CEO TAMARA SMALL TESTIFIES IN SUPPORT OF NAIOP LEGISLATION REGARDING UTILITY ACCOUNTABILITY

On Tuesday, July 9 NAIOP CEO Tamara Small testified before the Joint Committee on Telecommunications, Utilities and Cable in support of NAIOP bill H. 2861, An Act to Encourage Predictability in Utility Connections. Introduced by Representative Thomas Golden of Lowell, the legislation is targeted at addressing the frustrations the commercial real estate sector has expressed for years regarding the lack of transparency and predictability for utility connections at development projects. If passed, the bill will ensure that commercial customers, as well as new connections and relocations of existing connections, are included in the service quality standards.

NAIOP CEO Tamara Small testifying before the Joint Committee of Telecommunications, Utilities and Cable July 9,2019

Currently, when utilities request a rate increase, they are “graded” based on how they perform under the Department of Public Utilities’ Service Quality Standards.  Customer satisfaction, response times for service outages, and repairs and maintenance are some of the criteria considered under M.G.L. Chapter 164 §1E.  However, utilities are only judged based on their performance with residential customers, not commercial customers.  In addition, only existing connections, and not new connections, are included in the service quality standards.

“As we saw with the gas moratorium and lockout last fall, new utility connections are absolutely critical for economic growth,” testified Small. “Small business owners could not open their doors, companies could not relocate to new office space, and tenants who had signed leases for new apartments did not have a place to call home.”

NAIOP believes that by including commercial projects, the relocation of existing connections, and new connections in the review process, we will have greater transparency and accountability in the regulation of our utilities statewide. NAIOP will continue to advocate for the passage of this bill so that future real estate development projects could benefit from the proposed change.

NAIOP Testifies in Support of Umbrella Liquor Licenses for Large Real Estate Development Projects

Earlier this month, NAIOP’s Government Affairs Associate, Anastasia Nicolaou, testified before the Joint Committee on Consumer Protection and Professional Licensure in support of H. 208, An Act Relative to Large Project Based Licenses. If passed, the bill would allow owners of large real estate development projects to apply for an “umbrella liquor license” with the local licensing authority, overseen by the State Alcoholic Beverages Control Commission. Under the “umbrella license” the local licensing authority would be able to issue restricted project-based liquor licenses for restaurants. These licenses would not be subject to the quota established in the Massachusetts General Laws. They would be tied to the property, not available for resale, and non-transferable.

Currently, liquor license quotas in a city or town in Massachusetts create a barrier for including restaurants in real estate development projects, weakening the project’s overall feasibility. In her testimony, Nicolaou underscored the importance of shop/work/live to the future of retail. Restaurants are critical components to the success of mixed use developments, which create jobs, tax revenue, and community centers for their residents and municipalities.

Nicolaou also focused on the important role of local government in the proposed process.

“This legislation allows the local government to participate in the decision-making process by requiring the adoption of a local ordinance or bylaw to allow this process within their jurisdiction,” said Nicolaou. “This encourages a partnership between the developers and local government as they work together for the future economic prosperity of the community.” NAIOP was pleased to testify in support of this legislation along with representatives from ICSC and will continue to advocate for passage of the bill so that future real estate development projects could benefit from the proposed change

Luxury Residence Report Misses the Mark

A report was recently issued from the Institute for Policy Studies that has attracted significant media coverage and editorials from virtually all of the local print and broadcast outlets.

Elisif_20161213_5514.jpgCredit: Elisif Brandon

It’s a great story: the ultra-rich, international money launderers have descended on the Boston real estate scene, crowding out poor and middle-class residents.

However, when you go beyond the buzz and dig into the content of the report, there is much to question. The report implies that owning condos through a trust or LLC is done to hide the owner’s identity. This form of ownership is actually a very common practice for tax, estate, and transactional reasons. Furthermore, while some buyers may choose to remain anonymous, it’s rather uncommon and to imply that anyone who does this is somehow laundering money is factually incorrect.

If these higher priced apartments or condos were not built, middle income apartments would not be replacing them — the economics just do not work with the current high construction costs. Furthermore, these buildings are already paying a tax devoted to the production of affordable housing, with a requirement to provide for at least 15 percent of the units built on site as affordable or a fee to produce those units off site. In addition, the city’s office buildings must also pay a “linkage fee” for affordable housing and workforce training.

