Real Estate Industry Applauds Senate Leadership on Climate Change, Opposes Net-Zero Energy Code

Industry Groups Concerned Provisions Will Chill Economic Development, Increase Housing Costs

BOSTON, MA – NAIOP Massachusetts, The Commercial Real Estate Development Association (NAIOP); the Home Builders & Remodelers Association of Massachusetts (HBRAM); The Associated General Contractors of Massachusetts (AGC MA); and the Massachusetts Association of Realtors (MAR) applaud the Massachusetts Senate for recognizing that climate change is an economic development, public health, and environmental issue that affects every resident in the Commonwealth. 

As the Commonwealth leads the nation in climate mitigation and adaptation, technical and economic realities cannot be ignored. Senate Bill 2477, An Act setting next-generation climate policy includes a proposal to enact an opt-in stretch energy code that defines net-zero building. Achieving a net-zero energy building with today’s technology is not always feasible. As an example, very few net-zero lab properties or residential or office projects over 10 stories have ever been built. The projects that were able to achieve net-zero did so at a cost premium. If implemented, this net-zero code would increase the cost of the construction and maintenance of residential and commercial buildings.  Current rents could not cover the increased costs associated with such requirements.  In addition, the change would dramatically alter project design, in some cases preventing the project from being built at all – threatening the creation of new housing during the existing housing crisis, negatively impacting housing affordability and serving as a financial barrier to homeownership for thousands of young families seeking to purchase their first home.

In addition to increasing costs, it would have the effect of undoing the uniformity of the State Building Code by creating multiple codes – resulting in codes that would vary by community and little to no predictability for developers. This lack of uniformity threatens public safety and security by creating confusion surrounding implementation and enforcement, one of the reasons that the Board of Building Regulations & Standards was charged with implementing a statewide code.

Finally, we are concerned that some communities may adopt the net-zero code as a way to block development.

While we believe that net-zero construction may be possible in the future, we caution the Legislature against codifying timelines that are currently impossible to achieve, and instead encourage the continued investment and development of diverse technologies that will achieve our climate goals.

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NAIOP Contact: Anastasia Nicolaou / 650-380-9440

Home Builders Contact: Benjamin Fierro / 617-429-3053

MAR Contact: Justin Davidson / 781-839-5510

AGC MA Contact: Robert Petrucelli / 781-235-2680, ext. 114

What Does 2020 Hold for CRE in Massachusetts? Companies Incorporate Real Estate as Recruitment Tool

By: Tamara Small, CEO of NAIOP Massachusetts

The following first appeared in Banker & Tradesman on December 29, 2019.

The end of 2019 marks more than 10 years in the current real estate cycle. As we enter a new decade, now is a good time to take stock of current market conditions and make predictions for 2020. 

Experts are predicting continued, moderate, growth for 2020. Nationally, investor appetite for real estate remains strong and active in all sectors – retail, industrial, lab, office and housing. National vacancy rates are not showing signs of oversupply, and banks are remaining disciplined and conservative in their lending practices.  

While slow and steady job growth is expected, trade wars, political uncertainty and a labor shortage pose the biggest threats to continued economic growth. Market fundamentals remain strong, but such threats should be monitored closely given their potential to dramatically impact the market. 

Access to Talent Drives Market  

The Greater Boston market had an exceptionally strong year in 2019 with record rent growth and tenant demand. Boston remains one of the top markets for foreign investment. However, while continued growth in 2020 is expected, threats exist.   

Construction and land costs continue to soar, weakening returns and potentially threatening the feasibility of new projects. In the third quarter of 2019, Massachusetts real gross domestic product declined 0.2 percent according to MassBenchmarks, while U.S. real gross domestic product grew by 1.9 percent. A labor shortage, which is only expected to continue, is viewed as the single largest threat to the Massachusetts economy.  

