Category Archives: Economic Development

Kids Are Not Toxic Waste

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There have been many studies on the state of housing in the Commonwealth.  What is very clear from these, and the numerous opinion pieces on the subject, is that we have very high barriers to the development of housing in general, and affordable and family housing, in particular.  What is also apparent is that the economy cannot fully recover without the support of highly talented, college graduates that continue to leave the state.

Paul McMorrow wrote a column in The Boston Globe on April 24th that lays out the problem.  Massachusetts has not been able to keep up with the current housing demand.  This results in slower job creation and volatile housing prices.  As Paul points out, without sufficient supply, the recovery is going to result, once again, in an explosion in housing prices.  According to a report by the Donahue Institute at the University of Massachusetts, if the current pace of development is maintained, there will be a deficiency in our housing stock of 46,000 units.  We are already seeing this problem with an inadequate rental stock, driving rents to record highs.

The problem is rooted in several areas that include “home rule,” large lot requirements, lengthy permitting, frequent appeals, and an anti-children attitude.

  • The economic needs of the Commonwealth have been stymied by local regulations that continue to encourage large, expensive homes and discourage the production of more affordable “starter” housing.
  • With minimum lot requirements in many towns of 1-2 acres, it is very difficult to economically justify building smaller scaled homes.  (Few of these municipalities even offer cluster zoning.)
  • Permitting requirements have become more onerous with local rules and special by-laws making the development process longer and more unpredictable.
  • Even with local approvals, there are the frequent appeals that delay the start of a project by 1-2 years (sometimes effectively killing the project.)
  • Lastly, many housing proposals that would attract families with school age kids are denied at the local level.  The often heard justification is that adding any number of children to the system will break the back of the school budget.  Oddly, this argument occurs in communities that project future reductions in the school age population.  Frequently, it seems that communities would be more welcoming to an asphalt batching plant than to new children.

As Paul McMorrow so eloquently states, “The state’s technology sectors demand steady supplies of young talent. But over the last decade, while the Massachusetts population was growing at a meager 3-percent clip, it lost 9 percent of its 25- to 34-year-olds. These are the recent college graduates and young families that the state’s economic future is built on. They’re also the population that’s most sensitive to the state’s deeply ingrained affordability crisis. And they’re voting with their feet.”

Our future is our young families and our children.  It’s time we stop viewing children as the equivalent of toxic waste and start building the housing we need.  Otherwise, we will only have ourselves to blame for a failed economy.

Westwood Station: A New Name, a New Team, and a Different Time

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The transformation begins.  Westwood Station at University Avenue on Route 128 will now be known as University Station.  A new team, led by New England Development along with Eastern Real Estate, National Development/Charles River Realty Investors, and Clarion Partners recently purchased the 135- acre prime development site. The first phase of the new University Station is expected to open in 2014.  The project had been on hold since the market crashed and the previous development team of CC&F/ Commonfund sold the property in 2010 after its lender, Anglo Irish Bank, went bankrupt and was acquired by the Irish government.

While this latest announcement is exciting for the region, credit is due to CC&F for amassing such a large tract of land with direct access to Route 128 and a major transit station and permitting a 4 million square foot, mixed-use, transit-oriented, energy efficient master plan.  With an improving economy, the time is right for this landmark project to move forward.

So, what has changed beside the name?

  • The project will remain a mixed-use project comprised of retail, housing, office and hotel uses.  The market, however, has clearly changed and appears ready for multi-family rental housing and a retail center. It will remain to be seen how much of the development will be office and hotel and when that could happen.
  • A supermarket is almost certain to occupy space here.  Again, this is not a change in plans, especially with Wegmans expected to be the designee for this location.  It will not be surprising if other local grocery store chains continue to oppose such a proposal.
  • The state will continue to invest in the highway infrastructure improvements in and around the University Avenue/Route 128 intersection.
  • The project will be a multi-modal transit oriented development, taking advantage of the Amtrak/MBTA Commuter Rail station and Interstate Route 95 and State Route 128.  Before Westwood Station’s plans, the density of development at this location was one of the lowest of any intersection along Route 128, underutilizing the excellent transit opportunities.
  • Although, probably too early to have financing in place, the debt market is sure to be open to investments such as this.  Now is a very different economy from the late 2008 economic disaster that began with sub-prime home loans, led to debt swap defaults, and ended in the near collapse of the financial markets.

With the development team set, a strong financing market in place, a growing demand for retail and residential space, and a prime location for corporate build-to-suit office sites, University Station should be the first mega-project to break ground within the next 12 months. Congratulations and best of luck to all involved!

Massachusetts Leads the Country in Regulatory Reform

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Earlier this week, Governor Patrick announced a massive, top-to-bottom regulatory reevaluation for all state agencies.  By the end of 2012, the Administration will have reviewed 1,000 of the regulations that were first put into place prior to 2000, with another 1,000 by the end of 2013. The goal is to determine which regulations should be rescinded, which should be modified, and which could be made more consistent with a national model or standard.

This announcement may be surprising to some since Massachusetts, rightly or not, has not always had a business friendly reputation. With this new sweeping policy, the Governor has taken a hands-on, direct approach to ensure that there will be real results with immediate impacts.

