NAIOP Welcomes New MassDevelopment CEO

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We are very excited that Marty Jones will be the new President and CEO of MassDevelopment 

The MassDevelopment Board made a great strategic move by attracting such an experienced real estate professional to this position. There is no question she will be a tremendous asset to the organization. 

Many of us know Marty through her longstanding role as President of the Boston-based Corcoran Jennison Companies where she oversaw development and management operations.  Recently, Marty was elected to the NAIOP Massachusetts Board of Directors.

With its substantial financial and human resources, MassDevelopment will play an integral role in the Administration’s recently restructured Economic Development operations. MassDevelopment will be critical to stimulating growth across the Commonwealth. 

We look forward to working with Marty in her new position and continuing our collaborative working relationship with MassDevelopment.

Public Access – Yes, Vacant Space – No

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I recently testified before the Legislature’s Joint Committee on the Environment, Natural Resources and Agriculture in support of one of NAIOP’s top legislative priorities, An Act to Revitalize the Commonwealth’s Waterfronts (SB371). The bill would address an issue that waterfront owners in Massachusetts have been grappling with for years – facilities of public accommodation (FPA) requirements under Chapter 91, the state’s program for regulating all activities and development on the Commonwealth’s tidelands and other waterways.

Under existing state regulations, the state Department of Environmental Protection requires the ground floor of many waterfront properties to be leased only for uses allowing full public access. Unfortunately, the FPA requirements do not vary by location and do not take into consideration local land use, density, market demand or proximity to street and pedestrian traffic.

Planning studies, including one completed in 2006 by the Boston Redevelopment Authority (BRA), have shown that the required FPA space in existing and proposed projects greatly exceeds the potential demand for such space.  Many of the ground floor FPA areas within existing projects are vacant or have had trouble attracting successful users, some for as long as ten years.  Except for hotels and restaurants, which are defacto public spaces, very few non-maritime projects in the City of Boston have successfully achieved the FPA requirements.  If such projects cannot be successful in downtown Boston, then they have little chance of succeeding in Boston’s other neighborhoods or in other coastal cities and towns where there are fewer pedestrians, less transit and much less density.

The resulting vacant space represents a significant loss of local property taxes.  In these challenging times, this revenue could make a big difference for our schools and communities.  There is no question that the existing FPA requirements impede investment and economic development in waterfront areas.

On behalf of NAIOP, Senator Anthony Petruccelli of East Boston filed the bill to reform the existing FPA requirements.  He is quite familiar with the many projects in his community that have not been able to move forward due to these onerous requirements.  None of these changes would limit public access to the waterfront.  Furthermore, the bill would allow local zoning to regulate interior ground floor use rather than the arbitrary requirement in place under existing law.  It empowers a community to determine what is best for its waterfront. 

This is not a new issue, but it is something that can no longer be ignored.  Now is the time for the legislature and DEP to make the changes necessary to promote economic development while preserving the public’s access to the waterfront.

The Changing Face of Retail

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Yesterday’s NAIOP Main Event, New Rules for Retail: The Post-Recession Reality, had a standing room only crowd, and for a good reason. (See event photos here.)  The retail landscape is changing more quickly than ever before due, in part, from the influence of the internet and the changing demands of the consumer.  ICSC and NAIOP members heard from a panel of industry experts: David Smookler, Principal, The Dartmouth Company; Tom DeSimone, Executive Vice President, WS Development; Jeff Gellerman, Director Real Estate, Lowes Home Improvement, and Bill Moscarelli, Vice President Real Estate, National Amusements. 

Legacy Place (photo by Michael Blanchard)

Based on the presentations, it’s clear that the cookie-cutter approach to retail development is history.  To succeed, new retail development must be customized to the community, the site, and the market.  The design of the successful Legacy Place is not going to be replicated in Lynnfield’s mixed use partnership with WS Development and National Development – it will be its own unique blend of uses and public spaces.  The stand-alone Cineplex developed by National Amusements has changed dramatically in just 15 years.  Stadium seating, 3-D movies and restaurant-style dining have made going to the movies a totally different experience. And there seems to be no doubt that even with hundreds of channels on TV and endless options for shopping and entertainment online, people will still continue to go out to have fun.  

That said, the influence of the internet continues to expand and cannot be ignored.  Shoppers are doing much of their “homework” online and shopping experiences (good, but mostly bad) are shared through social media channels and can quickly go viral. Lowes discussed the importance of staying ahead of the curve by offering customers tutorials on home improvement projects with links to purchase the supplies needed to complete the job.  

When it comes to retail, what seems to be the rule now, as before, is that change will continue to be a critical part of this industry.

SJC Decision Affects Landlord Liability

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The Massachusetts Supreme Judicial Court recently ruled in Bishop v. TES Realty Trust that a commercial landlord has a statutory duty to correct an unsafe condition, if the landlord has received written notice from the tenant.  In its decision, the Court determined that G.L. c. 186, § 19, which concerns a landlord’s duty to make repairs when notified of an unsafe condition, now applies to commercial landlords. While such an obligation has been applied to residential landlords, this would be a significant change for commercial owners.