Virtually all of these new developments are built on vacant land or in commercial areas where there had not been any housing, so they have not displaced existing residents. In fact, many of these developments have been the catalyst to creating new 24/7 neighborhoods.

If these condo owners are not here full-time to justify a residential tax break, so what? Do we want to discourage retirees living in Florida from living here for six months? Do we want to tell the penthouse owner, Michael Dell, to take a hike and take his jobs with him? I don’t think so.

The real issue is that it will take federal and state resources, communities working with developers, and overcoming NIMBY-ism and fear of affordable housing at the local level to truly address this housing crisis. Rather than drawing false conclusions and creating easy scapegoats, it’s time we all come together to find economically feasible solutions.

This letter to the editor originally appeared in the Boston Business Journal on September 20, 2018, as written by NAIOP Massachusetts CEO David Begelfer.

 

How Much Are Smart Buildings Really Worth?

smartinfographicMITCourtesy of the MIT Center for Real Estate and Real Estate Innovation Lab – Get Smart, Connected & Green

Arguably, the premier commercial office space market in the U.S. – New York City – is showing signs that office tenants will pay a significant premium on rent for space in a ‘smart’ building.

Compared to office leases in the city for non-smart buildings, MIT Center for Real Estate researcher Alfredo Keitaro Bando Hano (2018) found that office properties with smart building attributes attracted rents that commanded a 37 percent premium on effective rent per net square feet. The sample included 454 non-smart building properties and 223 smart office leases using the Compstak transaction database for Manhattan for 2013 and onwards. The MIT Real Estate Innovation Lab continues to research and report on smart, connected and green buildings.

Thanks to new technologies and devices, occupiers now have the possibility to measure and analyze the activity that occurs inside their structures. Companies are not focused on location only anymore; they now they look for more productive and efficient areas, and smart buildings rise as a possible answer to this new requirement.

In search of flexibility and agility, users have pushed changes in architectural and interior design to improve employee satisfaction, health, and engagement, hence better productivity.

Smart buildings are self-sensing. For the purposes of Keitaro’s study, a smart building must have installed one or more smart amenities that go beyond sustainability and aim to improve the occupier experience. Smart amenities include occupancy sensors, automatic windows, cameras with emotion recognition algorithms, and other technologies that capture and provide information to tenants and landlords. Ultimately, a smart building is one that adapts to the needs and preferences of the building’s occupants. And, in the office environment, responding to workers’ needs and preferences stand to significantly increase employee productivity and well-being.

We can predict that in the future, new smart amenities will come to market and offer commercial real estate developers, owners, and investors opportunities to incorporate smart technology in the building’s plans and reap the financial benefits.

That being said, the New York City sample did not delve into the cost of constructing and operating a smart building compared to a non-smart facility. It is not yet clear whether the rent premiums offset the costs to construct, renovate, and operate smart buildings. Further, due to other factors (like location) not all the projects will immediately obtain these premiums just by embracing a smart strategy. Nevertheless, it is worth emphasizing that smart buildings have value.

NAIOP Massachusetts is an industry partner to the MIT Center for Real Estate. Alfredo Keitaro Bando Hano wrote The Incremental Value of Smart Buildings Upon Effective Rents and Transaction Prices (2018) as a master’s thesis.

For more information about the MIT Center for Real Estate’s research, please go to: https://mitcre.mit.edu/ or to the MIT REILab:  http://realestateinnovationlab.mit.edu/

 

NAIOP Supports Baker-Polito Housing Legislation

housingpressconference
On Monday, NAIOP was pleased to join Governor Baker, Lieutenant Governor Polito, and Undersecretary Chrystal Kornegay to support a new initiative to increase housing production in the Commonwealth. The Administration’s Housing Choice Initiative creates a new system of incentives and rewards for municipalities that deliver sustainable housing growth. It also creates a new technical assistance toolbox to empower cities and towns to plan for new housing production and proposes legislative changes, through An Act to Promote Housing Choices, to deliver smart, effective zoning at the local level. (A section by section summary of the bill is also available.)

NAIOP believes the production of workforce housing is critical for the continued growth of the Massachusetts economy and we are pleased to support this initiative. Unlike the extremely problematic zoning legislation that is supported by planners and environmental groups and opposed by the real estate industry and municipalities, this bill does not include language that would hinder the production of housing. Instead, it rewards communities that are producing new housing units and have adopted certain best practices with a new Housing Choice Designation.