In addition to the regulatory review, any newly proposed regulation must go through an extensive vetting process, lasting over nine months, that starts with a “small business impact statement” consisting of 25 questions delving into the potential financial and time costs.  Small businesses are defined as those with up to 500 employees (85% of the companies in the state.) All draft regulations will go to the Executive Office of Administration and Finance, and to the new Regulatory Ombudsman for fiscal and business impact review .  They will then go to the Governor’s office, where a case must be made that the agency’s recommendations outweigh the impacts and burdens on business and the public.  Only then will these regulations go on to the Secretary of State’s office for posting and public comment.

April Anderson Lamoureux, Assistant Secretary for Economic Development, was just appointed as the first Regulatory Ombudsman between the Administration and the business community.  She gave a detailed presentation on the regulatory reform initiative at the NAIOP Government Affairs program yesterday, along with Alicia McDevitt, Deputy Commissioner at MassDEP.

At the meeting, Assistant Secretary Lamoureux asked that businesses provide her with their suggestions on regulations that do not make sense, have extensive problems, do not add value, or where alternative solutions may better address the issue.  NAIOP has been appointed to a Business Advisory Committee that will help identify problematic regulations and alternative processes.

MassDEP, under the leadership of Commissioner Ken Kimmell and Deputy Commissioner Alicia McDevitt, has led the way on regulatory reform by establishing a target list of 21 different reforms within the Department.  McDevitt provided an update on the Final DEP Regulatory Reform Plan, which was released on Monday.  Although, the reason for this effort originated with a reduced budget affecting staff permitting and oversight, the effort has moved in the direction of creating general permits, self-certification, and third party reviews. Collectively, these reforms will make a substantial improvement on the cost and time for the regulated community, without diminishing environmental protection.

Kudos to the Governor and his Administration for boldly going where few states have gone! Massachusetts has clearly earned the status of “first in the nation” setting a policy to reform one of the most frustrating aspects of government for most businesses and citizens.  As always, others will follow.

Making Air Rights Development Work

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I applaud Matt Kiefer at Goulston &Storrs for his recent article in Commonwealth Magazine regarding the Columbus Center development fiasco and the potential role of government to prevent a similar outcome on future economic development projects.

What first struck me about the difficulty in getting this project through the permitting process in a reasonable amount of time was the lack of public support from the state, city, and neighborhoods.

One would expect loud cheering for a developer who presented a plan to knit back neighborhoods separated for decades and heal a visible, ugly, noisy, urban scar produced by an open sunken turnpike. However, after over 130 public meetings and several years, this project was sufficiently delayed until the development was no longer financially viable. Even with changing design requirements, increasing construction costs, and enormous engineering challenges, the developers still tried to make this project work, requesting state assistance with infrastructure and the affordable housing component. Finally, however, it was a national recession that sealed Columbus Center’s fate.

More recently, other proposed air rights projects have also fallen by the wayside. Four non-profit proposals to build over the Greenway land or exit ramps have failed to move forward. A prime culprit was underestimating the costs to construct over the expressway. And yet, the then-Mass Turnpike Authority continued to consider those and other similar sites as valuable assets worth millions of “up-front” dollars, rather than the liabilities they were to any developer considering construction.

It is challenging enough to commit to build a sizable development in Boston given the high construction costs associated with dense, urban projects.  Add to that the obligation to fund city infrastructure, make linkage payments for affordable housing, and the uncertainty of where the market will be after a lengthy permitting process, and you have a serious set of impediments to growth.

I agree with Matt’s recommendations:

•             MassDOT should look towards ground rents and/or sharing in the profits realized from a sale or refinancing, rather than pressing for larger acquisition costs.  Massport has successfully helped produce many major development projects in the Seaport area using this approach.

•             Building over air-rights is very complicated and costly. Government incentives and a predictable permitting process will be necessary to make the sites over the Turnpike and the Greenway ramps feasible.  The result will be increased tax revenues and a better city.

•             MassDOT should consider outsourcing the oversight for the development of air rights projects to MassDevelopment. It has a proven track record helping to guide development projects throughout the state.

Now is the time to start preparing for an upswing in development interest. If we do not fix these problems now, it could be many years before this highway blight is replaced with productive, well designed, urban mixed use projects.

Lowell Richards: A Boston Leader & Visionary Who Will be Missed

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Lowell Richards, Chief Development Officer for the Massachusetts Port Authority, died suddenly this past weekend. This tragic loss is very hard to grasp for many of us that knew him as an energized, dedicated, well-liked advocate and friend, committed to public service throughout his life.

It is very difficult to know the extent of Lowell’s involvement in economic development in Boston and throughout the Commonwealth.  He was not a “grand-stander,” preferring to work quietly behind the scenes making things happen, giving others the spotlight. Lowell enjoyed solving problems, and in development and in politics, there are plenty. The advantages that Lowell brought to the table were his deep understanding of the complex political environment, a clear focus on the public policy objectives, a keen mind regarding finances, and the negotiation skills needed to close the deal.

