supported the Jobs Bill, An Act Relative to Infrastructure Investment, Enhanced Competitiveness & Economic Growth in the Commonwealth, which was signed into law in August.  The law included many of NAIOP’s top legislative priorities including an extension of the Permit Extension Act.  Permits and approvals in effect at any time between August 15, 2008 and August 15, 2012 were extended by four years.  This affected all properties: commercial, housing, business expansions, universities, hospitals, and infrastructure projects.  The bill also made important improvements to District Improvement Financing and the Infrastructure Investment Incentive (I-cubed) program.  In addition, it created a new Local Infrastructure Development Program that provides developers and municipalities with a new tool for leveraging private funding to finance critical infrastructure projects.  The bill was the result of a close collaborative effort by the House, Senate, the Governor’s economic team, and the business community.

Looking ahead, NAIOP is gearing up for an action packed year.  The 2013 – 2014 legislative session kicked off in January and NAIOP filed numerous bills affecting the development, ownership, management, and financing of office, lab, industrial, multifamily, and retail space in Massachusetts.

A top priority for NAIOP is the extension of the Brownfields Tax Credit, which is set to expire this summer if no legislative action is taken.  This tax credit is a proven success.  It protects public health by providing an incentive to clean up contaminated land and redevelop formerly blighted sites into economically vibrant properties.  However, developers need certainty and predictability – especially when making long-term investments.  Without swift action by the Legislature to renew this tax credit, many new projects will not move forward.

NAIOP will continue to advocate for reform of the Facilities of Public Accommodation requirements under Chapter 91, the law governing waterfront development.  Existing law requires virtually all of the ground floor of a waterfront building to be accessible by the public.  This requirement results in countless vacant and underused spaces.  NAIOP’s bill would create more flexibility for ground floor uses, while continuing to create public access to the waterfront.

NAIOP will also pursue legislation that would create a single, uniform statewide energy code.  The bill would ensure Massachusetts remains a leader in energy efficiency while creating a level playing field for all communities.  Building on that concept, NAIOP will also be focused on climate change preparedness.  Given the impact of recent storms, the industry must be prepared for more frequent and severe weather events.  Practical steps are needed to shield existing properties and infrastructure from irreparable damage.  The Commonwealth’s economic survival is at stake.

On the regulatory front, NAIOP will continue to support the Patrick Administration’s massive, top-to-bottom regulatory review for all state agencies. NAIOP was part of the Business Regulatory Review Advisory Committee that recommended which regulations should be rescinded, modified, and or made more consistent with a national model or standard.  Earlier this year, Governor Patrick announced that 446 sets of regulations had been reviewed, leading to 286 opportunities for reform.  NAIOP looks forward to the continued implementation of this effort.  The Massachusetts Department of Environmental Protection is expected to finalize and implement 21 regulatory reforms in the coming weeks.  Also supported by NAIOP, the reforms will make a substantial improvement on the cost and time expended by the regulated community, without diminishing environmental protection.

While Massachusetts is doing well compared to the rest of the nation, the Commonwealth’s recovery is still fragile.  In 2013, NAIOP will continue to urge legislators and regulators to do all they can to ensure Massachusetts retains its competitive advantage.

The Time is Now – Investments in Transportation Critical to Economic Growth

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Transportation Secretary Richard Davey and Governor Deval Patrick recently unveiled the Administration’s 21st Century Transportation Plan.  This statewide plan would add $10 billion over the next 10 years to the state’s investments in roads, bridges, and transit – including critical upgrades to the existing system and expansion through select, high priority projects.

The plan calls for:

  • $1.18 billion in bridge repairs
  • $1.25 billion in hundreds of local and regional highway projects;
  • $930 million for Interstate 91 in Springfield and the Interstate 93 and 95 interchanges in Woburn and Canton
  • $430 million for bicycle and pedestrian improvements
  • $1 billion for Chapter 90 municipal road maintenance projects
  • $2.4 billion to purchase new cars for the T’s Red, Orange and Green lines (replacing cars purchased in the 60’s and 70’s!)
  • $850 million to replace MBTA and RTA buses
  • $300 million for MBTA power and facilities upgrades
  • expansion of commuter rail options that includes the South Coast rail extension ($1.8 billion), the Green Line extension ($674 million), and rail service between Springfield and Boston ($362 million), Boston and Hyannis ($21 million) and a connection between Pittsfield and New York City rail ($114 million), and an $850 million expansion of South Station.

The cost for all of this is about $1 billion per year over 10 years to get a modern, convenient transportation network to enable sustained economic growth across the Commonwealth.

I just returned from a trip to Korea and saw a truly modern, extensive, and reliable transit system.  Like Korea, the Massachusetts economy is fueled by a highly skilled mobile workforce, but without a first class transportation system, businesses will not be able to continue to grow.