Until now, commercial landlords have only been required to make repairs to common areas or when they specifically contract through the lease to make repairs. Under Bishop, the landlord will be liable for any injuries resulting from inaction on a written notice to make repairs. 

The Bishop decision also makes “void and unenforceable” any lease provision that attempts to waive a commercial landlord’s obligation under §19.  Even if the tenant is obligated to make repairs through the lease (e.g. triple net), the landlord must make the repairs of unsafe conditions if notified in writing by the tenant.  However, the landlord may bill the tenant for the costs of the repairs.

There is no question this decision will have far reaching consequences for the commercial real estate industry.  The decision increases liability for commercial landlords and significantly impacts how commercial leases are structured.  Serious questions remain regarding how this decision will be implemented.  NAIOP is now determining a legislative strategy to respond to the decision.

Trade Missions Should be Viewed Over Long Term

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I just had an op ed published in Mass High Tech on Governor Deval Patrick’s recent 10-day Innovation Economy Partnership Mission to Israel and the U.K.

Too often, the sole criteria used to judge whether a trade mission is a success is jobs.  Unfortunately, this is short-sighted. Economic development strategies must be designed for the long-term.

The Commonwealth’s economic plan needs to have at its core a focus on growing its local, existing business base, while still looking beyond its borders for strategic global opportunities. The right missions, such as this one, are key to our future success.

Yes, In Your Back Yard

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Paul McMorrow’s recent op ed in The Boston Globe discussed the impacts of the recent decision issued by the Massachusetts Supreme Judicial Court on a zoning dispute in Chatham (Kenner v. Zoning Board of Appeals of Chatham).  This case brought to light an issue developers in Massachusetts have known for years – a few dissatisfied residents have the power to stall development projects in the court system for years, many times without proper standing.

In most cases, the project opponents have not sustained actual harm (the primary qualification for challenging a local zoning decision), but they still have the ability to slow and potentially kill a new development.  At least, that is, until now.    

With its decision in this case, the SJC raised the bar for NIMBY (Not In My Back Yard) lawsuits.  The typical NIMBY suit is based on the litigant’s perception that a proposed development will impact them.  With this ruling, the SJC clearly stated that for a suit to move forward there must be true and measurable harm to the aggrieved party.

The SJC gave more authority to the Land Court to make decisions regarding the proper standing of a party to bring a law suit in opposition to a project.  In so doing, they basically took away the ability of the state appeals court to question the Land Court’s judgment on standing.

This decision is not going do away with all project appeals, nor will it screen out all frivolous appeals.  However, this is one of the clearest messages we have seen in years from the courts.  It recognizes that it is unfair to allow a local minority to use litigation for the sole purpose of preventing approval of development projects that were fully vetted through a legitimate public permitting process.  NAIOP applauds the decision!

“It’s Getting Better all the Time”, The Beatles

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At the well-attended NAIOP Developing Leaders breakfast this morning, a panel presented “Booming In Beantown: Why Boston Remains One of CRE’s Hottest Markets.”

I was particularly interested in three slides that certainly left me and the other attendees sighing with relief about our future.  The first two slides were from Yanni Tsipis, Senior Vice President of Development & Consulting Services, at Colliers International.  The Market Forecast shows the historic run-up of the vacancy in Boston to a 10 year high of 16.6%.  However, they are forecasting positive absorption over the next four years, dropping the vacancy rate to 12.4%.  That might not be the low single digits, but it is in the range to start pushing up the rental rates.

The next slide should not come as a great surprise regarding the relative health of the commercial real estate investment market.  It does, though, show how bad off are the other regions of the country.  The delinquent or special service loans are under 5% for the Boston market.  However, take a look at some of the other metro markets like Phoenix, Riverside-Ontario, and Seattle.  New York and Washington, the other “stars” are a bit worse off than Boston.  It has been many a recession ago since we were not the poster child for being the worst affected region.

Finally, Peter Merrigan, President & CEO of Taurus Investment Holdings provided a chart showing Boston’s advantage in terms of employment gains.  This may be the first time Boston has ever been in any top grouping regarding employment (other than loss of.)  Not only is Boston ranked third with over 1.3% twelve month gains, but the Commonwealth is ranked fourth in actual raw employment numbers!

Bring out your old records and enjoy the refrain: “It’s getting better all the time.”  And hopefully for the foreseeable future too.

Fidelity’s Marlborough Closure in Perspective

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Fidelity recently announced it will be closing its Marlborough location over the next 2 years and relocating 1,100 employees to the remaining 3 regional locations in downtown Boston, Smithfield, RI and Merrimac, NH.  The company’s staff has been reduced significantly over the past few years and this decision was made as part of the company’s worldwide reductions during the recent global economic crisis.

What is interesting to me has been the immediate reaction in the press. For the most part, the story has been about Fidelity’s “ingratitude” and the need for the state to punish the company for making such a decision. 

Fidelity still remains one of the largest employers in the Commonwealth with thousands of workers. They, unlike many Fortune 500 firms, maintain their headquarters here. 

What we have is a global company that makes a business decision to relocate some of its employees and to close a regional office. Shouldn’t we be asking what we can do to make us more competitive?  