Cities and towns that receive the Housing Choice Designation will be eligible for new financial resources, including exclusive access to new Housing Choice Capital Grants, and preferential treatment for many state grant and capital funding programs, including MassWorks, Complete Streets, MassDOT capital projects and PARC and LAND grants.

Under the legislation, the following local zoning changes would require only a majority vote of the local legislative body:

  • Reducing dimensional requirements, such as minimum lot sizes, to allow homes to be built closer together.
  • Reducing required parking ratios, which can lower the cost of building new housing and accommodate development on a smaller footprint.
  • Creating mixed-use zoning in town centers, and creating multi-family and starter home zoning in town centers, near transit, and in other smart locations.
  • Adopting “Natural Resource Protection Zoning” and “Open Space Residential Development.” These zoning techniques allow the clustering of new development while protecting open space or conservation land.
  • Adopting provisions for Transfer of Development Rights (TDR), which protects open space while creating more density in suitable locations.
  • Adopting 40R “Smart Growth” zoning, which provides incentives for dense, mixed-use development in town centers, near transit, and in other “smart” locations.
  • Allowing accessory dwelling units or “in-law” apartments – small apartments in the same building or on the same lot as an existing home.
  • Allowing for increased density through a Special Permit process promoting more flexible development.

While it does not mandate that any town adopt these zoning best practices, it does remove the barrier of having to convince a supermajority of the legislative body to adopt them.  

Unlike the zoning bills referenced above, this bill has the support of all of the key players – municipalities, business groups, housing advocates, environmental groups, and real estate. NAIOP looks forward to working with the Baker Administration and the legislature to advance this important legislation, which will be an important step in truly addressing the housing crisis facing Massachusetts.

NAIOP/SIOR Annual Market Forecast Remains Positive

This guest blog post was written by Mike Hoban of Hoban Communications.

Elisif_20171129_1972Fueled by one of the strongest economies in the nation, the Boston commercial real estate market should continue to thrive for the foreseeable future. That was the conclusion of the enthusiastic panel at the 2017 NAIOP/SIOR Annual Market Forecast held last week at the Westin Waterfront Hotel before a crowd of 450 CRE professionals.

Moderated by David Begelfer, CEO of NAIOP Massachusetts, the panel included Molly Heath, Executive VP, JLL (Cambridge); Ben Sayles, Director, HFF (Capital Markets); John Carroll, Executive VP, Colliers International (Suburbs); Ron Perry, Principal, Avison Young (Downtown); and JR McDonald, Executive Managing Director, Newmark Knight Frank (Industrial). Barry Bluestone, Professor of Public Policy at Northeastern University and Senior Fellow at The Boston Foundation, set the table for the program with an economic forecast that – with one major caveat – bodes well for the long-term health of Greater Boston CRE.

Bolstered by the highly educated workforce provided by the educational and medical institutions located in Greater Boston, the Massachusetts economy has outperformed the U.S. economy nearly every year since 2009. GDP growth for the Commonwealth has generally been in the 2.5 to 3.0 percent range since 2010, a figure that is significantly above the national average of 2.0 during that period. The Bay State has added 355,600 jobs since the recession (including 62,500 last year), an 11.2 percent increase since 2009. The 4.2 percent unemployment rate has led to virtual full employment, and with the tight labor markets, average wages are beginning to increase, albeit slowly. And none of the factors that typically contribute to a slowdown are in evidence.

Elisif_20171129_1971But despite the positive outlook, there is a looming threat to the overall health of Greater Boston economy, he cautioned. “The housing stock is limited and growing too slowly to meet the demand, and as a result, home prices and rents continue to rise,” said Bluestone, who is one of the co-authors of the Boston Foundation’s 2017 Greater Boston Housing Report Card. The price of housing is pushing workers farther away from the urban core, causing housing prices in traditionally affordable communities to escalate, as well as putting a strain on an overburdened public transit system. The Housing Report Card estimates that the region will need an additional 160,000 housing units by 2030 to accommodate its expanding population (an additional 342,000), “and that is going to be a challenge,” Bluestone concluded.

