It's a stark contrast to the gloomy days of '09. From Bisnow's 4th Annual Boston State of the Market yesterday, it's clear commercial property is basking near a peak period.
The change is "amazing" despite some potential headwinds, according to experts on our first panel: CohnReznick managing principal James Naber, Boston Global Investors CEO John Hynes III, Taurus Investment Holdings CEO Peter Merrigan, Related Beal EVP Steve Faber, and Normandy Real Estate Partners' regional leader Justin Krebs (whose parents were among the 650 guests so he had to sit up straight). In development are thousands of apartments, several big mixed-use projects, large build-to-suits and the first rustlings of spec offices and new condos. (It's never been a better time to sell hardhats and metal lunch pails.) But times like this when the stars seem to be aligned are fleeting; they're windows that open and close.
For decades, developers have tried redeveloping the waterfront, but it took the Big Dig making it accessible, their own acuity, and timing for Boston Global Investors and Morgan Stanley to find the key to the kingdom. In their 6.3M SF, $3.5B plan for Seaport Square, six projects are now—or will soon be—in construction. The goal is to have 50% of the master plan being built by year-end '14, John tells us. The city is growing and a main driver is the influx of young, skilled and well-paid workers seeking the urban lifestyle downtown. (The Sox playing well doesn't hurt either.) That, John says, gives Seaport Square a "long-term pricing advantage."
Peter, whose firm is investing here but doing more development in Europe and Turkey, sees Boston market anomalies that concern him. Some downtown towers are trading at per-square-foot prices that are too much higher than the prices they fetched a few years ago. There's a disconnect in the capital markets and some dynamics aren't making sense, he says. It's also clear that the rate on the 10-year T note is up substantially. In 18 months, it'll hit 4% and keep rising. That signals economic demand but also that some developer pro formas may not look as planned when it's time to exit a deal. Overall, he says, this cycle doesn't have much running room.
While office, hotel, and retail have trailed multifamily, they're starting to stir, Steve says. (All these people living here now need stuff to do.) Demand for urban office near public transit is growing, and some spec office development is likely. Downtown Boston, including the waterfront, is a favored location for many youthful workers but there are other potential large-scale sites, even in this small, land-constrained city. North Point has "tremendous" access to East Cambridge, one of the "hottest markets in the world." Another significant, transit-oriented development site is the Post Office property on the Fort Point channel adjacent to South Station.
In defense of the 'burbs, Trip Adviser chose to build its new HQ in a 600k SF mixed-use development in Needham that Normandy is building. The company considers it to be a central location that's convenient for urban-leaning young employees and suburbia-inclined top execs with children to raise, Justin notes. Just like much of the region's housing supply is outdated (90% of Boston's stock was built 40 or more years ago, just don't tell your mom that over 40 is "outdated"), growing companies don't want an old office. Instead, they're eyeing open-plan, flexible space to accommodate the more collaborative way people work; to promote the corporate culture and enhance the company's brand.
We snapped Cohn Reznick partner Nick Ratti who says the firm is busy with lots of closings for construction starts and multifamily developments that have tax credit investors. We'd like to give a shout out to CohnReznick for being an event sponsor here in Boston and nationwide.
Perkins + Will Boston's managing director and leader of its corporate, commercial and civic practice Robert Brown says the firm is working on the Haymarket Square Hotel project being developed by Normandy and JLL. Last month, the group won this prize spot on the Greenway with its designation as the developer by MassDOT on a site created by the Big Dig. They've designed an eight-story, 180-key hotel, a one- to two-story market hall with retail space, and a restaurant. The triangular site bounded by Blackstone, North, and Hanover streets will also get $2M of improved infrastructure and support stalls, trash, and storage for existing Haymarket pushcarts.
Susan Diesenhouse (firstname.lastname@example.org)