Monday, December 27, 2010

For Every Love Letter Written, There's Another One Burned--A Little Balance Please

Banker & Tradesman’s lead article today was “Boston Tenants Vacate 1 M Square Feet in 2010.” A good grabber. And it’s even true. Gritty reading as Jim Cronin covered all of the properties that saw tenants pack up and go. He even got some respectable industry quotes. The problem is that his article was only half-a-story, as they say. What he forgot to cover or just plain overlooked is that more than 1 M Square Feet was occupied by fresh tenancies in 2010. Let’s get into the detail.

Banker & Tradesman (“B&T”) failed to balance off the vacancies to space that came to the market in 2010 with companies that did indeed, contrary to some of the article’s quoted sources, backfill the vacancies. Every good real estate researcher knows that backfilling takes place across markets, not within individual buildings. If B&T does not analyze the data this way, then B&T would be showing massive negative absorption in Boston of over 1 million in 2010. Every brokerage house and I have already noted positive absorption for the year. I will use B&T’s list first and then cover the properties they ignored.

1. International Place—Yes, when Ropes moved, nobody backfilled the space. But B&T failed to mention that Ropes’ move to 800 Boylston completely backfilled the vacancy left by the Gillette Company after its purchase by Procter & Gamble to the tune of 400,000 square feet.

2. One Federal—B&T is right on with this property. Between One Federal and 125 High, Tishman is sitting on the largest amount of space of any landlord in the city.

3. One Congress—I would not consider a converted garage to even be in inventory and thus not truly vacant. Under Tom O’Brien, the property is being marketed as future office space, and Tom is seeing a lot of interest.

4. 225 Franklin—This is B&T’s biggest mistake. Bank of America leased 226,000, followed shortly by Ameriprise Financial for 130,000 square feet. Along with 100 High, covered below, 225 Franklin was the success story of 2010. B&T’s numbers are completely wrong.

5. 99 High Street—How can B&T mention a vacancy increase without talking about the building’s largest tenant, KPMG, taking over 100,000 square feet to anchor Two Financial Center?

6. 53 State—Same question. The entirety of the vacancy at 53 State consists of Choate’s backfilling massive relocations out of Two International Place. The same will be true at 75 State when Wellington vacates 300,000 square feet there and at a handful of properties to anchor 500 Atlantic in a 400,000 square foot lease.

B&T missed the remarkable leasing efforts at 100 High Street—net 140,000 square feet slowly chipping away at what Bingham left behind; at 200 Clarendon led by the Bain Capital lease; and by way of Liberty Mutual’s expansion into 500 Boylston and its announcement of a new tower which will represent net growth. And many more pure growth stories.

B&T needs to make a choice—accurate net absorption figures or scary stories. You can’t have it both ways, no matter how much of a “grabber” it is.

Monday, December 13, 2010

What's Right about Boston's City Hall

It's my guess that about 95% of Bostonians would not mind if Boston City Hall were demolished tomorrow. About a year ago, the Mayor was so desparate to get out, he almost built a building in the ocean.

But the entire problem and the tremendous potential of the building is the landscape upon which it sits. Consider the State House (New State House, as a proper Bostonian would say.) If the building were built on the vast acreage that City Hall sits on, it would immediately lose its glory. City Hall is a majestic building. It is a city on a hill unto itself, but inverted. The problem is that nobody ever thought to bring the grandeur of City Hall itself to what could be the grand approaches to City Hall.

And I am not talking about the brick. I’m talking about bringing light and activity in concentric circles out from the base of City Hall. Doing so should have been simultaneous with the design of the building. Any building with an inverted base will naturally have a dark and shadowy base. Kallman et al forgot about this. As you approach City Hall, instead of looking up to see how the levels build upon each other, you look down into the pit of the entry. The lack of attention to light, a clear entry, and clear entry “flight paths,” if you will, defeat the architecture of the building. You feel like a mouse trying to find the hole into a massive hunk of cheese.

Grass is not the answer. It would be as unused as the brick plaza or the Dimway, oops Greenway, and would belittle the architecture itself. The answer to the context is varied, gentle elevations leading up into City Hall rather down into the pits. Imagine a series of ramparts approaching a castle except that along the ramparts we could build appropriately designed commercial, retail, and entertainment space—perfect space for an opera house which we embarrassingly do not have. But the approach must be up and toward the top of City Hall, not down and into the pit.

Back to the Old State House. How would you feel if there were McDonald’s bags on the lawn or plastic planes of glass in a few of the Governor’s office windows? The City has never taken care of City Hall. It is a disgrace. This is OUR building, and its care should be a matter of civic pride. The only response we manage to come up with is “tear it down, tear it down.” That’s fear speaking, not logic. About 10 years ago, the same crowd wanted to “re-clad” the Prudential Tower.

And all the architects who praise its design do that and nothing more. We are all wonderful critics and cynics, but few of us feel obligated to do anything. If the 1 million architects (that’s my estimate) who bobble around Boston and Cambridge want to bring life back to what, without dispute, is one of the country’s greatest examples of Brutalism, then they and we better look at the context of the property and the disgusting manner in which have let this property rot.

If we condemn City Hall to the wrecking ball, we condemn ourselves for a lack of will and imagination.

