COVID-19 Update: Governor Baker Announces Phase 3 Start Date, Amends E.O. Tolling State Permits; SJC Releases Updated Operations Order; DPU Begins Energy Relief Plan for C&I Customers; MBTA Announces Flex Pass Pilot

Governor Baker Announces Phase 3 Start Date

Today Governor Baker announced that Phase 3 will begin on Monday, July 6. While Phase 3 is anticipated to be in place until there is an effective treatment or vaccine for COVID-19, Governor Baker indicated that Phase 3 will be implemented in two steps.

Businesses allowed to reopen at this point in Phase 3 include but are not limited to:

  • Fitness Centers and Health Clubs
  • Museums and Aquariums
  • Movie Theaters and Performance Halls (at limited capacity)
  • Casinos (with additional minimum protocols set by the Massachusetts Gaming Commission)

Additionally, the Baker-Polito Administration has updated the guidance related to gatherings. The new guidance related to indoor gatherings will allow eight people per 1000SF, with a maximum of 25 people. Outdoor enclosed gatherings will be limited to 25% of the capacity, with a maximum of 100 people. This updated guidance will be effective Monday, July 6, except for the City of Boston, where it will be implemented Monday, July 13. For all guidance, orders and updates related to the Commonwealth’s reopening plan please visit: www.mass.gov/reopening

Governor Baker Amends State Permit Tolling Order

This morning, Governor Baker signed an Executive Order rescinding and replacing his March 26 Order to suspend relevant permitting deadlines and extend out the validity of state permits.

Importantly, this updated order addressed NAIOP’s significant concerns with the previous order’s appeals language. In the updated order, any individual whose right to appeal would have expired between March 10, 2020 and July 1, 2020 shall have until August 10, 2020 to proceed with their appeal. Any person whose right to appeal expires after July 1, 2020 will be held to the regular or statutory deadline, or by August 10, 2020, whichever is later.

NAIOP advocated strongly for this Executive Order given the extraordinary impact of the previous order on projects throughout the Commonwealth, and we were pleased to see our concerns addressed in the final language. A huge thank you to the NAIOP members who provided their expertise and insight throughout this process.

SJC Releases Updated Order Regarding Court Operations

On June 24, the Massachusetts Supreme Judicial Court (SJC) issued an order further staying certain hearings and trials and limiting court house access until at least July 13, 2020. In addition, the order affirmed that there will be no further extensions of deadlines or civil statutes of limitations beyond June 30, 2020, “unless there is a new surge in COVID-19 cases in the Commonwealth and the SJC determines a new or extended tolling period is needed) and that appeal periods on local permits will begin to run on July 1, 2020.

DPU Begins Energy Relief Plan for Commercial and Industrial Customers

On June 26, the Massachusetts Department of Public Utilities (DPU) approved the commencement of a program designed to assist companies that have fallen into arrears on gas or electricity payments during the COVID-19 pandemic. Full implementation of the program will begin after the March 10 State of Emergency is lifted and current customer protections expire. The Customer Outreach Plan will consist of four phases. You can read the full order by clicking here. Any company having trouble paying their electric or gas bills due to COVID-19 should contact their distribution company for further information.

MBTA Announces Five-Day Flex Pass Pilot for Commuter Rail mTicket

Yesterday, July 1, the MBTA began the new Five-day Flex Pass on mTicket pilot, a program designed to allow greater flexibility for commuter rail passengers as employers and employees explore staggered schedules and telework policies due to the COVID-19 pandemic. The pilot will take place from July 1 – September 30, 2020 and is only available within the mTicket app. Once purchased, the Flex Pass provides five one-day passes that can be used at any time in a 30-day period. This pass, available for all zones and interzones, is a 10% discount when compared to five round-trip tickets.

COVID-19 Update: Governor Announces Reopening Plan – Construction Restarts and Office Space Reopening Standards Released

Today, the Baker-Polito Administration released its plan for reopening the Massachusetts Economy. Please visit mass.gov/reopening to review the full report, general business guidance, sector guidance, mandatory employer and worker posters, and FAQs on the 4-Phase Reopening Plan. In order to reopen, all businesses must develop a written COVID-19 Control Plan outlining how its workplace will prevent the spread of COVID-19.