Beating up on an employer and an industry is probably not the best way to keep them here over the long term. Let’s do a better job at listening to our employers and understanding their problems, before they become ours.

Political Notes from Israel

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Editor’s Note: NAIOP CEO David Begelfer traveled with Governor Patrick’s Trade Mission to Israel; this is his update from day 4 of the trip.

The following are a few notes from my final day with the Trade Mission – there is truly too much going on to report it here, but I hope this gives some insights into the progress Governor Patrick and the delegation made in building relationships that could translate into real economic development opportunities for the Commonwealth.

Meeting Prime Minister Dan Meridor

1) Deputy Prime Minister Dan Meridor
After a very candid presentation of the political environment, the Minister (who oversees intelligence) answered a question about the effect of political uncertainty and previous conflicts on Israeli investments. According to him, there are no problems, with strong investments continuing due to strengths in innovation economy, $8 billion in trade surpluses, and a strengthening currency. 

2) U.S. Consul General Daniel Rubinstein
West Bank GDP is 8%. (higher in Gaza, but off an extremely low base,) Foreign donations and foreign Palestinian investments total$900 million annually. Social media expanding in both Gaza and West Bank. 90% literacy throughout Palestinian Territories. Housing costs are growing very fast with an increase of more than 40% over last few years. However, there is less concern over “bubble” due to underwriting with 35% down and limitations on multiple home ownership. Most young families require parental assistance. 

3) Jerusalem Mayor Nir Barkat
Coming from the private sector as a successful founder & CEO of a computer software company and a venture capital firm, he retired 8 years ago at age 40. In 2008 he was elected mayor – a truly visionary and dynamic leader. He enlisted Michael Porter to help strategize based on Jerusalem being the best location, best known brand. Leveraging Jerusalem’s competitive advantages, Mayor Barkat is developing the business cluster and tourism together. His goal is 10 million tourists (3 now,) health & sciences cluster expansion, and looking to the future with patient-centric vs. hospital-centric care.

Governor Patrick Meets with President Shimon Peres

4) President Shimon Peres
At 87 years old, and personally representing the whole history of the State of Israel, President Peres spoke and answered questions on his view of the past, present, and future here and relations with the U.S. Answering a question about what contributed to the phenomenal growth of the economy from the start, he said it began in earnest with defense. Without planes, Israel was forced to build their own, requiring research, precision manufacturing, and the need to produce a superior product in order to survive.

5) Industry, Trade and Labor Minister Shalom Simhon
Governor Patrick and the Minister signed a Memorandum of Understanding for collaboration in research and development between the Commonwealth’s and Israeli companies. The Minister’s office and the office of Chief Scientist will identify existing programs that can be scaled up to an international level. There is hope that the Kinesset will pass legislation allowing the Chief Scientist to invest in a foreign program or academic program, which could benefit Massachusetts schools and businesses.

You can hear more about these opportunities at NAIOP’s upcoming program, The Boston-Israel Connection, featuring fellow trip participants David Abromowitz and Thomas O’Brien, as well as participants from the 2010 City to City trip to Haifa, Thomas Palmer and Robert Buckley. Learn more about that program, held Tuesday, March 29th, at the offices of the Combined Jewish Philanthropies.

A few other photos from the trip:

Governor with NAIOP CEO David Begelfer, and NAIOP members John Fish, Tom O'Brien & Helene Solomon

    David Begelfer with cabinet Secretaries Greg Bialecki & Rick Sullivan

Mass. Officials Make Their Case to Israeli Entrepreneurs

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Editor’s Note: NAIOP CEO David Begelfer is traveling with Governor Patrick’s Trade Mission to Israel and is sending daily updates on their progress.On our third day in Israel, Governor Patrick led a Town Hall: “Collaborating as Leaders in the Innovation Economy” at The Technion (Israel’s “MIT”).

Governor Patrick at The Technion

Questions centered on what early stage resources were available if the Commonwealth wanted to attract start-up businesses? 

Susan Windham-Bannister, President & CEO of the Massachusetts Life Sciences Center, explained that the Center was established to promote and make financial investments to grow life sciences companies. The Center is there to fill the gap in the “Death Valley” of VC funding, the period from when a startup receives initial capital to when it begins generating revenues. Additional financing is usually scarce during this time, so the Center provides 5-year loans to qualified firms.

Patrick Cloney, Director of the Massachusetts Clean Energy Center, said they are promoting the state’s clean energy industry by making direct investments and providing assistance to access capital. In 2009, the state’s ratepayer-funded Renewable Energy Trust Fund was transferred to the Center.

Finally, Pat Larkin spoke about the Massachusetts Technology Collaborative, which encourages the formation, retention, and expansion of technology-related enterprises.  As Director of the MTC’s John Adams Innovation Institute, he makes investments in the knowledge-based economy.

Other notable moments on the trip included a presentation by Haifa Mayor Yona Yahav who spoke to our delegation at the Combined Jewish Philanthropies’ Boston-Haifa Connection’s “Shiluvim” program (an effort to help Ethiopian Jewish immigrant children adjust to a new life in Haifa).

And the BEST falafel stand in Tel Aviv!