Friday, October 29, 2010

The Angry Man and the Guillotine

I like John Palmieri, the Director of the Boston Redevelopment Authority. He approaches development thoughtfully. His work at Seaport Square, Fan Pier, South Station, Liberty Mutual, and countless other development sites have been noteworthy and worth commending.

Unfortunately he works for the Angry Man. And after the latest self-induced debacle at the Filene’s site, the Angry Man, as is his custom, will be looking for any head to roll other than his own. Alas poor Yorick.

For two years, the Angry Man has been threatening Vornado and its partners at the Filene’s site with any combination of removal of permits to eminent domain. I wrote about the nonsense of such an approach on September 25, when the editors of the Globe started drinking the Angry Man‘s Kool Aid and demanding the same.

Fast forward one month and the Angry Man, using Mr. Palmieri the way President Bush used Colin Powell, had admitted that his approach was not thought out financially or procedurally.

I don’t want to beat a horse that’s not only dead but nearly buried, so let’s focus on how the Angry Man works. The Angry Man can never be wrong even when he is wrong. I didn’t hear any apologies for the money spent analyzing and developing renderings for a new City Hall in the unreachable docks of the easternmost piece of Boston Harbor. And you won’t hear any apologies for his nonsensical behavior with Vornado. His plea for help from Mayor Bloomberg was an embarrassment to Boston. His latest desire for unachievable vengeance on Messrs. Roth and Hynes is a further embarrassment.

This brings me back to Mr. Palmieri. The guillotine has been delivered to floor 9 at City Hall. And the Angry Man will pass the blame on again. Good luck John. Maybe intelligence and practicality will prevail at City Hall. But between Chiofaro and Vornado, the Angry Man needs to strike out at someone.

Thursday, October 28, 2010

Report on Massachusetts Home Sales is Not Accurate

Yesterday, most media sources reported that single family home sales had declined year over year in September. The Boston Globe chose to run this at the top of the business page with the ominous and incorrect title, “Mass. home sales dropped 12.9 percent last month.” The report was on existing single family homes and condominiums, not “homes.” I guess that’s the old-fashioned attention grabber.

The story was not technically incorrect. It was selectively correct. The Globe gave short shrift to pricing, which, if included as I do below, paint a very different picture.

As an example, suppose the lead article of the Globe Sports Section that same day discussed the previous night’s game against the Heat and covered all of the Celtics’ scoring but never mentioned the Heat. The title would read “Celtics Score 88 Points.” I don’t know about anyone else, but I think I might want to also know how many points the Heat scored so I could at least know who won the game. But that’s exactly the way the Globe played the news.

The correct approach would have incorporated both numbers of sales and pricing. Every industry measures its performance by GROSS REVENUE and GROSS PROFIT. Let’s look at the numbers in that light.

Gross home sales revenue in September 2010: 3,285 homes x $287,000 = $940,000 gross sales.

Gross home sales revenue in September 2009: 3,771 homes x $284,000 = $1,070,000 gross sales.

Gross single family home sales, expressed in revenue dollars, decreased by 8.3%, not by 12.9%. The same analysis of existing condominium sales results in a gross revenue decrease of 16.2%, not 21.5%.

Declines of 8% and 13% are certainly not comforting news, but they are a far cry from 13% and 22%. It’s not as bad as you think. When sales are declining while prices are increasing, that is simply the market at work constantly seeking market pricing.

Wednesday, July 28, 2010

While we're talking about the Green--I mean Dim-Way

So much bickering. So much wasted time and land. Here's a solution to the Dimway running up the City's gut.

BUILD ON IT. NOT AROUND IT. ON IT. I've studied what every parcel can bear. Insure the use is open to the public but not free. Stop thinking of the long monotonous strip as an oasis. It isn't. And we have one called the Common, among others.

Think of it as a cultural playground. Begin by building a raised, glorious Opera House right in front of One Financial Center in the vast wasteland of Dewey Square.

Go from there.

Innovation District??

I don't know where to begin. Should we rewind to Mayor Menino in 1999 and again in 2002 and 2003 declaring the "Seaport" as the "New Boston" for high rise office and luxury reidential development "on a scale not seen since the Back Bay?"

Do we need yet another planner, this time the dubious Kairos Shen of the BRA, still wondering why nobody wants to build 12 story buildings along the Dimway?

Does anyone really believe that Joe Fallon wants to see his Fan Pier propertiesl filled by startups looking for "cheaper rent than Cambridge?"

Nobody's paying rent on the 14th floor of a new high rise on the harbor and the frustrated Mayor wants us to believe that kids playing with helium baloons while paying no rent constitute a good trend?

This is not unlike bad sports teams who change their uniform design every year hoping the fans won't notice that nothing has changed.

There are industries well suited for the east portion of the area. North Coast Seafoods is an excellent example. As is Massport.

With patience in what is already a recovering office market, office tenants like Fish & Richardson, who actually pay Joe rent, will come.

In the meantime, let's not assuage the Mayor's unlimited need for instant gratification by allowing him to generate more nonsense. I do believe the same Mayor wanted to move City Hall to this new Innovation District. Even he couldn't silent enough critics on the utter lack of a shred of sense in that brainstorm.

