Filenes Site in Downtown Crossing: “Let’s Get Real”

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In a recent Boston Globe OpEd, Paul McMorrow supports the proposal suggested earlier in the year by the developers Vornado and Gale to phase in the redevelopment of the Filenes site in Downtown Crossing.

Their concept was to construct not just the garage and the retail space as originally proposed, but also the foundations necessary to accommodate the future development of the towers. What a great idea!  Not only does this resolve the city’s frustration with the open “hole”, but it gives a shot in the arm for the retail activity in the area.

An earlier rendering of the site

An artists rendering of the site

It is easy to throw verbal rocks at the developer for their failure to honor commitments made before the downturn to move forward with this project. But let’s get real. This is the worst national recession since the Great Depression.  You can look around the whole country and I will challenge you to find a single major speculative office building starting construction.

The city of Boston will be a big winner with this alternative approach. They get the project started, new jobs are created, retail gets a boost, and much needed tax revenues will be maximized once the second phase gets built.

Let’s encourage the start of phase one of this project and allow the market to recover before we make an unreasonable demand to the owners to make a failed investment ahead of its time.

Protect Affordable Housing in Massachusetts: Vote No on Question 2

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Question 2 on the Massachusetts ballot this November would rescind Chapter 40B, the state’s affordable housing law.  According to the Citizens’ Housing and Planning Association (CHAPA), 80% of the affordable housing built since 2000 would not have been built without Chapter 40B. Most communities favor large lot, single family subdivisions and, without 40B, would not allow for denser, cluster designs or multi-family housing. 

Housing permitted under Ch. 40B serves a broad range of households that are critical to our workforce.  Many of the market rate units have increased housing opportunities by creating ownership units that are less expensive than the existing large lot homes and by creating quality rental opportunities in high employment areas underserved by the rental market (40B developments represent 53% of all new suburban apartment construction). 

Massachusetts has one of the highest costs of living in the country and the largest single component of that is housing.  It is no wonder that we have led the country in the outmigration of our 25-40 year old skilled workers over the past decade.  If we are to recover our leadership role as an innovation economy, we need to keep these young families and provide them with affordable housing choices. If Chapter 40B is repealed it would immediately halt the creation of needed workforce housing and will jeopardize the future economic prosperity of Massachusetts.  This comes at a time of high unemployment, growing homelessness, and the worst foreclosure crisis on record.

However, if that is not enough to convince you, read the recent study from the University of Massachusetts Donahue Institute that Chapter 40B can spur an economic recovery.  By allowing the 21,000 units of housing already approved to move forward, the Commonwealth would benefit from over $10 billion in spending and nearly 55,000 jobs.  Now that is a stimulus plan!

So, Vote NO on Question 2 because it is the right thing to do for the young families looking to remain and work in Massachusetts.  Or do it because we need to get the recovery going to provide jobs and to help stop the looming cuts to local services.

A Tale of Two Cities: Commercial Real Estate Investment in Boston

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The BBJ reports that a PricewaterhouseCoopers national survey confirms what we, here in Boston, have been seeing for this past year, that real estate values are living a double life.  There is a very healthy market here for core assets with low vacancies and long term leases – long enough to get through this downturn and, hopefully hit inflation in rents.

With low interest rates, credit becoming more available for credit worthy borrowers, and a ton of investor money looking for low risk real estate investments, cap rates are falling (and prices are climbing for sellers.)  More owners are considering the sale of their properties, not only due to financial pressures, but because this is a good market to sell class A properties into.  There are already a number of apartment projects that have hit the street with asking prices in the 4-6% cap range – and they will most likely sell at those prices.

Except for the other real estate. You know, the kind of property that the opportunity funds were looking to buy at a deep discount.       

Oh that there were more of that product out there.  But that is the problem.  Generally, banks and/or regulators have not pushed borrowers over the cliff (ala 1990s.) So, with limited core and distressed product and a crush of investor dollars, there is no sign that prices will moderate anytime soon for the quality stuff, or that the problem property will be priced to sell.

At the NAIOP Main Event breakfast: “Investors Unplugged,” this seemed to be the theme.  But there were some concerns voiced even about the core quality product.  The big question seemed to be can you buy at the current low returns and have an exit strategy that justifies the acquisition price.  What if interest rates rise?  Generally, cap rates rise too.  And if you can’t count on cap rates dropping to appreciate your investment, then you must be convinced that vacancies are going to drop sufficiently for rents to go up.  Will that happen in all markets?  Only those with the ability to grow the job market.  (Note, Massachusetts employment has been relatively flat from 1990 to 2010!)

And for those distressed properties counting on leasing up the vacancies, how long an absorption period are you plugging into your underwriting assumptions and how much will those rents need to rise?

Lastly, the answer to the question for each of the NAIOP participants of what can you pay for an asset today, was what is the appropriate rate of return on your capital?  That is going to be very different for the pension fund, opportunity fund, sovereign fund or REIT.

So, get ready for a bumpy ride through 2011.  Some players are rooting for the FDIC to pull the plug on life support, while others are just looking for a little more forebearance.  How that works out will be the key to the pricing of real estate product.

Windshield Tour of Boston’s Four Hottest Markets

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What if you could get to know a key sector of the Greater Boston commercial real estate market in a half day?  How would you like to get in-depth insight and analysis on existing and proposed development projects, and the latest sales, lease, and development activity? 