At the recent NAIOP/SIOR Annual Market Forecast, which featured leading real estate experts who provided an analysis of the 2019 statistics and predictions for 2020, the need for access to a talented workforce – and what this means for real estate – was a major theme.   

Historically, tenant space was viewed as a cost center by employers, but it is now being used to attract and retain talent. While WeWork’s business model may have been flawed, it did have a dramatic impact on tenant expectations. Whether it’s beer on tap, game rooms or state-of-the-art fitness centers, employers are now using their space to gain a competitive edge when it comes to getting the best talent. This can be seen in the suburbs as well as Cambridge, Boston and surrounding markets, and it will continue in 2020. This all translates into a rising need for new or renovated space and an average tenant improvement allowance average of $5 per square foot. 

Looking Ahead to 2020  

As we enter a new decade, the Boston market remains strong with opportunities opening up beyond the urban core. Limited supply and high demand for lab space are fueling growth. With East Cambridge lab vacancy rates now at 0.8 percent, life science projects are moving forward in Watertown, Alewife, Allston/Brighton and Somerville, as well as Dorchester, the Seaport and South Boston. Cambridge’s success will also create opportunities for well-located suburban assets, particularly transit oriented development projects with the right amenity base.   

Unprecedented growth is expected to continue in the industrial sector. According to Rick Schuhwerk, executive managing director at Newmark Knight Frank, every $1 billion in online sales translates to 1.25 million square feet of new warehouse demand. The demand for “last-mile” facilities near high-density urban centers is driving up values. In the last five years, rents in core urban industrial space have more than doubled. In 2020, with online sales only expected to increase, vacancies will drop and rents will continue to rise. Spec developments are expected as well as a western migration of industrial space.  

On the housing front, according to Kelly Whitman, vice president of investment research at PGIM Real Estate, opportunities exist to upgrade and develop larger suburban apartments. Suburban apartment annual rent growth continues to outperform the urban, and, given changing demographics, a shift away from small units in the suburbs is expected. As the housing crunch continues, these areas outside of Boston’s core are vital to easing the pressure and providing middle income housing.  

On Tap on Beacon Hill 

Finally, while national economic and market indicators tell us that continued growth is expected next year, legislative and regulatory proposals at the state and local levels have the potential to significantly impact the market and should be watched closely. 

Housing: More housing production is needed to keep up with increased population growth. H.3507, An Act to Promote Housing Choices, is targeted at lowering voting thresholds in key zoning votes, allowing for increased production of housing. If it is not passed before the end of the legislative session, anticipate a continued tightening of the housing market, statewide. 

Transportation: NAIOP believes that a functional, accessible transportation system is key to continued development and investment. As area residents and business owners know, congestion has gotten worse in Greater Boston. The Baker-Polito Administration recently filed the Transportation Bond Bill, (H.4002), outlining a capital plan for addressing gaps in transportation infrastructure statewide. Other legislative proposals to address transportation are expected in 2020.  

Fossil Fuel Bans: A number of communities are considering bans on natural gas connections in all new construction, which will likely halt development entirely. While addressing climate change must be a priority, it is critical that policymakers employ achievable measures that are grounded in the reality of today’s technologies, without blocking housing production.  

Cracking the Climate Code: Battle Raging Over Building Energy Standards

NAIOP Massachusetts remains committed to addressing the serious ramifications of climate change, and we look forward to working with policy makers to move forward practical, feasible initiatives. However NAIOP continues to oppose technologically unattainable and impracticable proposals. The below article, written by Andy Metzger, originally appeared in the online edition of CommonWealth Magazine on December 8, 2019.

An arcane state board, known to few outside the world of design and construction, is the setting of a furious clash the outcome of which could influence the amount of climate-curdling emissions that pour out of chimneys, as well as the future supply of housing in Massachusetts, where affordable homes are already scarce.