The Mayor's lack of inagination and reality has already killed the Dimway over a personal vendetta. Next thing we know he'll have his driver roaming up and down A Street demanding the buildings have crowns.

The newest business to open in the Innovation District is "Whisky Priest" on Northern Avenue right across from the Seaport Hotel.

Tuesday, April 20, 2010

Boston -- the GLOBAL leader in innovation

As anyone who reads my blog knows, ( and thanks again to those out there who does by the way!), I am a believer in good vibes and bad vibes people. I hope the attached article, showing Boston's dominance not only nationally but internationally, as the intellectual center of the business world, finally silences the bad vibers out there--at least for a little while.

The impact on Greater Boston's real estate market is directly tied to the measures cited in this article. If there is anybody out there who still believes we are not in full recovery in the Boston office market, please raise your hand.

Of course, the right time for all of the real estate firms in Boston to raise their hands would have been 6 months ago, but it's funny that nobody did. As Satchel Paige said, "Don't look back. Something might be gaining on you."

Like a real estate recovery.

Friday, April 9, 2010

The Boston Office Market Recovery--Acceleration Stage

Please click on the title for access to the full J. Adams Commercial Boston Office Market Report for the first quarter of 2010. You may also follow the enclosure link.

Driven by the continued surge of net new cash inflows into the mutual funds, the Boston CBD office market registered 270,000 square feet of net absorption in the first quarter of 2010. This is the third straight quarter in which the A markets saw growth in occupied space and the first time in two years that the B markets also were in the black.

The healthcare industry also contributed significantly to net growth, and my projections call for continued expansion in this area due to our state’s number one position in per capita spending by the Natioanal Insitute for Health and the enormous effect the passage of Federal health legislation will have on our economy. The government in general continues to grow at a disproprotionate rate and, along with demand from the private money management sector, will join mutual funds and healthcare to account for over 70% of net absorption over the next two years.

On the supply side, we have underbuilt yet again, with only 380,000 square feet remaining available for lease in the two buildings now under construction—Boston Properties’ Atlantic Wharf and The Fallon Company’s One Marina Park Drive at the Fan Pier. Given that fully permitted projects require three years to complete, there will be no new supply in Boston any sooner than mid 2013.

Much has been made about the delta between the actual vacancy rate, which stands at 9.7%, and the so-called availability rate, which adds space which may come to the market due to the departure of a tenant to the actual vacancy. This latter figure at 16.3% implies a cushion for growth for the tenant market. I wouldn’t count on it. Available space carries three inherent elements of uncertainty:

1. Whether a tenant who has not yet made a relocation decision will actually do so.

2. Whether office use will still be the highest and best use for poorly located, outdated B properties which do experience a large vacancy.

3. Over what period of time potential space comes to the market, if at all.

With virtually no space under construction, the potential available space has effectively become a substitute for new construction. Assuming all of the potential space comes to the market, which would ignore all the uncertainties above, a total of 2.2 million square feet of A space, would be delivered through 2012. If our year to date net absorption is annualized, 2010 net absorption will total 1.1 million square feet. I am conservatively projecting 580,000 and 650,000 square feet of net absorption in 2011 and 2012. Total net absorption would thus be 2.3 million square feet through 2012.

I do not believe that even one half of projected availability will ever materialize. Vacancy is vacancy. Availability is marketing. The CBD market is not only recovering, but its rate of recovery is accelerating.

Thursday, April 1, 2010

Real Numbers on Boston Real Estate

And here come the market reports from the "big houses." I am anticipating 16 variations of the phrase "cautioulsy optimistic". I am expecting the figures to be so aggregated as to make no sense at any local market level. And I can guarantee that no firm will make an actual square footage projection of net growth or decline. I'm not picking on the firm behind this column. Other firms will be worse because the report will be written in Los Angeles or Chicago. But it's time to take a stand for accuracy and for putting your money where your mouth is.

Here's the reality. The suburban markets are still in decline. The A markets in the CBD have registered their 3rd straight quarter of net absorption. In the first quarter of 2010, net absorption was 280,000 square feet and, for the first time in 22 months, this absorption included the B markets. The total amount of available space under construction in the city is a whopping 380,000. That's 380,000 rsf in a 72 million square foot market. We are not building enough space to accommodate our current rate of growth.

I don't care about "availability". I care about what's vacant today. Availability is amorphous—it’s all about the probability that some space may come available in the future. And the CBD vacancy rate is 9.1 %, DOWN, from 9.5 % on January 1, 2010. As to the future, I am projecting net absorption of 450,000 square feet in 2010 and 580,000 square feet in 2011.

As to the financial markets, I guess nobody has paid attention to the stock market or the massive net inflows into mutual funds over the past 18 months, inflows that drive the Boston office market. I guess nobody has paid attention to the fact that productivity levels in Massachusetts are at the highest levels since the statistsic was first measured in the 1950's. Why is this important? Because it is not sustainable and companies will hire and hire quickly.

I am tired of vague, generalistic assessments of markets that provide no insights to local market differentiation and that carry "party line" messages about “challenging times.” I’m bored with companies that never actually stick their necks on the line and state what net absorption WILL BE, not what it was. I'm not cautiously optimistic. I am totally optimistic. And I’m not afraid to put the numbers out there in clear view.

My entire market report will be online within the week.