You can do this on October 6th at the NAIOP Massachusetts Annual Bus Tour: “Markets in Transition: Today’s Projects and Tomorrow’s Opportunities.” 

Networking at NAIOP Bus Tour

If you never have participated in one of these tours, you are missing out on a great opportunity to understand what is happening in the market from the leading brokers in the area. The 2010 NAIOP Bus Tour will visit Boston’s Seaport area, Cambridge, North Inner Suburbs, and Waltham.  

You’ll be able to ask the experts questions, while networking with the region’s owners, investors, developers, brokers and real estate professionals. 

Contact Pauline Rand at 781-453-6900 ext. 4 or rand@naiopma.org or visit our website to register today.

Property Owners May Lose Rights to Appeal

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You think that as a property owner you have basic rights and that if there are changes to those rights you must be notified of them.  Not necessarily. If you are a property owner in Milford, Bellingham, or Franklin, you may lose your rights to appeal changes in how you manage stormwater discharges from your property.

Though all affected property owners should have received notice of the comment period for EPA’s Draft General Permit for Residually Designated Discharges, we recently learned that EPA used aerial photos from 2005 to determine what properties hit their two acre threshold. So, any properties that have been developed since that time probably did not receive any notice, but will still be required to comply.

More importantly, only those who participate in this permit process by filing comments on the draft permit or by participating in the public hearing, may appeal a permit decision.  You don’t write a letter, you cannot later appeal!  It does not have to be a technical letter; just go on record that you have concerns about this proposed permit and you want to reserve your rights to appeal.

The deadline to submit comments on is midnight on September 30, 2010.

To view NAIOP’s in-depth comment letter and additional information (links, fact sheets, and presentations) on this regulatory initiative, please visit NAIOP’s new website and click on stormwater (member login required).

No Turkeys Here

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Banker & Tradesman’s “Turkey Hunt” column (September 20) unfairly took aim at some of the city’s most innovative real estate projects. The premise was that too many development projects have languished over the years because of “do-nothing” developers whose approvals should be “terminated” by the city to allow other developers a chance to build in Boston.

I think we need to set the record straight about permitting and developing in Boston.

First, permitting is a lengthy process for major projects – from land acquisition, feasibility studies, and discussions with the BRA, to endless meetings with neighborhood groups, and renegotiating the design proposal… all before the formal permitting process can begin. Then there is the city’s Article 80 process and the state’s permitting and MEPA review. 

Many years of negotiation and planning are required before a developer can get to a final approval. Because the process takes so long, a developer cannot know if there will be a market for their project when they finally get the necessary permits. That reality can cause serious delays. The recent credit crisis freezing projects all over the country for the past two years is proof of this. 

These are not “do-nothing” developers.  These investors want to move forward, but they can’t without financing and a ready and willing market.  No developer can avoid market realities.

The good news is that, as a result of the Permit Extension Act, many projects will now be able to maintain their permits so they will be “shovel-ready” when the market improves – avoiding another 5-7 years spent reapplying for permits and missing another market cycle.

As any good hunter knows, before you start hunting for turkeys you better know what you’re looking for.

Permit Me to Glow: The Permit Extension Act Will Help Massachusetts Grow

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On August 5, Governor Deval Patrick signed into law an economic development bill (Chapter 240 of the Acts of 2010) that included the Permit Extension Act (Section 173 of the new law).  In response to the credit crisis and market crash of late 2008, NAIOP Massachusetts promoted the Permit Extension Act from the very first day of the legislative session in January 2009.

At that time, none of us could have imagined how or if the country would emerge from one of the worst downturns since the Great Depression.  What was clear was that it would be a long time before any of us would see any new construction from the private or institutional sectors. 

It seemed obvious that if this Commonwealth was to have “shovel-ready” projects set to move forward when the economy turns, those projects could not lose the many permits and licenses already issued by either the local or state authorities.  

It takes years to get a new project approved – starting with numerous local hearings and going through everything from zoning changes, to special permits, to wetlands permits, to traffic mitigation, to environmental reviews at the state MEPA office.  Compound this with numerous appeals, and then you miss your economic cycle! Allowing these permits and approvals to expire would have killed countless projects.

The Permit Extension Act:

  • Extends permits in effect at anytime between 8/15/08 – 8/15/10 for two years (including those that expired during this time).
  • Takes effect immediately for projects that had approvals in place for even a single day of the two year window.
  • Applies to a wide range of permits including wetlands, MEPA, building permits, waterways, and approvals under Chapter 21, 40A, 40R, 43D, as well as variances, and all local bylaws and ordinances. 
  • Goes into effect automatically and no approval is needed by the state or local permitting authority.

Continue reading →

NAIOP Enters the Blogosphere!

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Welcome to the NAIOP Massachusetts blog, Policy & Trends. The blog was created to provide you with information and commentaries on  events, trends, and legislative issues affecting the commercial real estate industry in Massachusetts.

What you’ll find here: commentaries from CEO David Begelfer and industry leaders on the latest real estate deals, regulatory initiatives or news stories; updates on NAIOP events; and opportunities to Connect with NAIOP.

We look forward to hearing from you.  Stay tuned for more and we welcome your comments!