The Board of Building Regulation and Standards might seem an odd venue for the drama that has unfolded there. The BBRS adopts and administers the statewide building code and the building energy code, sets of rules that are important but would bore the average reader to tears. It is the domain of professionals who think in cubic feet, seismic loads, and kilowatt hours. Now, the problems of the world are before it.

While much attention has been focused on reducing emissions from power plants and cars, commercial, residential, and industrial buildings in Massachusetts collectively spew more greenhouse gases into the atmosphere than either the power or transportation sectors. Commercial and residential buildings in Massachusetts emit about as much harmful gas into the air as the entire transportation sector.

That’s leading activists like Dr. Gaurab Basu, a Somerville physician who says the climate crisis will ultimately produce a public health crisis of increased deaths and hospitalizations, to insert themselves into the byzantine world of building codes. “As a parent of two young children and as a physician, I’m deeply concerned about this. I realize that the crisis forces us to do things that feel uncomfortable, to be pushing at a scale that feels like it’s untenable, but that’s the situation we’re in,” Basu told the board at its November meeting.

Climate activists like Basu, who have paid careful heed to the dire warnings of the world’s scientists, have pressed the BBRS to put out a net-zero energy code. The idea is that under a more stringent code newly constructed and newly renovated buildings would produce virtually no greenhouse gases, notching a small but meaningful victory in the worldwide campaign to avoid a climate catastrophe. That could be accomplished with tighter construction, energy efficient appliances, on-site renewable energy generation such as solar roofs, or under certain circumstances, a financial arrangement to procure renewable power from off-site.

Real estate agents and some builders are strongly opposed to the net-zero campaign, arguing that piling new requirements on top of existing construction costs would grind development to a halt, squeezing home prices, and exacerbating the region’s affordable housing crisis.

“We encourage an energy-efficient code, but we need to go where it makes sense from a cost standpoint and a technology standpoint,” said Tamara Small, CEO of NAIOP Massachusetts, which represents commercial developers. “We may get there, but we’re not there yet.”

Because of the schedule for adopting new building codes in Massachusetts, which statutorily follows the issuance of the International Energy Conservation Code, the big decision over whether to include a net zero code in that update won’t come to a head for another couple years – probably 2021 at the earliest. But environmentalists and business interests have already begun to skirmish and jockey for position.

Click here to read the sidebar.

Meanwhile, activists are making other plays at the local level to try to cut down on climate pollutants. In late November, Brookline’s town meeting adopted a bylaw to prohibit the installation of oil and gas pipes in new construction and renovations, which would give the market a big shove toward electrical appliances and home-heating systems. It was the first municipality to take that step. All town bylaws must undergo a review by the attorney general’s office to see whether they align with state laws and the constitution, so opponents still have a chance to kill the policy. Arlington town manager Adam Chapdelaine said on Twitter that depending on how the attorney general rules, he would be interested in trying the same sort of thing in his town.

From a global perspective, environmental initiatives undertaken so far have failed to slow – much less reverse – the output of greenhouse gas emissions into earth’s atmosphere. For the past decade, emissions have grown 1.5 percent annually, and emissions must drop sharply over the next decade to avoid the worst ravages of climate change, according to the latest United Nations report. The blight, disease and flooding that unchecked climate change will unleash is all the more reason, according to advocates, to take the necessary steps in Massachusetts to significantly reduce the amount of greenhouse gas that seeps out of our homes and workplaces.

BOARD MEETING SHOWDOWN

The Board of Building Regulation and Standards is nestled under several layers of government bureaucracy. It is contained within the Division of Professional Licensure, which is an agency of the Office of Consumer Affairs and Business Regulation, which is itself a component of the Executive Office of Housing and Economic Development, whose secretary, Mike Kennealy, serves at the pleasure of Gov. Charlie Baker.

The 11-member board is presided over by John Couture, who doubles as the town of Sutton’s building inspector. Couture, who decline an interview and said he doesn’t talk to any news reporters, will see his term come to an end December 31. Couture will remain on the board, which will elect its next chairperson, according to a spokesperson.