Thursday, March 25, 2010

How Not to Get Things Built--Kairos Shen, The Mayor, The Greenway, and Filene's

So the Mayor is worried about the Greenway. He’s also worried about Filene’s. He should be. Let’s start with the Greenway and the real world.

If anything is to be built along the Greenway, there must be a compromise between aesthetics and economics. Unless the public sector is going to construct buildings along the Greenway, which it is not, then only the private sector will do so. And the private sector will only do so if they can make a profit. Simple as that. There are 2 components to the cost of construction--the price of the land and the cost of construction. The land along the Greenway is among the most expensive land in the Northeast. Why--because it is on the Greenway and on the waterfront.

The price of land is usually measured in terms of the price per square foot of land per square foot of the development on the land. Right now, on a per square foot basis, land along the Greenway would easily carry a price of $150 per square foot of development. The construction cost for a Class A property, both hard and soft, is roughly $400.00 per square foot. The combined market “price” of land and building is therefore $550.00. But we need to account for profit. To achieve a 20% annual return on the land and building costs, a developer would need to carry a hypothetical purchase price, as opposed to market price, of $440.00. At 20%, this would enable the developer to receive a return at the $550 market price.

Let’s consider a real proposal. Don Chiofaro purchased the Aquarium Garage for $150 Million. This is a land purchase--not a garage purchase, unless the City feels Don can rent parking spaces for about $2,000 per day per space. The land measures 57,346 square feet, so Don paid $2,615 per square foot of land. Now he has to knock down the garage and construct income producing property large enough to generate revenue to justify the $2,615 purchase price per square foot of land. He also has to construct a building large enough to justify a $550.00 development cost. And he needs to profit. I have stated this at 20% per year.

So how much building does Don need? If Don built a property using every inch of the land area, the property would have to be at least 17 stories tall to justify the land cost ($2,615 / $150 market price).

Today's market net income per square foot of office space is $35.00. To get a 20% return, Don needs to carry a “purchase price” of building square footage of $28.00. At 20%, this “price” meets the market rent of $35.00. To justify the cost of construction alone, a hypothetical property would need an additonal equivalent of $35.00 in net income per built square foot. If Don utilized every inch of the site, he would need additional property height of a minimum of 14 stories of space ($400 of construction cost / $28.00 per square foot of net income.

So, at a minimum, Don requires a 31-story building which covers every inch of the site. The building would have 57,000 square foot floorplates. Nobody builds 57,000 square foot floor plates because they are not acceptable to the Boston tenant market. The City would never allow anyone to build to the entire perimeter of the site because it would leave a) no open space at ground level, and b) no open vertical space for views and light.

The building plate acceptable to the market is 35,000 square foot at the most. This would leave over 20,000 square feet at ground level as open space along the Greenway. The much more slender building would also allow better views of the water than the existing garage.

At 30,000 square feet, the tower would need to be at least 50 stories tall.

Now Kairos Shen can imagine all he wants about low rise buildings linking the Financial District to the sea. And because of a person like him and the Mayor and everybody else that is afraid of heights in the City, nothing will happen. The Greenway will remain as exactly what the Mayor fears it to be: "cold and boring." Maybe he’ll threaten eminent domain again. We’re a big city. It takes big buildings to justify big prices or else we end up with Big Nothing.

Speaking of eminent domain, let’s talk about the Mayor’s favorite project in the City—the Filene’s redevelopment. Remember the Mayor’s idea to move City Hall to a fish pier at the end of South Boston? That was right about the time he thought he could, by dictum, create a 110-story building on the sliver of land at 133 Federal Street. Well, space is available long-term now at the existing 133 Federal Street and nobody talks about South Boston City Hall.

So how’s this: a swap. Let John Hynes and his development team at Filene’s create a New City Hall right in the heart of the City. And, in exchange, extend a 99-year lease to Mr. Hynes and his team on the land under and surrounding City Hall. The former would certainly revitalize Downtown Crossing. And the latter would certainly bring long overdue life back to the brick desert. And there would be no need to tear down the existing City Hall. Just a thought.

Wednesday, March 24, 2010

There's still snow on the Himalayas and people are moving to Boston

High housing costs. Cold weather. High taxes. Bad traffic. Hidden politics.

How about:

High paying jobs. The nations's best universities and hospitals. 4 seasons. Taxes per capita below the national average. A 15% rise in home sales. A CBD office market with the 2nd lowest vacancy rate in the country behind only D.C. ( for obvious reasons.) Culture.

I hate to report that, contrary to the pending demise of Boston, we're not " de-mising."

By the way, year to date net growth in CBD occupied space is POSITIVE 290,000. Who woulda thunk it?

I love this town.

Saturday, March 20, 2010

Fear of New York, fear of heights, and Boston's Greenway--a fool's paradise of Menino's own making

"Mayor Thomas M. Menino said the height restrictions on these particular properties are intended to prevent shadows and strong winds thrown off by tall buildings from making the Greenway a cold, uncomfortable place."

I think the Mayor means well. But, Mr. Mayor, in all due respects, have you been on the Greenway lately? It already is a cold, uncomfortable place. In fact, it's also boring and utterly unused. Every proposed non-profit project has collapsed. I for one don't look over my shoulder at New York all day (“I don’t want to Manhattanize the Greenway,’’ the mayor said.) Why not? Manhattan is exciting. Or try the waterfront of Sydney, or Hong Kong, or any major, thriving city in the world that is not afraid of itself.