Now is the time for all of us to get together and support these necessary investments.  There will be much debate on how to pay for all of this and the Governor will soon propose a menu of revenue options tapping a multitude of taxes and fees.  While discussion of these revenue sources is needed, it is critical that we move forward to ensure continued economic growth.  The time is now. Inaction is not an option.

Will We See More Development Over the Pike?

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A recent editorial in The Boston Globe spoke about the successful conclusion of the permitting for Fenway Center, the $450 million mixed-use project over the Mass. Turnpike.   The gist of the piece was that developing air rights is no easy matter.  Besides the very high cost of developing over an eight lane highway, there are the inevitable lawsuits that can stretch an approval process out by 2-3 years.  The Fenway Center case was finally resolved in appeals court.

Columbus Center, another very worthwhile project involving air rights, was not so lucky.  While the financial crisis played a role in its demise, one of the real reasons that it did not move forward was due to the lengthy delays caused by well over 100 public meetings.  No one can deny the appropriateness of having community involvement, but there must be some limit on that process.  Are the city and neighborhood really better off with the scar of an urban highway canyon dividing the Back Bay and the South End than it would have been with a mixed-use project including affordable housing?

The Globe said that “These projects shouldn’t be the last along the Pike.”  However, predictability and transparency are necessary before any developer will be willing to risk capital on a speculative urban development involving air rights.  A few suggestions:

  1. Establish some clear guidelines for developers interested in responding to RFPs for future air rights parcels;
  2. Set a limit on the number of public hearings with the appropriate neighborhood groups within a limited time period;
  3. Allow the developer to opt in to the Permitting Session of the Land Court for any appeals;
  4. Require appellants to post a bond if they choose to appeal the decision of the court;
  5. Allow developers to count some portion of the cost of the infrastructure associated with the air rights project as part of their community betterment payments.

BIDS: Taxation Without Representation

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The new “Jobs bill” recently passed by the Massachusetts House and Senate, and now awaiting the Governor’s signature, has a lot of “goodies” for economic development. However, there is a little surprise for businesses who are in, or might be in, a Business Improvement District (BID).

Currently, the BID law does not require every business in the district to contribute to the BID. However, with the new law, if 60% of the businesses in the district vote to form a BID, every business will be required to pay.

What this might mean is that existing BIDs (e.g. Downtown Crossing in Boston) and future proposed BIDs (e.g. Rose Fitzgerald Kennedy Greenway) will be able to force commercial landlords to pay into these districts.  If the city can convince/coerce 60% of the owners of a district to accept this, the others will have no say.  This can also lead to some interesting “Gerrymandering”, creating boundaries to capture large properties. Owners that may be further away from the core area will be obligated to new property tax surcharges to fund maintenance, security, and marketing initiatives for areas not necessarily benefiting these outlier properties.

That sounds like the situation with the current Downtown Crossing BID, and is part of the impetus behind this legislative action.  Some property owners further away from Washington Street, decided not to participate, to the consternation of the city.

What we may now see is new taxation for new services benefiting some, but paid for by many more.

NAIOP Supports Jobs Bill

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Today I testified at a legislative hearing  in support of An Act Relative to Infrastructure Investment, Enhanced Competitiveness & Economic Growth in the Commonwealth (H. 4093), a comprehensive piece of legislation designed to stimulate job growth in Massachusetts. Speaker of the House Robert DeLeo and Representative Joseph Wagner, House Chairman of the Joint Committee on Economic Development and Emerging Technologies, released the bill earlier this week.  NAIOP applauds the House and the Patrick Administration for crafting a bill that will encourage economic development in Massachusetts.

We are just starting to see the beginning of a recovery for the real estate industry, but it is still a very fragile time.  This bill creates the necessary tools to ensure economic development projects can move forward. It builds on the comprehensive Economic Development Plan released by the Patrick Administration earlier this year.  It expands and strengthens I-cubed, preserves important state and local permitting decisions, and encourages the cleanup and redevelopment of brownfield sites. We strongly support its passage before the close of the legislative session on July 31.

The bill includes many NAIOP-supported concepts including:

  • Creates a new Local Infrastructure Development Program that gives municipalities a new tool for leveraging private funding to finance infrastructure improvements needed to support economic development projects. The program allows infrastructure projects to move forward without the use of public funding.
  • Expands the successful I-cubed (Infrastructure Investment Incentive) program and increases the number of projects per community from two to four. It also increases the available funding for the program.
  • Extends the Brownfield Tax Credit from 2013 to 2015, encouraging the redevelopment of brownfield sites by bringing more certainty and predictability to the process.
  • Streamlines District Improvement Financing (DIF) by eliminating the required EACC review of DIF districts and development plans, making the program more accessible to cities and towns.

The full text of the bill and a section-by-section summary of the bill are now available.