Lowell graduated from Dartmouth College in 1969, earned a Master’s in City Planning from MIT in 1971, and a J.D. from Harvard Law School.  He began his distinguished career as a college intern at the Boston Redevelopment Authority.

Within Mayor Kevin White’s administration from 1976 to 1984, Lowell served as Collector-Treasurer, and then Deputy Mayor for Fiscal Affairs. (Just last week, he served as a part of the honor guard during the memorial services for Mayor White.)

Lowell’s private sector experience included senior responsibilities at Cabot, Cabot & Forbes, the commercial real estate development company based in Boston.

From 1994 to 1999, under Governor William Weld, Lowell served as Assistant Secretary for Capital Resources of the Executive Office of Administration and Finance, and then Chief Development Officer for the Commonwealth.

He joined Massport in 1999, where he ultimately became the agency’s Chief Development Officer. There, he was responsible for its agency-wide strategic and master planning activities, including the airports and the seaport, as well as Massport’s private commercial and residential real estate development in South Boston, East Boston, and Charlestown.

Under his direction, Massport received MEPA certification for the Commonwealth Flats Development Area (including the newly designated Boston Innovation District), authorizing development of over 3 million square feet of hotel, office, retail and residential development. During his tenure, construction commenced on over 3 million square feet of maritime industrial, commercial office and apartment development on Massport property leased to developers. He also directed third party development at Massport’s three airports.

Lowell had many friends who are now stunned by his departure.  It’s hard to imagine this city without him, but we are fortunate that he left an indelible mark on Boston.  His presence will remain with us as we travel through this great city each day.

Time for Change at Mass Historical Commission

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The spotlight story on the Massachusetts Historical Commission (MHC) appearing in the recent edition of MassINC’s CommonWealth magazine is not a surprise to anyone who has had to deal with this agency.

It is a shame that a well-respected, growing business like Meditech should have been treated in such a manner to cause them to question doing business in the Commonwealth.  But this goes beyond this one company, and the outrage should not be focused only on the resolution of this particular site-specific problem.

The problems include the lack of transparency throughout the permitting process, the lack of regulations and timelines relative to the review of sites listed on the MHC Inventory of Historic Places, and the purposely limited opportunities to meet with this agency.  MHC should begin by allowing full, convenient public access to all of its files, as most every other agency is required to provide. These issues must be addressed to provide for a fair and predictable system.

Without these changes, the MHC will continue to be viewed as a political tool, unaccountable to the general public.

Place Your Bets on Opening Dates for Massachusetts Casinos

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With Governor Patrick signing the first ever, full-scale casino bill, the race is on to develop three resort casinos and one slot parlor.

However, this will be more like a steeple chase race with many obstacles to overcome.  There are the procedural steps of choosing a chairman and members of the yet to be formed gaming commission, and developing the regulations and processes for applicants.  Each potential developer will have to gain control of a potential site, obtain all local approvals, commit and fund the off-site infrastructure improvements, and show financial wherewithal to complete the development plans.  Then there are the public “threats” that already include one local developer’s lawsuit challenging the fairness of the law, the possibility of a ballot initiative to overturn the statute, and the likely local appeals from abutters and other citizen suits.

Welcome to the world of the real estate developer.  There are reasons why Massachusetts projects take longer to permit and build.

That being said, there are highly motivated, well-funded, and patient corporations that have already lined up and others that will be announcing their interest over the next few weeks. Let the games begin!

To learn more about this process and the players, don’t miss NAIOP’s January 19th breakfast program, Casino Gambling Coming to the Commonwealth, at the Westin Waterfront Hotel.

Retainage Legislation Increases Risks and Hinders Development

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Yesterday I testified before the Legislature’s Joint Committee on Labor & Workforce Development in opposition to legislation that would make substantial changes to contractor retainage payments. NAIOP believes that the legislation, An Act Relative to Fair Retainage Payments in Private Construction – H. 1401 and S. 956, would hinder economic development at a time when the construction and development sectors are still reeling from the worst recession in a generation.

The bill sets an outside limit of 5% (reduced from the standard practice of 10%) for approved contract payments that can be withheld for retainage.  Retainage is traditionally held until final completion of a project in order to incentivize prompt completion of the project and guarantee that the contract is fulfilled as agreed.  The legislation changes the final payment date to within 30 days after “substantial completion” (a phrase that is unclear and likely to be the source of many legal battles) and it would create enormous uncertainty for developers.

Very few development projects are moving forward.  Financing, especially for larger projects, is extremely difficult to obtain.  Anything that increases uncertainty could make financing a project even more difficult.

Finally, though supported by the Associated Subcontractors of Massachusetts, this legislation could actually have a negative impact on the smaller, less established subcontractors.  Without adequate retainage, developers will not be willing to take a risk with a lesser known subcontractor.  As a result, the legislation would give an advantage to the bigger subcontractors.

Given the current economy, the Commonwealth should be doing all it can to encourage job creation, not find ways to slow or hinder economic development.  Though we do not think the legislation has a high likelihood of passage, we will continue to advocate against it through the remainder of the legislative session.

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.

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.