Phase One will allow the following (with restrictions, some capacity limitations, staggered start):

  • On May 18: Essential businesses; Manufacturing; Construction
  • On May 25: Lab space; Office space (outside of Boston); Limited Personal Services (hair; pet grooming; car washes); Retail (remote fulfillment; curbside pick-up)
  • On June 1: Office space in Boston

Each phase will last a minimum of three weeks and could last longer depending upon public-health data.

All Construction Included in Phase 1 Reopening Announcement

Governor Baker announced that effective today all construction (including office, retail, etc.) will be allowed to proceed if the appropriate documentation and safety standards and guidance are in place (in addition to any local requirements or restrictions). 

In addition to the mandatory safety standards for all industries announced on May 11 regarding social distancing, hygiene, staffing and operations, and sanitization, the Baker-Polito Administration today released construction-specific mandatory safety standards and guidance. The requirements must be in place before reopening a site, and include but are not limited to:

  • Keeping all crews a minimum of six feet apart at all times to eliminate the potential of cross-contamination
  • No in-person meetings of more than 10 people
  • Where social distancing is impossible, employers will be required to supply PPE including, as appropriate, a standard face covering, gloves and eye protection.
  • The elimination of large gathering places on site such as shacks and break areas, allowing instead for small break areas with limited seating available to ensure social distancing.
  • The designation of a site-specific COVID-19 Officer (who may also be the Health and Safety Officer) for every site except for construction and remodeling work in one to three family residences. This Officer shall certify that the contractor and all subcontractors are in full compliance with the COVID-19 safety requirements for construction.

The construction-specific requirements and guidance allows cities and towns to require additional site-specific risk analysis and safety plans.

Construction in the City of Boston

Also starting today, May 18, the City of Boston will allow a subset of construction projects on sites that meet specific criteria to commence (hospitals, public schools, 1-3 unit residential buildings, road and utility work or other outdoor/open-air work such as steel erection). On May 26, all construction projects in Boston may re-commence construction, if the construction site has submitted a COVID-19 Safety Plan and a COVID-19 Safety Affidavit in accordance with the City’s Temporary Guidance for Construction

Office Space Reopening

Starting May 25, the Administration will allow office space to reopen at 25% of capacity, except in the City of Boston, which will allow office space to reopen on June 1. NAIOP has been in talks with the City and we will keep members posted if any additional standards for offices are released. The Baker-Polito Administration has released guidance for office spaces ahead of the May 25 date so that companies are able to review and plan for reopening. The guidance released includes a COVID-19 checklist and mandatory sector-specific safety standards.

The Administration has made it very clear that they hope employees who can work from home continue to do so throughout this recovery in order to limit potential exposure and allow for a successful and resilient reopening.

Plan for Public Transit Released

The MBTA has remained open throughout this public health crisis, and will continue to provide service as adjusted to prioritize essential travel for healthcare and emergency workers. All riders and employees are required to wear face coverings while riding public transit. Stations and vehicles will continue to be cleaned and sanitized with increased frequency, and customers should board at the rear doors of buses and street-level trolley stops. Seniors and individuals with disabilities may still board at the front door if needed. 

COVID-19 Update: Boston Announces Incremental Start to Construction

On May 5, City of Boston announced it will be taking an incremental approach to broadening the allowable categories of construction. Effective May 5, all essential construction projects (as defined by the state, which currently means residential, hospitals, public schools, mixed use with residential, public works and construction related to COVID-19) with approved safety plans and signed affidavits as required under the COVID-19 Safety Policy for Construction will be authorized to prepare the site with project specific COVID-19 safety measures.

As of May 18, the City of Boston will allow a subset of essential construction projects on sites that meet specific criteria to commence (hospitals, public schools, 1-3 unit residential buildings, road and utility work or other outdoor/open-air work such as steel erection). On May 26, all essential construction projects as defined by the state may re-commence construction in adherence to safety plans.

At no time will the City of Boston permit any construction beyond what is allowed by the Commonwealth. DPW and ISD will continue to monitor and enforce the COVID-19 Safety Plans for Construction. In accordance with the signed affidavit, contractors acknowledge and agree that non-compliance with any requirements may result in suspension of termination of work in progress of revocation of the City’s permit for such work.

