Monday, August 31, 2009

Boston's Fear of Heights and Fear of Greatness

I am on Boylston Street, in front of the Prudential Center. I have always considered Boylston Street as Boston's Broadway, with all due respects to South Boston. It is the only street in Boston, unlike its brethren in the Financial District, that was part of a classic rectilinear plan. I do love the twists and turns of our old city, and by no means am I an advocate of this Roman template.

But Broadway means a "broad way," with wide vistas, and some viewable distance. And so, as I look straight east toward the Financial District, I see a massive, multi-colored arrangement of buildings, each seemingly growing out of each other in glass, masonry, aluminum, and, yes, even Boston brick. And they are all tall. Very tall. And I love it.

I love it because it speaks to me with the same vibrancy with which Carl Sandburg spoke of in describing the true birthplace of and still most stunning assembly of the skyscraper, Chicago, of which he wrote:

"Fierce as a dog with tongue lapping for action,
cunning as a savage pitted against the wilderness,
Building, breaking, rebuilding,
Under the smoke, dust all over his mouth, laughing with
white teeth,
Under the terrible burden of destiny laughing as a young man laughs,
Laughing even as an ignorant fighter laughs who has never lost a battle,Bragging and laughing that under his wrist is the pulse and under his ribs the heart of the people"

Analagous as cities--no. But when did we lose our fierceness and our pride? But, the better question is why?

And the simple answer is that we suffer from a fear of heights, from a fear of expression, by a false-imprinted visions of city planners that "Thou shalt build small, or thou shalt build not at all."

First, let me point out that buildings are not tall because of the inexplicable egos of those that build them. Is nybody having issues with skyscrapers in Lincoln or Dover, Chelmsford, Wakefield? Buildings derive from the density of those who seek out their counterparts in business, culture, and intellect, all to the great benefit to society. The greatest of ideas do not come from the flowery lunchrooms in Stamford. They come from the great cities--Athens, Rome, Paris, London, New York. Are we not worthy of this, to be called great, or do we relegate ourselves, at least in our architecural restriction, to seek our way into a lesser orbit?

All roads lead to Boston. It has been the port of entry to New England for 400 years. It is a walking city, all the more reason for density on the narrow peninsula on which it sits. Do we begrudge New York with its towers of business? Or Chicago, where our economy experienced most closely the shift from agriculture to manufacturing to professional business and thrust up towers to accommodate the need?

Look no further than the models of Willam Alson (1964) who so aptly described the density coefficient of the great cities or the work of Martin Cadwallader at University of Wisconsin-Madison in 1985 in his work on the density gradient of the American city. Of visit the Coloseum in Rome.

So I look down Boylston Street and I mentally start tearing down the buildings that would not meet our planning code. NOTE: There really is no such thing as a planning code in Boston--we pretend there is and the Mayor uses it selectively to deny a tall building. Or he reverses it and pulls out the magic "PDA" trump card, the "Planned Development Area", in which "if the Mayor didn't plan it, don't even think of developing it.

But this fear of heights is not the Mayor's alone. It is the acquiescence of the everyday Bostonian to believe in the false credo of urban planning in which all things tall are all things evil. We have countless choppers, cutters, pickers, none of whom has ever adequately explained why tall, in and of itself, is bad.

Please do not talk to me of shadows, of wind, and of rain, of private views now obscured. Those who advocate the small are no more than the cousins of the country mice that come to the city, enjoy its delights, but seek to turn the homes of their hosts into the tiny pieces of miceland they crave.

Our so-called zoning calls are subject to paroxsms of peripatetic behavior. The Mayor literally shuns the efforts on The Chiofaro Company to construct towers on what we are all afraid to see is our new deadspace, green though it may be along the waterfront. Quick, count how many people you saw on a Sunday afternoon in the three parcels that face The Federal Reserve, International Place, and Rowes Wharf. I counted 6 last Sunday and I think two were about to get married at the Langdon. Buth this same Mayor, 3 years earlier, wakes from a nap and declares that we shall have a 150 foot tower on Federal Street. Of course, nobody sees the point in this tower but fear not, the parking is still cheap in the city's parking garage on the site.

OK, OK, back to my view. I have just torn down the Custom House, the Federal Reserve Bank, and One Beacon Street. I miss the clock, I miss the glow, I miss the mass. But we must do what we are told. I just smashed all the glass to the Ritz Carlton, laid waste to One and 100 Federal Street and to the new State Street Global Tower. I miss the audacity and guts to turn the Combat Zone into a luxury zone. I can only commit to memory that Federal Street served as the reawakening of modern finance in Boston (my apologies, Mayor White). I say farewell to a business outpost that tried to bridge the Financial District and Chinatown. There is so left much to do but I do not have the time. I am not sure what I will see--I am not sure what our fear of heights wants us to see--squart stubby buildings with all of the dynamic flair of lego construction.