Elisif_20171129_1988JLL’s Heath led off the program with an overview of the Cambridge office and lab markets. “The Cambridge market is one of the strongest markets that we track globally at JLL, and it continues to be driven by this incredible demand from the tech and life science clusters,” she stated, adding that the demand is coming not only from organically grown companies, but outside firms seeking to establish an R&D presence in close proximity to MIT, Harvard, and the educated workforce. With a vacancy rate below 3.0 percent, there continues to be upward pressure on rental rates, with office (by 13 percent) and lab (23 percent) soaring well above previous highs. Achieved rents for office space in E. Cambridge are now in the low $90’s (gross), with lab space in the low $80s (NNN). And due to the lack of supply in the market, “we really do believe that there is room (for rents) to run,” said Heath.

Elisif_20171129_1992Colliers’ Carroll reported that “the suburbs are alive and well”, as the market has added over five million SF of positive absorption since the downturn. There has also been a steady increase in rent growth in the Class A office market, approximately 10 percent since 2009, with new construction in Waltham achieving rents in the low $50s. The Class B market is not faring as well (although there is some rent growth occurring in select markets), with some of the older building stock being slated for repositioning or demolition to make way for senior living, hotel and other non-office uses (including 450,000 SF of properties in Chelmsford). One particularly bright spot is the emergence of biotech in the suburbs. The Gutierrez Company is currently constructing a five-story, 350,000 SF building for EMD Millipore (2018 Q3 completion) in Burlington, Alkermes is “close to signing” a lease for a 250,000 SF build-to-suit in Waltham, and Waltham-based Tesaro is in the market for a 300,000-500,000 SF suburban campus.

Elisif_20171129_2005Citing the enormous amount of commercial, residential, retail and restaurant development underway in the Seaport and other Boston locations, Avison Young’s Perry observed that “Boston is clearly a different city today than it was even five years ago.” The in-migration to the city by firms seeking talent continues, he said, citing the recent relocations by Reebok, PTC and Alexion to the Seaport, as well as Amazon’s establishment of a Boston presence with the 150,000 SF lease at 253 Summer St. and Rapid7’s relocation to North Station. Demand remains strong Downtown, with over 4.5 million SF of requirements in the market, including nine companies seeking 100,000-500,000 SF. CBD Class A rents range from the mid $40s to the mid $80s (Back Bay high-rise), and vacancy rates in the top floors of the towers (10 percent) are nearly in equilibrium with the lower floors (9.4 percent), as tech companies continue to absorb space on the lower tiers.

Elisif_20171129_2006NKF’s McDonald reported on the industrial market – the newfound darling of investors and developers – noting the transformational effect that Amazon and e-commerce has had on the product type. With 12.8 percent average annual returns to investors over the last five years, industrial has outperformed both retail (12.1) and multifamily (9.9), driven by feverish demand for “last mile” properties located in urban and infill submarkets. That demand has driven rents “way beyond the norms” of what had traditionally been $5 to $6 psf to the “high single digits and low teens” for buildings such as 480 Sprague St. in Dedham, a 234,000 SF warehouse that straddles the Boston line. And warehouse space located within the urban market, such as 202 Southampton St. in the South End (which lacks basics such as air-conditioning), is fetching $20 psf, based solely on location.

Elisif_20171129_2017HFF’s Sayles addressed the ‘When will the cycle end?’ question early on his presentation. “End of cycle concerns have largely abated,” he reassured the gathering. “Nobody is really talking about that right now, instead, what people’s biggest concern is, ‘If I sell, what am I going to do with that capital?” He expects pricing for assets to remain flat in the near term with cap rates trending downward. Financing for assets is up by 17 percent from Q3 2016 to Q3 2017, but investment sales for that period declined by approximately 8.0 percent as buyers are choosing longer term holds. Sales volume for Boston is expected to be approximately $13 billion for 2017, with foreign capital again accounting for a significant portion of those transactions.

Begelfer was in full agreement with Sayles’ assessment of the cycle concerns. “Boston is pretty unique. There are only a handful of cities around the country that are experiencing this kind of strong growth,” he observed. “Any slowdown that we see is probably not going to come from the economy, it will be from the cost of construction and land costs, or the pricing of assets. It won’t be caused by a recession, but by our own success,”

A Note of Economic Optimism

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

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

Some highlights:

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

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