Now let's get to the economics. Columbus Center let out its final death knell on Monday. The project was not feasible from its inception due to height restrictions on air rights requiring decking. The pictures were pretty, but nobody ever believed in the project. And we gave money to the "developer" every time he whined.

On the south side of the Harbor, nothing is really happening in the private sector. One new office building in 10 years. We are a market of 72 million square feet. The total amount of space under construction and not already leased is 230,000 square feet in exactly 2 buildings--One Marina Park Drive and Russia Wharf. From the start of construction, it takes 3 years to construct a building for occupancy. The City is not prepared for the future demands of the modern tenant, because we are not allowing the construction of tall, modern, green, highly technical buildings which our companies will demand.

To connect the city to the sea, as the Mayor desires, we must provide a reason for people to approach the connection itself. Nobody uses the Greenway today because it is perceived as a curving linear path between South Station and North Station. It is shorter and far more interesting to walk up the streets of the Financial District, stopping at the Langham or Faneuil Hall for a beverage or lingering on the grass at Post Office Square, than it is to walk a barren stretch of disconnected parcels of grass.

If we want a thriving Greenway, we need to get over our fear of heights and our fear of the private sector.  Otherwise, we will end up with the country's most expensive dog-walking parks.

Wednesday, February 17, 2010

How connected is Boston to the world?

I enjoyed today's article in Mass High Tech (link above) written by Doug Banks, entitled "Checking the Traffic Density Jobs Indicator." Doug was musing about the lightness of traffic over the past year and its correlation to employment in Boston. As a geographer and a broker, I realized that Doug had become a student of geography and specifically of aereal connections which is a significant subset of the field. I'm getting boring so here's a story.

On August 6, 2006, Madonna performed at the Stadio Olympico in Rome. This is the rather infamous concert in which she sang while on a cross. All cellphone usage was measured coming from the Stadio. The lines terminated at major cities around the world and the thickness of the line indicated the volume of flow. Interestingly, NYC did not have the thickest flow (nor did Miami!). The strongest flow was to Paris. There are several 3D maps of this cellphone phenomenon.
I’ve included one showing the flow right over Rome.

Mapping connections between places in a formal manner had its beginnings in maps of the railroads in the 1870's, which showed freight tonnage flows between cities. NYC was still the dominant hub but in 10 years, Chicago had claimed its position atop the freight world as shown by the thickness of the volume of freight of all kinds coming into the City of the Big Shoulders.

A more recent example of aereal conncection maps is this DOT map of the volume of vehicular freight movement among major US cities in 2002. It served as a guideline for anticipating major roadway repairs.

So what does this have to do with Boston and real estate? Everything. We are exporters of knowledge and technology. We don't send barges of wheat down the Mystic River nor do we load much coal to ship to China. And if we are exporting something you can't touch, how do we measure our impact?

There are numerous links showing Boston's connections as measured by number of flights and passengers on the FAA website and the Massport website. But the best site I have ever seen, because it is animated, can be found at What Aaron has done is cover flights on a continuous basis over the course of a day. And it is absolute artwork. Watch Boston and San Francisco. You will notice a particularly thick line between San Francisco and Boston? Ditto for internet traffic and ditto for cellphone traffic. There are not many flights between Boston and Toronto and not many between Boston and Dallas. And both of these cities are much larger than both Boston and San Francisco. NYC is the most connected city to Boston and, in fact to every other city in the US, but it is flow of all types of communication between two cities that determine the degree of their intreaction. And high tech, high knowledge cities tend to connect with other high tech, high knowledge cities. Boston is connected where it counts. And connections mean jobs which means demand for real estate. Boston's vacancy rate has been hovering between 9 and 10%. The vacancy rate for space in the the Dallas CBD is 30%. Connections are good.

So when you're cruising or crawling down 93, you can thank Doug Banks and be happy about the economy. Or you can just mutter under your breath.

Monday, February 15, 2010

Been away for a bit but nonsense is still nonsense

Yes, I know most of my posts deal with the Boston office market. And I appreciate all of your who have followed me, corrected me, encouraged me, and made this all fun. I've been in a bit of a pause--call it an extended start to the New Year. So forgive me if I start my going astray again. I had to.

Kerry Emanuel ("Climate Changes are proven fact," Boston Globe, February 15) is obviously passionate in his beliefs about climate change. But what are we to make of his statement that "We have never before dealt with a problem that threatens not us, but our distant descendants?" The statement is ludicrous and typical of single-issue thinkers.

Never before? What about the nuclear arms race? I would consider that a problem that might affect our descendants. What about the increasing discrepancy in incomes worldwide? What about families in our inner cities for whom the only "job" that keeps people fed is the drug trade? What of their descendants? What of the growing chasm between the Islamic and Western worlds? Are the Taliban not a threat to our descendants? What about the state of public education right here in Massachusetts? Shall we put climate change in front of ignorance as a future threat? What about AIDS, human rights, child slavery? We have limited resources to deal with the many, many threats to our descendants. Does Emanuel truly believe that we must put his climate change crisis first on the list when, as he admits in his own article, there are simply too many factors to state fact when it comes to climate change? Which makes me wonder where he came up with the title.

