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.  

Massachusetts Supreme Judicial Court affirms decision in favor of BPDA

Today, the Massachusetts Supreme Judicial Court (SJC) affirmed the Superior Court’s decision in favor of the Boston Planning and Development Agency (BPDA), formerly known as the Boston Redevelopment Authority (BRA), in the case of Joseph P. Marchese vs. Boston Redevelopment Authority. The Court determined that the plaintiff did not have standing to challenge the BPDA’s actions in this case.

In April, NAIOP submitted an amicus brief in support of the BPDA, drafted by law firm WilmerHale. NAIOP chose to pursue this opportunity because the case addresses the “demonstrations clause” of the urban renewal statute, which is a critical economic development tool, often used for artistic, cultural and historical preservation in the City of Boston.

“We are pleased with today’s decision,” said Tamara Small, CEO of NAIOP Massachusetts. “This case was closely watched by the industry and the decision will allow the BPDA to continue to leverage important public-private partnerships to positively impact the City’s communities and public spaces.”

NAIOP files amicus briefs from time to time in cases that may have far reaching implications for real estate development in the Commonwealth.

Very special thanks to the team at WilmerHale including Michael Bongiorno, Julia Harvey, Arjun Jaikumar, Matthew Costello, and Keith Barnett. Additional thanks to the NAIOP Amicus Brief Advisory Committee  for their in-depth review and input on this issue.

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.

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.

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

NAIOP Joins Mass. Municipal Association, Housing Advocates and Business Leaders in Support of Housing Choice Legislation

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On May 14, NAIOP’s CEO Tamara Small testified before the Joint Committee on Housing in support of H.3507, An Act to Promote Housing Choices. If passed, the bill would enable cities and towns to adopt certain zoning best practices related to housing development by a simple majority vote, rather than the current two-thirds supermajority.

Small testified on a panel with representatives from a coalition of groups responsible for permitting and building housing throughout the Commonwealth including Jon Robertson, Legislative Director at the Mass Municipal Association; Benjamin Fierro III, Counsel to the Home Builders and Remodelers Association of MA; Greg Vasil, CEO of the Greater Boston Real Estate Board; Robert Brennan, President of CapeBuilt Development; and Kathleen Franco, CEO of Trinity Management. The group expressed their strong support for the bill, which would make it easier for communities to enact local zoning changes that encourage housing development.

In her testimony, Small underscored the importance of partnerships between developers and the communities. “Any successful housing development requires a partnership between the developer and the community to ensure that the project addresses local needs,” said Small. “The legislation preserves that partnership by requiring a majority vote, while making it easier for communities to rezone property to encourage more housing production.”

Throughout the hearing, mayors, housing advocates, and business leaders, including Mayor Kim Driscoll of Salem, Mayor Joseph Curtatone of Somerville, the Metropolitan Area Planning Council, the Smart Growth Alliance, CHAPA, and the Massachusetts Business Roundtable testified in support of the bill and called on the Joint Committee to report H. 3507 out favorably.  

NAIOP will continue to advocate for passage of the bill as soon as possible. Because communities enact zoning changes at annual Town Meetings, quick passage of this bill is needed to ensure that implementation of these important reforms is not delayed another cycle.

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.