The Gods be ware. I just turned my head toward the Hancock.

Oh, yes, the maximum height that all of the buildings I just tore down, were such an arrogant attempt be made, without special favor from the mayor, could not, by law, exceed 10 stories.

Tuesday, August 25, 2009

A Real Estate Strategy for Boston hot dog vendors

Yes, Boston by Square Foot is not limited to office space. It is the entire experience of walking the streets of the City.

I've reached the boiling point, no pun intended, of the state of the hot dog vendor in Boston. The hot dog vendor is the quintessential element of a thriving commercial district. Walk down 6th Avenue in NYC and you will not pass a corner without at least one vendor. And the predominant client is not someone from Iowa, no offense intended to Iowans. The client is usually in business dress, perhaps with a few friends, enjoying two nice dogs and a coke, maybe on the library steps.
Same in Philly. Same in Chicago. Even Portland Maine has a vendor on every other corner.
What is with Boston? By my most recent count, there is a total of ONE, yes ONE hot dog vendor within the traditional boundaries of the Financial District--State Street to Atlantic Avenue to Summer Street to Arch Street.

There are vendors in the Common. There is a vendor in Downtown Crossing competing with the stinky nut guys and the Peruvian flute players. There are vendors at Faneuil Hall. There are vendors at the Aquarium. That is all well and good. When I play the tourist, I enjoy a good road dog, but if I were visiting Boston, I think I'd opt for the lobster roll.
The vendors need to rethink their strategy. It's all about the client. The clients are me. I don't like to eat at my desk. I like a breath of fresh air. To use the words of a close friend, I don't always want a "frilly" lunch with waiters who insist on telling me their names and sometimes where they are from. That's a pet peeve for another blog.

Here is my official strategic guide for hot dog vendors in Boston, based on the actual density of square footage in the City. There are 5 key corners to achieve and 7 secondary corners, all based on the density of office space within one block of the corner.

In order of strategic importance:
1. Post Office Square. Yes, I do see an occasional vendor there but nobody regularly. This is the geographic center of the Financial District. And there are benches and green grass. The Bank of America building alone is 1.3 million square feet.

2. Corner of High Street and Oliver Street. OK, High and Oliver are not exactly the quintessential streets of the city. But with the 2 towers of International Place, the two towers of 125 High Street, the State Street Bank Tower, and 260 Franklin, it is the single densest concentration of office space in the City. And Don Chiofaro lets you sit on his outside patio for free. We are talking about 6 million square feet of office space on one corner. Come on dog people.

3. Franklin and Federal. For 60 years, this has been the banking center of New England. Try Bank of America, Fidelity, State Street. Try 4 million square feet. Maybe its time for the Brahmin dog, served cold with a free Wall Street Journal.

4. State and Congress. Not worthy of any explanation. Even the English put their Governor's House, now Old State House here.

5. Where the lollipops once bloomed--Summer and High. Remember those weird spinning lollipops in front of what was the Blue Cross Building, now 100 Summer. When the wind would pick up, Blue Cross would send guys out with wires to secure it to the ground. I actually miss them. Anyway, there happens to be 3 million square feet on the corner and anyone coming from the T walks right by the building every day, whether from Downtown Crossing or South Station.

Secondary Options:

OK, you may not have what it takes to dominate the big corners. Here are your start up locations, with no comment--just check it out and stop being so lazy:

1. Broad and State.
2. Beacon and Tremont.
3. Liberty Square.
4. Winthrop Square.
5. Washington and State in front of One Boston Place.
6. Carry a box on your head, just like at Fenway, and just roam around yelling out Hot Dawwwgs, Hot Dawwwwwwwgs.
7. Hijack a Mr. Frosty.

I'm hungry and I'm not walking to the Aquarium for a hot dog.

Sunday, August 23, 2009

The Mayor of Silly Hats

It is a rather sad commentary on the state of the quality of Boston's architecture and development when the City's Mayor has evidently developed a new approval code based on building's "hats." (The city the mayor (painstakingly built), Boston Globe, August 23, 2009). Perhaps it is not as arrogant as his cellphone call to change a zoning code "on the spot" described in the 2nd paragraph, but it is certainly more indicative of a Mayor desperately in search of a development legacy, a Mayor suffering, as most do, from a case of severe Edifice Complex.

I have been involved in commercial real estate in Boston for 28 years. Fortunately, I have not been a developer and have thus not had to please the whims of an individual rather than of a citizenry. But if, in your article, you seem to have come to praise Caesar, maybe we best look at what Caesar has "painstakingly" accomplished.