The BBRS holds its monthly meetings all over the state. When in Boston, it generally uses a conference room in a non-descript state office building across the Massachusetts Turnpike from Chinatown. That is where the board convened on a Tuesday in early November for a session where net-zero proponents and opponents each warned of a calamitous future.

Over the course of several hours, members of the public alternately pressed the board for stricter environmental standards to avoid a complete environmental collapse, or cautioned against rash action that could further balloon housing costs or threaten the chimney and fireplace industry. Couture and other board members listened respectfully to some of the testimony, but they were at times dismissive or skeptical of environmentalists pitching the net-zero idea.

Jacob Knowles, director of sustainable design at BR+A, a national engineering firm, told the board that net-zero building makes for cheaper and healthier living spaces, and his firm found that making buildings net-zero adds less than 1 percent to the construction costs. To buttress his case, Knowles unfurled a letter signed by roughly 1,500 people and 80 companies, including prominent architecture firms, calling for the development and adoption of a net-zero code.

“Take that with you,” Couture replied curtly, after Knowles displayed the letter on the table. “We don’t want your prop.”

Board members also occasionally debated with commenters, questioning the philosophical underpinnings of their advocacy.

“There are a lot of developers that will do the code minimum, period. Period. So we need to raise all boats,” argued Jim Stanislaski, an architect for the international firm Gensler, who supports creating a net-zero code. “And incentives are great; carrots are great. But we need to move out of the voluntary into the compulsory.”

To Michael McDowell, a board member and homebuilder, that sounded like an indictment of people’s intelligence.

“The more we regulate, the less we give citizens of Massachusetts an opportunity to make a choice,” McDowell said. “In other words, you’re almost saying to the citizens, ‘You’re too stupid to make the right choice so we’re going to make it for you. Congratulations.’”

Stanislaski protested that he wasn’t calling people stupid. Then Couture jumped in to question what would happen if the highest standards were used for structural integrity and fire protection requirements – as opposed to energy efficiency.

“If we started saying, you know what, ‘We think that we should have 200-pound roof-loads, just because it’s good,’” said Couture. “There are ramifications for that.”

To deal with these knotty issues, the board had tasked its Energy Advisory Committee – which is made up of other building professionals and engineers – to “show us what net-zero looks like,” according to Couture. But around the same time, the board changed the composition of that committee so that it tilts more toward the views of the construction industry. In October, the board decided to add three contractors to the advisory committee and remove spots designated for a utility representative, an indoor air quality expert, and an appliance expert.

To those hoping to push the state towards a net-zero code, the committee shakeup seemed part of a strategy to thwart that effort.

“It seems like a big shift to say, ‘Take off some of the energy experts and put on contractors,’” said Knowles in an interview. “At face value, that screams to me of trying to shift the whole dialogue towards a more conservative solution.”

A discussion about the shakeup raised hackles among board members during their November meeting when member Richard Crowley suggested that “people on the ground know more about what’s going on” than architects or engineers who rely on books.

“Just stop. Really stop,” board member Kerry Dietz, an architect, interjected. “It is insulting to those of us who are professionals.”

According to Couture, the shakeup was based on a directive from Division of Professional Licensure commissioner Diane Symonds, who wanted more input from “stakeholders.”

“Just because we added three contractors doesn’t mean we added three villains,” said Couture. “We added people that are actually building this stuff.”

Couture also expressed his irritation at an email circulated about the advisory committee issue that he said was “mean” and attacked the board’s integrity. Couture appeared to have been talking about a missive from the Massachusetts Climate Action Network encouraging people to attend the November meeting. While that email criticized the board’s changes to the advisory committee as a “big step backwards,” it did not suggest ulterior motives or make any overt attacks on the board’s integrity.