NAIOP will continue to advocate for policies, Executive Orders and legislation that address how this public health crisis is affecting real estate and overall economic development. We are working on numerous initiatives. Please feel free to reach out to CEO Tamara Small or Government Affairs Associate Anastasia Nicolaou if you have any questions.

COVID 19 Update: Eviction Legislation Before Senate, Clarity on Construction Moratoriums and Other Issues Affecting CRE

Construction Moratoriums and Guidance

In recent days, there has been a great deal of confusion over construction moratoriums at the state and local level. We hope the following summary, which reflects the latest information, provides some clarity.

State: On Tuesday, March 31, the Baker-Polito Administration updated the construction related guidance in response to the COVID-19 pandemic. The new guidance limits “essential” construction to housing and critical infrastructure activities. Under the revised list, private nonresidential construction is not considered essential (unless it falls within one of the specified exemptions). As of noon, April 1, only housing projects (including mixed use with housing, infrastructure projects and construction related to COVID-19 can proceed. On April 2, the state updated the FAQ page to answer questions on this issue. The state also issued supplemental guidelines to limit COVID-19 exposures on construction sites and additional guidance outlining the enforcement of COVID-19 safety guidelines. It specifically states that “for all private projects the primary enforcement responsibility rests with the city or town.”

Local: Boston, Somerville, Cambridge, and numerous other cities and towns have issued a halt to all construction until further notice. Companies should maintain the crews necessary to make sure sites are “safe and secure.”  On April 5, Mayor Walsh asked that even if a job is one of the few that is allowed to move forward under current guidelines, companies should consider shutting down. In addition, effective April 2, Cambridge issued its own construction guidance

Commercial and Residential Eviction Moratorium Legislation

On Thursday, April 2, the House passed H. 4615, An Act providing for a moratorium on evictions and foreclosures during the COVID-19 Emergency. The bill provides eviction moratoriums for both commercial and residential tenants. The bill is now before the Senate, where a vote is expected on April 9.

Property Tax Update

As part of Chapter 53 of the Acts of 2020, the municipal relief bill signed by Governor Baker on April 3, municipalities are allowed to extend the due date of quarterly taxes to June 1st.  
 
The City of Cambridge announced it is extending the due date for Second Half Real Estate and Property Tax bills until June 1, 2020. In addition, interest and other penalties on late payments made on Excise Tax and water/sewer bills with due dates after March 10, 2020 will be waived if payments are made before June 30, 2020. It is our understanding that this applies to both residential and commercial.
 
The City of Boston has extended the due date for property tax bills in Boston until June 1st to give residents more flexibility during the ongoing public health crisis caused by COVID-19. It is our understanding this only applies to residential.

BPDA Covid-19 Response

The BPDA is postponing all BPDA-hosted public meetings regarding Article 80 development projects and planning studies until further notice. While projects will continue to be reviewed internally by BPDA staff, the public review process for both Article 80 development projects and the BPDA’s planning studies is on hold until public meetings can be resumed. If you are a landlord or tenant of the BPDA’s housing program, please visit the BPDA’s housing page for information and resources. As the BPDA’s response to Covid-19 continues to evolve, please check this page or follow @bostonplans on Twitter for updated guidance.

COVID-19 Massachusetts Relief Fund

On April 6, Governor Charlie Baker and First Lady Lauren Baker announced the launch of the COVID-19 Massachusetts Relief Fund. It is designed to support organizations assisting Massachusetts’ most vulnerable residents, frontline health care workers, and other essential service providers.  Donations are needed and encouraged.
 

COVID 19 Update: Governor Limits Essential Construction to Housing & Infrastructure, Extends Non-Essential Business Closures

Today Governor Charlie Baker extended his emergency order to close non-essential businesses and his stay-at-home advisory until May 4. It requires all businesses and organizations that do not provide “COVID-19 Essential Services” to close their physical workplaces and facilities to workers, customers and the public.  In addition, the Administration also updated the “COVID-19 Essential Services” categories. Of interest to NAIOP members, the list of “essential” construction related activities was modified so that only construction related to housing (including mixed use with housing) and critical infrastructure are now considered “essential.”  