First, you can toss out the ridiculous concept of development "per square mile." At a whopping 48.4 square miles, Boston is roughly 1/4 the size of the 10th most populous city--San Jose. In fact, Boston does not make the top 150 in area. Boston could comfortably fit inside of the 469 square miles of Los Angeles nearly 10 times over. The truth is that, of the top 10 most populous cities in the US, only Philadelphia has added less new construction since 1996. STRIKE ONE ON THE FACTS.

During Mayor Menino's tenure, 15.3 million square feet of office space has been built in Boston. Not bad for a 16-year reign which has no sight in end. During Ray Flynn's 9-year tenure, 36 million was added. Yes, Mayor Flynn in 7 years more than doubled the amount seen in the Menino era. Considering that the inventory during Mayor Flynn's tenure lacked the 15 million added during Menino's days, the percentage growth on a yearly basis under Mayor Flynn averaged roughly 8% per year. Menino has averaged 1.3%. Need we even mention Mayor White who, during 16 years, saw the construction of 24.3 million square feet? Again, looking at Boston before Mayor White, the percentage growth of the City was exponentially larger than our current Mayor's at nearly 7% per year in an era when developers did not line up to build in Boston. STRIKE TWO ON THE LEGACY COUNT.

And what specifically has the Mayor, other than hats, added to the skyline? In the entire 16 year tenure of Mayor Menino, a whopping 6 new buildings over 500,000 square feet, the minimum amount of space anyone in real estate internationally would even consider as a "tower", were built. Six. And of the six, three of them fell under the approval process of Massport--Fidelity's two office buildings on the Seaport and Manulife's new headquarters on Congress Street in the Seaport. The Mayor speaks frequently of 111 Huntington Avenue, that of the famous hat. And I would agree that some people know of the building. Quick, name the other skyline changing gems--10 St. James?; 33 Arch Street? The soaring State Street Global tower is worthy of mention and merit, none other. STRIKE THREE ON SKYLINE IMPACT.

The only thing less impressive of a Mayor who brags about his singular ability to stall projects "in my City", i.e. those of Mr. Chiofaro, is a Mayor who, one day on a whim declares that a 150-story tower will be built in Boston as if the Development Fairy was planning a visit. How many years ago did that triumphant horn sound--3,4? Perhaps that will be the tower built when it's 80 degrees in January.

Mayors do not build. They allow others to build. Buildings do not create jobs. The companies that choose to occupy them do. Mayor Menino has followed the similar path of his predecessors not only in Boston but in almost every major city. They need the tower and they need the power. The problem is that our Mayor Menino has struck out in doing so, no matter which way you count it or obscure it.

If you don't believe what the press writes, you can listen and watch the Mayor say the same thing on his wonderful video of his ride around Boston at

Wednesday, August 19, 2009

Where (and when) Big Government is Good

I just took a walk past South Station on my way to the South Street diner. Yes, it is 90 degrees but I need the burger.

South Station is more than a train station. It also houses over 120,000 square feet of Massachusetts government agencies. And the State is not the landlord. In total, all components of government--city, state, and federal--occupy over 3 million square feet of office space in privately-owned property in Boston. The government accounts for nearly 7% of the private office market. Including the space which the government owns, the total presence of government use in Boston exceeds 10 million square feet. The "multiplier effect" of the government is enormous as law firms, non-profits, unions, and everyone having business to do with the government tends to want to be near the government--big surprise, huh?

I am sure nobody is falling off their chair, marvelling at this unbelievable tidbit of worldly information. But the Boston office market might fall off its chair if Boston and Massachusetts were like any other major city state, or minor city and state in the country.

Consider these 10 cities:

1. Albany

2. Sacramento

3. Harrisburg

4. Springfield

5. Lansing

6. Olympia

7. Dover

8. Tallahassee

9. Annapolis

10. Salem

With the exception of Atlanta, there is no other city in a major state that is at the same time:

A) The largest city.

B) The business center of the State.

C) The cultural center of the State.

D) The educational center of the State.

E) The health care center of the State.

F) The nexus of all means of transportation, private and public.


From my seat in the diner, I am looking back at the city skyline of which I can just pick up the Northeast edge. There are two 500,000 square foot towers to the far north and a beautiful, gleaming aluminum tower to the East. The first two are the JFK buildings of the Federal Government. The latter is the Federal Reserve Bank. Just these 3 buildings measure over 1.8 million square feet.

Let's look at what this means right now, in the streets. The EPA is looking for 250,000 square feet. The FBI is looking for 450,000 square feet. The Mass. Divisions of Insurance, Banking, and Affairs, and Telecommunictions are all in the market for a total of 150,000 square feet. The US Department of Education, at 75,000 will begin to consider options in the private market within one year.

Do you think Og Hunnewell at Nordic Properties likes Big Government? He just leased 140,000 square feet to the Mass. Division of Consumer Affairs at 1000 Washington Street, a former Teradyne manufacturing building Nordic renovated for office use less than a year ago.