Advocates on both sides of the issue will have plenty of time to hone their arguments. Under a 2008 state law dubbed the Green Communities Act – which was one of Deval Patrick’s signature environmental accomplishments as governor – the state must meet or exceed the standards of the International Energy Conservation Code, which is developing an update for 2021. That would present the next obvious opportunity to push for a net-zero code.

WHAT WOULD NET-ZERO MEAN?

Net-zero construction is already happening in Massachusetts, and the principle of a net-zero code is pretty straightforward: eliminate the carbon footprint of buildings by enhancing their efficiency and using renewable energy sources for all power. But advocates are fuzzy on the details. As of November, only the American Institute of Architects had submitted a fleshed out proposal to the BBRS.

The AIA plan would give builders a couple of options to determine a building’s energy needs either through a formula or by measuring the building’s actual energy performance. Then the AIA plan would require a corresponding amount of renewable energy generation either installed on-site or procured off-site. The AIA net-zero plan would apply to new commercial, institutional, and mid-level or high-rise residential buildings.

There is one big complication with applying a net-zero standard to urban development. Residential towers and commercial skyscrapers don’t have enough space on their roofs to provide solar power to all the floors below.

“High rise is extremely challenging,” said Stanislaski, the architect who supports shifting to net-zero.

One irony is that high rise developments can help reduce carbon emissions in the transportation sector, especially if they are near transit, because they tend to make neighborhoods denser and more walkable.

It’s not impossible to build a net-zero skyscraper. Solar power and wind energy can be procured off-site, and under the current mix of government incentives, it can even be cheaper than using fossil fuels, according to Knowles, who acknowledged that a renewable energy requirement presents new risks for developers.

“They want to minimize risk, so if there is any potential volatility, they want to avoid that, but I don’t see how that supersedes the need to address climate change and minimize our carbon footprint,” Knowles said.

Small, the NAIOP Massachusetts CEO who represents commercial real estate developers, has a bleaker view on what sort of effects a net-zero standard could exert on the marketplace.

“When you then talk about adding on something that makes a building zero net-energy, it’s going to be cost-prohibitive, so nothing’s going to be built. The numbers simply don’t work. And I don’t think when we have a housing crisis that really is necessarily the best approach,” Small said. “I think we have to proceed with caution because the unintended consequences could literally be no new commercial office space, lab space, retail, multi-family, mixed-use, you name it.”

Other areas with high housing costs have pushed the construction industry towards net-zero standards. California has instituted new requirements and set goals to phase-in net-zero construction for new and existing buildings over the next decade. New York is taking a number of steps to encourage net-zero developments and retrofit existing buildings to make them more energy efficient.

Massachusetts has made significant strides in energy efficiency. For nearly a decade, the Bay State has earned top marks from the American Council for an Energy Efficient Economy for its policies, including the relatively stringent measures adopted by the BBRS.

But given the scale of threat posed by global warming, many believe more should be done, and Knowles said the changes needed in construction are well within reach.

“This is not pie-in-the-sky. This is not some sort of dream fantasy idea. This is something that we’re doing consistently now on large, complex urban and non-urban projects,” Knowles said. “I have not come across a project that cannot achieve these goals, and in every single case we’ve been able to prove it’s cost-effective.”

The Legislature Is Hitting the Halfway Point: What Does That Mean for Commercial Real Estate? From Housing to Climate Change, Key Issues Are on the Table

The following column was published in the September 15 edition of Banker & Tradesman.

With the 2019–2020 Massachusetts legislative session approaching the halfway point, it is a good time to take stock of where things stand and what legislative proposals could affect the commercial real estate industry.  

The current legislative session began in January 2019 and will conclude on July 31, 2020. With more than 7,000 bills filed to date – and more expected – Massachusetts legislators have the ability to make dramatic changes affecting every aspect of society.  

As legislators consider proposals affecting commercial real estate and economic development, in general, they must also consider the economy for the year ahead. The Greater Boston market is currently viewed as a stable market for investment; and while vacancy and unemployment rates remain low, warning signs of a coming economic downturn are on the horizon.  