The revised construction-related activities list is as follows:

-Workers performing housing construction related activities, including construction of mixed-use projects that include housing, to ensure additional units can be made available to combat the Commonwealth’s existing housing supply shortage.

Workers supporting the construction of housing, including those supporting government functions related to the building and development process, such as inspections, permitting and plan review services that can be modified to protect the public health, including allowing qualified private third-party inspections accountable to government agencies.

-Workers such as plumbers, electricians, exterminators, builders, contractors, HVAC Technicians, landscapers, inspectors and other service providers who provide services that are necessary to maintaining the safety, sanitation, and essential operation of residences, businesses and buildings such as hospitals, health care facilities, senior living facilities, and any temporary construction required to support COVID-19 response.

-Workers – including contracted vendors – who support the operation, inspection, maintenance and repair of essential public works facilities and operations, including roads and bridges, water and sewer, laboratories, fleet maintenance personnel, construction of critical or strategic infrastructure, traffic signal maintenance, emergency location services for buried utilities, and maintenance of digital systems infrastructure supporting public works operations. Critical or strategic infrastructure includes public works construction including construction of public schools, colleges and universities and construction of state facilities, including leased space, managed by the Division of Capital Asset Management; airport operations; water and sewer; gas, electrical, nuclear, oil refining and other critical energy services; roads and highways; public transportation; steam; solid waste and recycling collection and removal; and internet and telecommunications systems (including the provision of essential global, national, and local infrastructure for computing services).

-Workers who support infrastructure, such as by road and line clearing and utility relocation, to ensure the availability of and access to needed facilities, transportation, energy and communications.   The previous definition of construction workers was as follows: “

Construction Workers who support the construction, operation, inspection and maintenance of construction sites and construction projects (including housing construction)”.

COVID-19 Update: Non-Essential Shutdown – What It Means for CRE

All Non-Essential Businesses to Cease In Person Operation, Stay at Home Advisory For Two Weeks
Today, Governor Charlie Baker issued an emergency order requiring all businesses and organizations that do not provide “COVID-19 Essential Services” to close their physical workplaces and facilities to workers, customers and the public as of Tuesday, March 24th at noon until Tuesday, April 7th at noon. These businesses are encouraged to continue operations remotely. The Baker-Polito Administration issued a list of designated businesses and other organizations that provide essential services and workforces related to COVID-19 that shall continue to operate brick and mortar facilities during this two-week time period. Last week, NAIOP, ICSC and GBREB issued this request in preparation for a such a situation.

We were, therefore, pleased to see that “Construction Workers who support the construction, operation, inspection, and maintenance of construction sites and construction projects (including housing construction)” are listed as essential. In addition, “Workers to ensure continuity of building functions, including local and state inspectors and administrative support of inspection services who are responsible for the inspection of elevators, escalators, lifts, buildings, plumbing and gas fitting, electrical work, and other safety related professional work” are also listed as essential. We are seeking clarity on what this means for communities that have shut down construction.  

E-Notary and Smoke & CO Detectors
Friday, after a letter was issued by NAIOP and several other groups, Governor Baker issued guidance on smoke and CO detector inspections to allow home sales to move forward. It allows the requirement to have smoke and CO detector certificates transferred from the seller to the buyer as long as both sides agree in writing. We expect the e-notary legislation to move soon.  

Permit Tolling
NAIOP has been working very closely with the Mass Municipal Association on language that addresses the tolling of permits during this time. We have been in constant contact with legislators and the Administration on this issue. Final language is expected to move soon. We are also pushing for a Permit Extension Act to address the significant number of projects affected by this.  

Donate Supplies to Help Fight COVID-19
The business community is working to support the Massachusetts Life Sciences Emergency Supply Hub to help coordinate efforts to try and bring additional supplies and resources to our state’s healthcare institutions so they can continue to test and treat patients with COVID-19.

NAIOP is asking our member companies to consider how they may be able to help, specifically in donating lab, testing, and diagnostics supplies, personal protection equipment (PPE), and medical and scientific expertise needed to combat COVID-19. Please fill out the following survey to let us know what you can donate: https://www.surveymonkey.com/r/TVP69NJ

NAIOP will continue to advocate for policies, Executive Orders and legislation that address how this public health crisis is affecting real estate and overall economic development. We are working on numerous initiatives. Please feel free to reach out to CEO Tamara Small or Government Affairs Associate Anastasia Nicolaou if you have any questions.  