I apologize. I'll get back to real estate. But as I see it, people working, people learning, people that are healthy, people that feel secure and safe, all create the world in which people like me are incredibly fortunate to play a small role in. There wouldn't be much need for office space in any other kind of a world.

Friday, January 15, 2010

Veritas: Harvard, Allston, and the Future

I know the issue of Harvard and Allston creates, well, a bit of discussion. In one of my recent posts, “The Influence of Higher Education on Boston Real Estate”, dated December 17, 2009, I stated what I felt were the positive impacts of our local universities and colleges not only on the real estate market in Boston but also on the general economy and job market. The impetus for my post was the recent purchase of the former Bayside Convention Center by UMASS but also included thoughts on the growth of Harvard in Allston.
I was pleased to see that a number of people brought a number of opinions to the fore, particularly regarding the Allston, or more specifically, North Allston development plans. From those who did not agree with me that Harvard’s expansion into North Allston was an eminently ideal development, I learned a great deal about what the points of confusion and anger are. From those who did support my view, I learned further about how others saw additional benefits to Harvard’s presence.
In fairness to those in opposition, particularly a number of people who are part of the Allston Brighton Community Blog, I took some time to do some first hand research. The primary complaint of the opposition was timing. Many felt that Harvard was unnecessarily 1) sitting on land, 2) not living up to a commitment to build and to provide new jobs, and 3) had forced out a number of important businesses.
I reviewed all of the public information prepared by the Boston Redevelopment Authority, Harvard, and the very active Allston Community Planning Group. I can say that there has been no shortage of effort and creativity in the joint planning for North Allston. But I can also say that I do not accept the claims of the opposition.
1. Is Harvard “sitting on land?”
The answer is yes. Harvard has been sitting on land in North Allston since the turn of the century. Harvard Stadium opened in 1903; the Business School in 1924. Of the 200 acres of land Harvard owns in North Allston, 100 acres have been owned by decades.
The recently acquired 100 acres represent a coherent and concentrated assembly of land along Western Avenue, North Harvard Street, Soldiers Field Road, and adjacent streets. Any entity, in planning to construct a major facility, be it scientific labs or a sneaker factory, must assure that it purchases sufficient land to enable the scope of development necessary to accommodate its plans.
Harvard’s purchase of land actually led to a master plan for over 760 acres of land in North Allston. From a planning standpoint alone, Harvard’s purchase triggered intense public scrutiny of what the community wanted not only Harvard but anyone to do or not do in North Allston.
Sitting on land is a bit of a vague term, but I think I understand the complaints of those who feel that Harvard may just be buying up buildings and land with no purpose in mind. There has been very little construction other than the completion of the foundation of the new Science Center and Harvard’s work in assisting in the development of the new Charlesview Apartments, approved today by the City.
But, in looking through every document issued by the city, by Harvard, and by the community, nowhere will one find a time-specific commitment made by Harvard or by the Community to build or occupy space at any time. In fact, I will quote from the report “Strategic Framework for Planning, Thomas M. Menino, Mayor of Boston; Mark Maloney, Director, Boston Redevelopment Authority, May, 2005” (see References).
This report was prepared by the BRA, the Mayor’s Office of Neighborhood Services, and the North Allston Community Planning Group, consisting of forty representatives of residents, businesses, institutions, and non-profits with interests in the area. I know that term “community group” is often overused and rather amorphous. I included a list of all of the members at the end of this post. This group was later expanded in 2009 to include 30 additional local entities.
In this report, which is one of many reports of which reference is made at the end of this post, the following statement is made quite prominent:
“It was understood that the planning framework’s timeframe would
cover the next 20 years of a development strategy that would occupy
Harvard over the next 50 years.”
Yes, Harvard is sitting on land. But they are doing so in accordance with a plan that the community approved. While I can understand that this may upset some members of the community, I think it is fair to say that any member of the community has had ample opportunity to air his or her thoughts.

2. Has Harvard reneged on its promise of new development and new jobs?
The answer is no. In some ways, this is another way of phrasing the issue of sitting on land. Harvard made no commitment to immediately begin construction on any property or any commitment on dates when specific jobs may be available. However, Harvard has already set up a separate office for all inquiries regarding future job opportunities at the Science Center and in North Allston in general. But the key issue is simple: Harvard in the most prestigious univerisity in the world, whether you like it or not. And I’m a Dartmouth guy having to write this! Its endowment, at over $27 Billion is nearly twice the size of Yale’s, which holds the second largest endowment. For local reference, BU, who has battled the community many times, has an endowment as well. Harvard’s endowment is 33 times the size of BU’s. Harvard receives more government research money than any other university. Its student body is over 18,000 and Harvard is the 3rd largest employer in the entire state.
The land that Harvard purchased in North Allston was primarily abandoned industrial space, weeded asphalt lots, truck depots, rail yards, and an assortment of low-end retail. Other than the soon to be redeveloped Charlesview, there were and are no residents. Yes, I recognize that people miss Charlesbank Cleaners, the VW dealer, and Kmart. But if anybody thinks that those uses are what is best for North Allston in the long run, as opposed to simply the possibility that Harvard will build, then I will say that is not only shortsighted but preposterous. There’s a reason North Allston has been economically dead for decades. Nobody has had any interest in building anything there. Harvard is the Golden Goose. Is it good for Harvard? You bet. In fact, it’s perfect. Is it good for the community? Consider the alternatives. There are none.