The pace of economic growth in Massachusetts has not kept pace with that of the nation over the past year. In the second quarter of 2019, Massachusetts GDP grew at a 1.4 percent annualized rate, while U.S. GDP grew at a 2.1 percent rate. In addition, in August, the 10-year Treasury yields fell below the rate on 2-year notes for the first time since 2007. This inverted yield curve has been an indicator of coming recessions for the past 50 years.  

This, combined with escalating trade wars and geopolitical uncertainty, highlight the need for careful consideration of the potential statewide impact of legislative proposals.  

While it is nearly impossible to predict how the session will end, legislative leaders have expressed an interest in tackling some significant policy issues including tax revenue, housing and climate change. Given the impact these issues will have on commercial real estate, the details matter. 

Transfer Taxes  
Revenue has been a popular word on Beacon Hill in recent months, with numerous transfer tax proposals filed. The bills all seek to create revenue for a variety of funding priorities, including affordable housing, climate change, education and transportation.  

However, the transfer tax is not the best approach to adequately address these issues, particularly since the revenue will be pegged to the real estate market. 

With anticipated market instability, these taxes many not serve as a stable funding source. If passed, they will increase the cost of housing and commercial development, which has the potential for negative ripple effects throughout the economy. 

Climate Change  
Given the environmental, public health, safety and economic development threat posed by climate change, legislation on this issue is expected this session.  

The House passed H. 3846, An Act Relative to GreenWorks, in July. It is a $1.3 billion energy and resiliency bill designed to offset climate change, creating a new grant program for cities and towns throughout Massachusetts to fund projects focused on climate resiliency. It is modeled after the successful MassWorks infrastructure program and builds on the Environmental Bond Bill passed in 2018.  

Climate change affects all residents of the commonwealth. Therefore, the burden for addressing this issue should be shared.  

Unlike transfer tax proposals, which only target a subset of the population and may drive up the cost of housing, GreenWorks is a far more equitable approach and should be a top priority for the legislature.  

Housing  
Finally, one of the most significant economic issues in need of legislative action is the current housing crisis.  

The supply of housing is not keeping up with demand, which in turn is driving up rents and home sale prices. An Act to Promote Housing Choices (H.3507) provides a clear framework for cities and town to encourage new housing production.  

The bill, which has the support of the Massachusetts Municipal Association, the real estate industry, affordable housing groups like CHAPA and business leaders, allows cities and towns to adopt zoning best practices by a simple majority vote, rather than the current two-thirds supermajority.  

Whether it’s senior housing or multifamily housing, countless units are never built because of the need for a supermajority vote. Given the broad support for this bill, the legislature needs to act on this legislation in advance of spring town meetings, where countless projects will be up for review at the local level.   

While these are only a few of the issues expected to move this session, it’s clear that decisions made at the State House over the next 10 months will have a significant impact on the real estate industry for years to come. NAIOP will continue to work with legislators to ensure that the economic impacts of legislation are considered and that Massachusetts remains a great place to live and work.  

Planning for a Changing Climate is a Shared Responsibility: Private, Public and Philanthropic Sectors Must Work Together

The following column was published in the July 7 edition of Banker & Tradesman.

NYC CLIMATE TRIP JUNE 2019In June, a group of business leaders, philanthropists and environmental advocates joined Boston Mayor Marty Walsh and his environmental team on a “City to City” trip to New York hosted by the Environmental League of Massachusetts and the Greater Boston Chamber of Commerce. As the CEO of an organization that has made climate change resiliency one of its top policy priorities, I was honored to be part of this distinguished group.

The trip was designed to provide attendees with an inside look at how Lower Manhattan responded to Hurricane Sandy and how the public and private sectors are planning for the future. During the walking tour, it quickly became clear that building owners and developers were the “first responders” post-Sandy. Whether through the installation of flood protection measures, nature-based solutions, the elevation of mechanical systems or innovative design measures, the commercial real estate industry is spending millions of dollars on climate change resiliency.