Sudbury Power Line Fight Could Affect Development Deals Statewide

The following article, written by Jon Chesto, was first published in the October 2 online edition of The Boston Globe

At first glance, it might seem like a simple courtroom showdown between the MBTA and the Town of Sudbury over an underground power line.

But to the state’s major commercial real estate trade group, the fight that played out at the Supreme Judicial Court on Tuesday is about much more.

NAIOP Massachusetts isn’t a party to the case. But it did weigh in — on the side of the Massachusetts Bay Transportation Authority and utility company Eversource — through a friend-of-the-court brief.

The reason? Should the state’s highest court side with the town, NAOIP worries that transfers of publicly owned properties across the state could grind to a halt.

To get this far in its appeal, the town homed in on the state’s “prior public use doctrine” — a common-law understanding that land already devoted to one public use can’t be changed to a different one without state legislation. A Land Court judge ruled in 2018 that the doctrine didn’t apply in the Sudbury case, because the land would be leased for a private use. The town appealed, and the SJC decided to take up the issue.

George Pucci, a lawyer for Sudbury, argued Tuesday that this is an unusual case, one that would not open the floodgates. He noted that much of the right-of-way had once been acquired by eminent domain for transportation purposes.

But the potential broader impact was on the minds of the justices, as their line of questioning made evident.

NAIOP got involved after the SJC put out a call for input in May. Of particular concern to the trade group: The judges said they wanted to review whether the public-use doctrine should be in effect for transfers of property that would lead to private uses.

That request  didn’t come out of left field. Pucci, in his initial appeals brief, argued it wouldn’t make sense to prohibit the transfer to an inconsistent public use while allowing the sale for an inconsistent private use. This, he wrote, would defeat the purpose of the doctrine: to protect public land from being converted to a different use without legislative approval.

Words like those can strike fear in the heart of any developer. Tamara Small, NAIOP’s chief executive, says a mandatory trip to the Legislature would open up a whole new layer of uncertainty and expense for public-private partnerships. Begging on Beacon Hill would bog down the development process, the mere prospect preventing many deals from happening in the first place.

In its brief, NAIOP offered a smattering of examples to emphasize some of these partnerships’ public benefits: an apartment complex in Chinatown with more than two dozen affordable units, clean energy from solar panels that dot state land along the Massachusetts Turnpike and other highways, the pending Polar Park stadium that will be built on city-owned property for the soon-to-be Worcester Red Sox.

What about Eversource? What public benefits would the electric utility offer with its deal? The company says its 9-mile Sudbury-to-Hudson line, mostly in a rail corridor, would bring nearly $9.4 million in lease payments to the T over 20 years. The line would help improve grid reliability in Greater Boston, with a side benefit of allowing a rail trail to be built along the stretch.

To the Sudbury town officials who authorized the litigation, these benefits don’t seem worth the adverse environmental impacts, such as damage to wetlands and wildlife habitats along the corridor.

Jessica Gray Kelly, NAIOP’s lawyer, says her client is agnostic on the fate of that project. But the association’s members do worry that the effects could ripple far and wide if the court decides legislative approval is needed for any change of use in a public property deal, not just for those in which control would be transferred to another public agency.

It would be a new world for real estate development in the state. Kelly demurs when asked how she thinks the court will react. But NAIOP’s insertion into this seemingly local fight shows the trade group is not taking any chances.

You can find NAIOP’s Amicus Brief and more information about the case by clicking here.

The Science of Success: Bus Tour Recap

This post was written by BLDUP and originally appeared on their site.

Now in its 16th year, the NAIOP bus tour took several hundred CRE professionals on an info-packed trip through Waltham, Watertown, Newton, and Needham last week. The theme of the tour, the science of success, highlighted the continued growth of the 128 corridor as a hub of innovation in both the tech and life science fields. With the strong talent pool coming out of the areas many top colleges and universities, companies look to Boston to plant their flag. However, with extremely limited availability in Cambridge and rents continuing to rise, Boston’s tech highway is a more affordable option. All of these employees also need housing options, spurring development in the multi-family sector. Despite a few hiccups along the way (I survived the fabled orange bus) it was another enjoyable and educational NAIOP program.