3. Has Harvard forced out a number of businesses?
The answer is yes, and this was addressed above. The real questions are; 1) what is the impact on the community of the departure of these businesses in the long run? 2) what will Harvard do with the vacant properties it now owns and 3) what is the long term value to North Allston and to the City in Harvard’s purchases?
1) The departure of the local businesses, while perhaps temporarily inconvenient, has no impact on North Allston in the long run. The businesses were primarily small retail establishments providing few jobs and few tax dollars to the City.
2) Harvard has begun a very public leasing program for all of its vacant properties. On January 10, 2010, President Drew Faust specifically addressed the leasing program in her Letter to the Community of January 10, 2010. The link follows this post. (Harvard has made over 100,000 square feet available after renovating existing properties it purchased. In the past 10 months, Harvard has signed leases with six new companies, primarily research and technology tenants, and has signed a new lease with Mahoney’s Garden Center on Western Avenue that will significantly expand its outdoor market area in 2010. On the public side, this week Harvard opened a free skating rink on Western Avenue.

3) Long Term Value
When I speak of the “value” that Harvard brings with its purchases, I speak of what is known in the real estate industry as the “highest and best use” theory of land ownership. Simply put, every piece of land has a theoretical “best use”, defined in the private sector as that use which will return the greatest profit to the owner of the land over a given period of time. For example, the highest and best use for a parcel of land on State Street in Boston is not a gas station. But for a parcel on any within ½ mile of any exit of route 93, a gas station is ideal.
Measuring a return in terms of profit for Harvard is difficult since it is a non-profit and, by law, any surplus Harvard sees at the end of any measured period of time must be retained by the University, most typically through its endowment. But what of the community? What of its highest and best use? The community does not own the land, but it is the nature of our government that land planning is not only acceptable but is the norm throughout the country. Harvard cannot do whatever it wants to do nor has Harvard at any time not acknowledged this fact.
Earlier I said that Harvard and the community have both agreed that Harvard’s development plans are long-term. So how do we determine whether Harvard’s purchase of the land will result in the highest and best use not only for Harvard but for the community in the long term?
I reviewd 41 separated land purchases Harvard has made over the past 8 years. Harvard does not occupy any of these properties, which are all assessed by the City as “Commercial Land” or “Commercial.” In other words, Harvard pays real estate taxes on all of the 41 parcels.
The 41 parcels represent 38 acres of land or roughly 40% of the total land purchases made by Harvard. Property values for any purpose, including for tax assessment, use one or a combination of any of the following three methods: 1) by the use of comparative sales information; 2) by the use of replacement cost; or 3) by the income approach. Overwhelmingly, number 3, the income approach, is the method used by the City to determine assesed value of commercial properties. This is particularly the case in North Allston where there have been few comparable sales and where valuing a property based on the cost to build an outdated industrial building simply makes no sense. Land and property value is all about the potential income of the improvements made to the land, where improvements mean whatever is built on the land.
Public assessed values do not necessarily reflect what a given parcel of land or building will sell for in an open market sale. However, I used these values to determine the “potential” of Harvard’s land by analyzing comparing the assessed value of the 41 Harvard parcels with a sample of 23 developed properties in North Allston and Cambridge. Each of these parcels was “improved” by a midrise office or research and development building, the type of buildings Harvard is contemplating for North Allston.
To determine Harvard’s land “potential”, I looked at the ratio of assessed building value to assessed land value. I used this as a proxy for highest and best use, where the higher ratio is considered a higher and better use.
In the aggregate, the 41 parcels purchased by Harvard have a total assessed value, as of 2008, of $92 million, of which $60 million is assessed building value and $32 million is assessed land value. The ratio of assesed building to land values is 1.9. Of all of the 41 parcels, only 10 have a higher building value than land value.
In the 23 parcel survey of developed land in North Allston and Cambridge, the average ratio of assessed building value to assessed land value is 4.1. North Allston is woefully underdeveloped and this is reflected in the relative lack of value realization of the land in North Allston. And the only way that will change is when Harvard changes it. Will this also be better for the community? If we determine community benefit based on new development intended to house new employees, how can it not be?
In closing, let’s go back to the importance of Harvard to North Allston. Last week, Harvard went to the markets with a $460 million bond offer for capital projects. The bonds were rated AAA by both Moody’s and Standard & Poors’s, the highest rating possible. Only one company in the United States has an AAA rating—General Electric. And that rating is only from Moody’s. Standard & Poors lowered GE’s rating last March.
Thank you to all of my followers who keep me honest.
References and Information Sources:
From Boston Redevelopment Authority

1. Allston Strategic Planning Framework 2004
2. Harvard Allston Campus Planning and Institutional Master Plan 3/2006
3. Allston-Brighton Neighborhood Planning Initiative 2007.
5. North Allston-Brighton Community-Wide Plan (CWP) 2008.
From Harvard University
1. 2007 Harvard University Allston Campus Institutional Master Plan Notification Form
2. Letter to the Community, January 10, 2010

