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.

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.

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.

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.

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.

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.