Highlights of the Tour

225 Wyman
As part of the Hobbs Brook Office Park, 225 Wyman will be the largest contiguous Class A office building along the Route 128 “technology belt”. Currently, demo is wrapping up on the site and construction is set to be complete in 2021. The building, designed by Gensler, will include both office and lab space and the “H” shape of the allows for many leasing configurations.

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A rendering of the upcoming project at 225 Wyman Street.

828-830 Winter Street
Many life science companies in the market for space, need it ASAP! Looking to fill this type of demand King Street Properties has been building lab buildings like 828 Winter Street on spec. 828 Winter, completed in August 2018, is outfitted with a full MEP structure and column spacing to allow for an 11ft lab bench. The King Street team also discussed their upcoming project, Nexus Allston at the Allston Innovation Center. Currently, under review with the City of Boston, the development would include 3 buildings to feature office/lab, retail, and residential space. King Street expects to complete permitting by the end of this year and have first units/space ready for occupancy in Q1 2022.

Gauge
Hilco has completely renovated this 1940s-era brick-and-beam structure to provide creative office and R&D development space. Historic features of the building including high ceilings with expansive windows, skylights, and exposed brick interior walls. Utilities throughout the project were upgraded and a fitness center added to meet modern tenant expectations.

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Bus tour attendees arrive at The Gauge in Waltham.

Elan Union Market
Developed and Managed by Greystar, this 282 unit project welcomed residents in June of last year and is currently wrapping up construction on the final residences. The luxury development features numerous amenities including an art gallery, pool, and resident lounge. The project is currently 55% occupied and 75% leased.

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One of the resident lounge areas at Elan Union Market in Watertown.

Kendrick
At The Kendrick in Needham, the development team at Toll Brothers set out to create a not-so-typical apartment community. Their goal was to design a building with a high-end residential hotel feel that “made you look” with unique artwork, amenities, and finishes. Amenities at the Kendrick include an outdoor beer garden, fitness center with climbing walls, and a revolutionary coffee maker that allows residents to order coffee from their phones (said to cost around $10,000!).

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One of the many unique common spaces at The Kendrick.

Northland Newton Development
Our final stop of the day was at the historic Saco-Pettee Mill building to hear more about Northland’s vision to create a vibrant live, work, play gateway in Newton’s Upper Falls.  The proposed project calls for 800 residential units, 173,000 square feet of office space, and 115,000 square feet of retail. 9.8 acres of open space within the development including 7 parks will provide ample green space for residents and visitors and a new streetscape will allow for easy access for pedestrians and bicyclists. By converting an aging, obsolete industrial complex into a dynamic community, Northland aims to promote smart growth within Newton.

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A rendering of the proposed Northland Newton Project.

NAIOP Files Amicus Brief in Marchese v. BRA: Brief Urges SJC to Uphold Superior Court’s Decision in Favor of BPDA

Law firm WilmerHale recently filed an amicus brief on behalf of NAIOP Massachusetts, The Commercial Real Estate Development Association, in the case of Joseph Marchese vs. BRA.  The amicus brief urged the Supreme Judicial Court to affirm the Superior Court’s decision in favor of the Boston Planning and Development Agency (BPDA), formerly known as the Boston Redevelopment Authority (BRA).

NAIOP chose to pursue this opportunity because the case addresses the “demonstrations clause” of the urban renewal statute, a critical economic development tool, which is often used for artistic, cultural and historical preservation in the City of Boston.  NAIOP believes that if the BPDA and similar agencies cannot use their statutorily granted powers of eminent domain to carry out demonstration projects and plans, it could chill development throughout the Commonwealth.

“We are grateful to the incredible team at WilmerHale for their work,” said Tamara Small, CEO of NAIOP Massachusetts. “Joseph Marchese vs. BRA has wide reaching implications for our industry and all of Boston. The BPDA’s success in this matter will benefit Boston’s continued economic development, as well as positively impact the City’s communities and public spaces alike.”

The WilmerHale team involved in the matter was led by Partners Keith Barnett and Michael Bongiorno and included Senior Associate Arjun Jaikumar and Associates Matthew Costello and Julia Harvey.

Oral arguments began on Thursday, May 9.

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,”