While these types of investments are critical, having a “climate–proof” building in the middle of a neighborhood without power or transportation provides no real public or private benefit.

During Hurricane Sandy, a 9.5-foot storm surge flooded the Hugh L. Carey Tunnel, which connects Brooklyn and Manhattan, with 60 million gallons of contaminated salt water, causing extensive damage. After the storm, the city installed 50,000-pound steel flood gates to protect against a 500-year flood event. Watertight flood walls were installed around the tunnel’s ventilation shafts. Hundreds of millions of dollars in FEMA funds were spent on the project.

If that was the cost for just one project, then one thing is very clear – addressing climate change through mitigation and adaptation will require massive amounts of funding and collaboration between federal, state, local, private and philanthropic entities.

What Does This Mean Locally? 
Boston is taking this issue very seriously.

In October, Walsh released the Resilient Boston Harbor Plan, which is designed to protect the city against the impacts of rising sea level and climate change. The plan includes elevated landscapes, enhanced waterfront parks, flood–resilient buildings and increased access to the waterfront. The city of Boston also became one of the first cities to set a target of carbon neutrality by 2050. Flood overlay zones are being developed, which will affect new construction and existing buildings.

At the state level, aggressive goals for reducing greenhouse gas emissions have been set, new energy efficiency codes have been adopted and comprehensive adaptation and mitigation plans are now being implemented. Nearly all of these policies and plans will affect the real estate industry.

For commercial real estate developers in the Boston area, climate change resiliency is a top priority. Extreme weather events, eroding shorelines and sea level rise have the potential to impact properties and tenants. As a result, new development projects are the most climate resilient. They are designed to take on the storms of the future and often include measures that will protect surrounding neighborhoods from the impacts of climate change.

Recognizing that while climate change cannot be ignored, economic realities still apply. If one sector of the market is overly burdened with new regulations and costs, resiliency measures will fail.

What’s the Solution? 
As the state and cities move forward with their climate resiliency efforts, flexibility is required so that the real estate industry can effectively address climate change without restricting future housing and economic development, which produce crucial property tax revenue. Regulations should provide owners and developers with the ability to make decisions based on the needs of the individual properties, tenancy and product type. Both costs and risks must be evaluated when considering climate change-related investments or regulatory changes.

Given the impact of climate change on all residents of the commonwealth, the burden for addressing this issue should be shared equitably. While an increase in the transfer tax has been proposed as a solution, it’s not the right approach. It only targets a subset of the population and may have the unintended consequence of driving up the cost of housing.

Lowell’s Rep. Thomas Golden, with the support of House Speaker Robert DeLeo, recently filed H3846, An Act Relative to GreenWorks. This proposal is a $1.3 billion energy and resiliency bill designed to offset climate change, creating a new grant program for cities and towns throughout Massachusetts to fund projects focused on climate resiliency. It is modeled after the successful MassWorks infrastructure program and builds on the Environmental Bond Bill passed in 2018.

Given the magnitude of this issue, no one piece of legislation can fully address climate change, but the GreenWorks legislation will set the commonwealth on a path towards improved resiliency. Its passage, combined with public-private partnerships and innovative solutions, will ensure continued economic growth and quality of life in Massachusetts as we tackle one of the greatest challenges threatening the future of the planet.

Navigating the Permitting Maze Course Highlights Continuing Education and Association’s Advocacy

On September 21 and 28, NAIOP Massachusetts University presented Navigating the Permitting Maze: A Crash Course in Environmental Permitting to 40+ students from a range of backgrounds looking to master real estate permitting fundamentals in Massachusetts. This course, led by VHB instructors and complemented by several industry experts and panelists, centered on introducing permitting basics, including development of an early permitting strategy and timeline with colleagues and state and local regulators, as well as more complex issues, such as transportation analyses, historical property concerns, climate resiliency, appeals, and much more.