Boston was founded in 1624. Its major business street came straight off Long Wharf where it became King's Street. After we threw the actual King out, it became State Street. It is still the primary business street in New England. As the city grew, every road, every rail line, every bus route had and still has one thing in common. They all lead to Boston.

All roads due indeed lead to Boston and, for the Boston office market, Big Government is a four letter word: RENT.

Tuesday, August 18, 2009

Mutual Fund Inflows, the Boston Office Market, and the Recovery

If you're waiting for the Boston office market to recover, you missed the turning point. A market turns when its underlying drivers turn. And they have.

According to the Investment Company Institute, the national association of U.S. investment companies, all categories of mutual funds, with the exception of money market funds, continued to experience net inflows in June, a trend that has picked up speed throughout the year.

Long-term funds — stock, bond, and hybrid funds — had a net inflow of $43.00 billion in June, vs. an inflow of $52.82 billion in May. These are the funds, particularly those actively managed, that Boston specializes in. The foundation of Boston’s longstanding role as a global money management center stemmed largely from the iconic image of the prudent bond investment firms of the city. Net inflows into international funds exceeded slightly those into the US. The clipper ship opened the Far East to the world in the 1800’s, and Boston’s fund families are considered the leaders in global investing.

Boston-based funds exceeded the rate of increase with a net inflow percentage increase of 1.9% in June alone, nearly double the national average. In June, Fidelity and MFS were the two top-selling mutual fund groups in the world. Natixis, State Street Global, Eaton Vance, and GMO all reported percentage increases well in excess of the national average. Natixis continued to have an extraordinary year with $1 B in net inflows in June, bringing its YTD inflows up to $7.6B. State Street at $923M, Eaton Vance at $861 M and GMO at $418M, among others, all registered significant gains. The strength of the underlying stock market has led to an increase in assets under management in Boston further in excess of net inflows.

What does this mean for the Boston office market? In short, it means the recovery is underway. While I do not expect to see substantial net growth through the end of the year, I similarly do not expect to see significant occupancy declines. And by the first quarter of 2010, the underlying recovery in Boston business will lead to robust market growth in 2010. Why the confidence in a contrarian position? Mutual funds and firms providing specialized services directly to the funds account for 19.8% of the Boston office market and over 37% of the Class A market. There is no city in the world with this level of concentration of mutual fund occupancy. Including private money management firms and the city’s world-recognized private equity firms brings the total “Investment Advisor” occupancy to 29.2% of the overall Boston market and a remarkable 44% of the Class A market. As the mutual funds go, so goes Boston.

There is, of course, more to the Boston office market than the mutual fund industry, and the City, although a peninsula, is not “an island unto itself.” The market has been buffeted by national and international winds. And so I add two facts to support my recovery statement.
1. The healthcare industry, area schools and universities, and all levels of government (Boston is unique in being both the largest city and the capital city of a major state) account for 13% of the private office market. And all three are growing, with total current demand for net new space of 450,000 through August 2011. Washington’s stimulus plan is a direct contributor to this growth.
2. The vacancy rate is only 8.4%. In most cities, that would be cause for rejoice and certainly indication of equilibrium. A vacancy rate of 6 to 7% is certainly considered equilibrium, even in Boston. To reach equilibrium, at 6.5%, Boston must record net absorption of 1.9 million square feet. That would represent growth in occupied space of 2.3%. For perspective, consider absorption trends in the Boston market over the last decade.

Since and including the year 1999, occupancy in Boston has expanded at a median growth rate of 1.6% and an average growth rate of 1.5%. Boston’s experienced its highest growth in 2000 at 4.9% and its largest decline in 2001 at 6.4%. To attach square footage to these numbers ignores the reality of a changing supply of inventory and/or vacant space throughout the decade but Boston, more or less absorbs roughly 650,000 on the median and 1.2 million rsf on the average In 2002, after the market’s largest decline, growth rose back to 1.0%. In 2005, the year following a smaller decline of 2.0% in 2004, the market made up the entire decline, growing at a rate of 2.1%.

Since 1982, Boston has never experienced two consecutive years of net absorption. As I write, we have lost 1 million square feet, year to date, in occupied space. We may lose more. We will not lose 2.9 million. My money is on 2010 and beyond.

Finally, the very nature of the business of Boston is investing in new business. I would contend that, with its concentration of specialized financial institutions, necessary government agencies, and core sources of new ideas, such as MIT or the Longwood Medical Center, Boston “knows how” to recover much more quickly than any other city. It is a city geared to the leading edge, be it in science, finance, or healthcare. As such it is a city geared to provide the channels of finance necessary for a strong local recovery. Look for net absorption of 350,000 in calendar year 2010 and 750,000 in 2011. By year end 2011, vacancy in Boston should be at or around 6.4%. I would consider that a nicely recovered market.