Members of the North Allston Neighborhood Strategic Planning Group
*Paul Berkeley, Co-Chair
*Ray Mellone, Co-Chair
*Robert Alexander, resident
Teddy Arvanites, Cambridgeport Bank
Harris Band, Harvard University
State Senator Jarrett T. Barrios
Adam Berger, Cabot, Cabot & Forbes
*John Bruno, Brookline Bag & Paper
Jeffrey Bryan, resident
Jim Creamer, McNamara House
*Paul Creighton, resident
*Michael Curran, resident
*Rita DiGesse, resident
Josephine Fiorentino, Charlesview Apartments
*Ellin Flood-Murphy, resident and Gardner School
*Brian Gibbons, resident
State Representative Brian Golden
*Michael Hanlon, resident
Pastor Gary Andrew Heart, Hill Memorial Baptist Church
Father Daniel Hegarty, St. Anthony's Parish
State Representative Kevin Honan
*Proctor W. Houghton, Houghton Chemical
Paige Kane, CSX
Shirin Karanfiloglu, City of Boston
Shaun Keefe, Romar
Kevin McClusky, Harvard University
Councilor Jerry McDermott
Kathleen P. Phenix, Joe Smith Community Health Center
Juan M. Prieto, Cabot, Cabot & Forbes
Beth Shepard-Rabadam, Harvard University
State Senator Steve Tolman
Bob Van Meter, Allston-Brighton CDC

Tuesday, January 5, 2010

Burying the Future -- Literally or should I say Figuratively

It’s getting harder and harder to find out who is actually opposing Cape Wind. But the bigger question is why?
We’ve been through the NIMBYs, which unfortunately include the Kennedys who apparently prefer that we carry out the creative new energy developments they so advocate just as long as they can’t see a sliver of silver in the ocean. And they have plenty of like-minded neighbors.
Then we have the self-important towns of the Cape, who literally tried to cut the cable before the cable was even laid. “Over my dead body will we deliver electric power to the entire Cape in my little town.” Fortunately the Federal government did remind the good old folks that electric transmission was Federal turf.
And now we have the Wampanoag Tribe, specifically the 91 people, per the 2000 census, who occupy the Aquinnah Reservation at Gay Head on the Vineyard. I have no issue with preserving cultural history. I want to make it very clear that I do not pretend to know the intricacies of Wampanoag culture. I know a bit of their history, gleaned primarily from their own website. They have every reason, just as I do if I had a reason, to oppose far offshore wind turbines.
But the last time I checked, the Wampanoag’s’ most important cultural desire was a casino. But that was before their tribal leader, the infamous Glenn Marshall, who failed to inform his tribe that he had been convicted of rape and fabricated his military record BEFORE he subsequently was sent to Federal prison for his actions while tribal leader for tax fraud, wire fraud, campaign law violations, you name it. But they still own sacred land in Middleborough—can you see the ocean from there?
The Wampanoag’s do not want windmills because, according to the release from the U.S. National Park Service, who concurred with the tribe and overturned a previous federal ruling allowing the windmills, a) Nantucket Sound was home to the Man-Giant Maushop and the Sea Woman Squant; b) there may be artifacts dating back 11,000 years ago when glaciation created a land plateau; and c) Nantucket Sound unto itself is a sacred place to the tribe.
• Let’s look at these for a moment. Maushop is not unlike Paul Bunyon. According to the Wampanoag website, he created the Elizabeth Islands by flinging sand from the ocean; he caught whales with his bare hands; and he could, in one step, go from Nantucket to Martha’s Vineyard. Bunyon operated out west but I think we put some windmills there.

a. Not that it matters I guess, but NO artifacts have actually been found. There are isolated areas of buried brush and forest where the sea came in but nobody has found a human artifact and certainly not one of the Wampanoag Tribe. Of course, the Park Service glosses over this nicely by saying such findings are “possible.” Wow, that opens up some territory. In fact, the Park Service stated that it was not customary to place entire bodies of water under cultural protection, especially so when the tribe and the Service have not completed the study of how the Sound defines the entire Wampanoag cultural area. Hey, it’s only Nantucket Sound. Oh, by the way, there was no Wampanoag tribe 11,000 years ago. According to their own website, they date themselves as an organized group to about 4,000 years ago. According to the U.S. Geological Survey, the famous single tooth discovered at the “Rich Site” in Barnstable County several years ago could only be described as a “Paleo-Indian.” That means something that came before an Indian.

• I find Nantucket Sound sacred as well. There are no actual accounts of the Wampanoag tribes conducting any types of ceremonies with regard to specific times in the cycle of the seas. Of course, they cite Maushop, the Giant Man, and Squant, his Sea Woman lover who controlled all the winds and waves in the world, as evidence of sacred attachment.

There are estimated to be 2,000 Wampanoag’s alive today, but the vast majority are of mixed tribal ancestry. Of the 2,000, 1,200 live in Mashpee and the remainder lives in Rhode Island and eastern Connecticut. And the 91 members at Aquinnah who are managing, for whatever reason, to keep those oil tankers coming right across the ocean. Maybe we can barter—the casino for the windmills.

Boston would be a strange city if the 4/5 of it that are landfill were never filled. Not much room.