Not only did this course provide valuable education for new and continuing real estate professionals, it made connections to NAIOP members’ experience with advocacy at the legislative, regulatory, and judicial level.

Basics of Environmental Permitting, and Trends from State and Local Directors

During the first day, students started the morning with sessions led by Kyle Greaves and Lauren DeVoe of VHB, on the Massachusetts Environmental Permitting Act office (MEPA) review process which coordinates public review of a development’s environmental impacts. Next, students received instruction on the Boston Planning & Development Agency (BPDA) Article 80 regulations and process. Over the last five years, MEPA has analyzed about 1,300 large developments, with the majority (60%) culminating the review process with an Environmental Notification Form, and the remainder split between needing an Environmental Impact Report or a more in-depth process. For developments in Boston, Jonathan Greeley, Director at BPDA, which has approved over 11 million square feet for development in 2018 alone, emphasized that successful projects start with community outreach early in the process. Jonathan served on a trends in development panel with MEPA Director Deidre Buckley and moderator Greg Peterson of Casner & Edwards LLP during day one of the course.

greeleypresentsIMG_0504-cropJonathan Greeley, Director at Boston Planning & Development Agency

Permit Extension Act Protects Developments During Great Recession

Mary Marshall, Partner at Nutter McClennen & Fish, presented the final session on Day 1 on the Post Entitlement Permitting Stage. Mary made a connection between NAIOP’s legislative advocacy and environmental permitting, stating that during the recession, when many developments stalled due to the economy and financing, NAIOP formulated the Permit Extension Act, which was signed in 2010 by Governor Patrick (and expanded in 2012) to allow projects to maintain permits so that they could be “shovel-ready” when the market improved – avoiding several years spent reapplying for permits. Tamara Small, Senior Vice President of Government Affairs, added that a more recent advocacy connection with permitting is that NAIOP successfully changed the railroad-right-of-way statute in the 2018 economic development bill signed by Governor Baker this August. This means that developers will have more clarity about whether and when they must coordinate with MassDOT on building on former railroad rights of way.

Commercial Real Estate Professionals Advocating for Industry

On the second day of the course, individual sessions were designed for “deep-dives” into more technical areas. Jamie Fay, a waterfront planning expert at Fort Point Associates, a TetraTech company, led a session on the Massachusetts waterfront planning Act (Chapter 91) and how it affects development. Jamie is an active member of NAIOP’s government affairs committee and served as an advocate for reasonable regulation of the waterfront when the legislature worked on the issue and passed legislation in 2007 — and in the years following, as the Department of Environmental Protection promulgated regulations. New developments like Clippership Wharf and Encore Boston Harbor are subject to Chapter 91 rules. Stephanie Kruel, a climate resiliency planning expert at VHB, walked through climate resiliency checklists and analysis during the project planning phases. Stephanie serves as co-chair of NAIOP’s climate resiliency committee – a subcommittee of the government affairs committee.

To bring the areas of waterfront issues, historic resources issues, climate resiliency and environmental permitting together in a real-life example, the course ended with a project spotlight and panel presentation by four individuals from the General Electric Innovation Point team: Elizabeth Grob, VHB, Jeff Porter, Mintz Levin, Peter Cavanaugh, GE and Todd Dundon, Gensler.

GEpanel4IMG_0529-cropJeff Porter (Mintz Levin) moderates Project Spotlight Panel on GE Innovation Point joined by Peter Cavanaugh (GE), Elizabeth Grob (VHB) and Todd Dundon (Gensler)

NAIOP would like to thank all of the many experts whose time and energy made this course such a success. Due to popular demand, the permitting course will return in 2019.

Make sure to check out all of the NAIOP Massachusetts University offerings including the upcoming Real Estate Finance Fundamentals course on October 26, 2018. Have ideas on other courses NAIOP could offer? Let us know!

 

 

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/