Boston 2024: NAIOP’s “2024 Olympics – Vision, Opportunity and a Catalyst for Change”

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by Lenny Pierce, Research Analyst

For every modern Olympic host city, the goal of the Games is greater than turning the world’s eyes towards yourself for two weeks or convincing the international community that yours is a world class city. Along with any sort of improved sense of status the Games can yield, there typically comes less ephemeral benefits in the form of improved infrastructure. Housing and transporting the thousands of athletes, coaches, fans and staff members that descend upon an Olympic city for two weeks in August often requires upgrades to a city’s built environment that are sometimes long overdue. At NAIOP’s “2024 Olympics: Vision, Opportunity and a Catalyst for Change” conference, National Development’s Tom Alperin moderated a discussion between Boston 2024 CEO Richard Davey, Elkus-Manfredi Founding Principal David Manfredi, VHB’s Stephen Thomas and CBT Architects’ David Nagahiro to discuss their vision of critical urban enhancements a Boston Olympiad could mean for our city.

Olympic Stadium at Widett Circle (Boston 2024)

Olympic Stadium at Widett Circle (Boston 2024)

Elkus-Manfredi architects are responsible for the first set of Olympic facility renderings. David Manfredi was clear about these early plans for Boston being built around the vision of where he and others want the city to go from a development perspective. This notion was clear in their placement of the Olympic stadium in Widett Circle. Though the Olympic stadium itself would be temporary, he foresees the immediate surrounding area–a region planners have dubbed “Midtown”–as ripe for development once the games have come to a close. Manfredi described this area as a potential “transit village” in the long term that would connect South Boston and the South End. The area in question has immediate proximity to the Red Line’s Andrew and Broadway stations and is only a mile’s walk from South Station along what planners are calling the Olympic Boulevard.

Athletes' Village buildings (in blue) at Columbia Point (Boston 2024)

Athletes’ Village buildings (in blue) at Columbia Point (Boston 2024)

Boston 2024’s bidding documents identify two major “clusters” within the city where the majority of the events would take place–the “University Cluster” which includes Harvard’s athletic facilities, and the “Waterfront Cluster” which includes the Athlete’s Village at Columbia Point. Seeing as over 1600 beds would be needed between competitors and trainers at the Athlete’s Village, construction of residences on the UMass campus would be necessary. Luckily, increased residential capacity is very much in keeping with UMass’s vision of the peninsula in the coming years–making the institution very hopeful about our bid. The residential facilities at UMass would create a more significant undergraduate community; one which could attract retail tenants going forward. Aside from the permanent buildings, the plans for UMass’ campus also call for modular residential structures that could be broken down and relocated throughout the city once the games have ended.

In the Q&A segment of the conference, one guest asked the panel if the Boston Olympics could warrant the formation of The Urban Ringa 100 year old transit concept to connect the branching arms of Boston’s rail lines with either a rapid transit bus route or an actual subway line. Indeed, such a transit system could ease travel from Waterfront Cluster to the University Cluster, a journey that currently has no expedient public transit option. While panelists said they are primarily focused on planning the games around existing transit infrastructure, they are discussing a Bus Rapid Transit (BRT) line connecting the Seaport to North Station and another running roughly parallel to Massachusetts Avenue, the latter of which is a path that is accounted for in renderings of The Urban Ring.

Olympic clusters (Boston 2024)

Olympic clusters (Boston 2024)

For proof of the lasting positive impact that Olympic construction can have on a host city, panelists wisely pointed to London 2012. What was once London 2012’s Athletes’ Village is now a brand new residential neighborhood dubbed the East Village consisting of 2,818 homes–1,379 of which qualify as affordable housing. And let’s not think that all is lost should we not secure the bid. Even though New York failed to secure the bid in 2012, the planning process brought a massive development opportunity into focusthe development of Hudson Yards at the prospective site of their Olympic Stadium. The Bloomberg administration repurposed many elements of their Olympic bid to put Hudson Yards in motion, a $20 billion development by Related and Oxford Properties that could span 28 acres upon completion. Since the most beneficial impact of hosting to Olympics is the physical legacy it leaves behind, and since the bidding process alone can be a major catalyst in initiating these municipal improvements, we should consider ourselves lucky that we’re even having the conversation–even if that’s all that happens.

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CoUrbanize Connects Developer to Citizen for a New Kind of Civic Dialogue

Source: courbanize.com

Source: courbanize.com

by Lenny Pierce, Research Analyst

Traditionally, having your opinions on a local real estate development project heard means sacrificing your weeknight to a lengthy town hall meeting, an investment that few are able to make due to family and/or professional commitments. The consistent result of this dynamic is that only a handful of voices are heard at said meetings and the projects are altered according to those voices alone. Fortunately, this process may be getting a much needed makeover in the Boston area thanks to Karin Brandt’s coUrbanize, an online civic engagement platform where developers can converse directly with those living near ongoing real estate projects through every stage of their development. The platform may be building a crucial bridge between developer and resident and hosting a dialogue that no longer requires a walk to town hall just to be a part of.

Every development CoUrbanize currently has a partnership with has their own profile under the site’s Projects section. Under each project’s profile, interested parties can learn the quantitative facts of each development such as square footage, scheduled completion date and intended use, as well as more colorful details such as each project’s projected economic impact in the area.

CoUrbanize also provides visualizations of the ongoing projects in the form of slideshows of architectural renderings as well as bird’s-eye-view schematics detailing the project’s effect on factors such as traffic, shadows, and wind in the surrounding area.

A schematic from coUrbanize showing the potential traffic impact of Leggat McCall's redevelopment of 40 Thorndike Street in East Cambridge. Source: courbanize.com

A schematic from coUrbanize showing the potential traffic impact of Leggat McCall’s redevelopment of 40 Thorndike Street in East Cambridge. Source: courbanize.com

The trademark of coUrbanize is their community forum, where interested parties can post comments about the projects in their community. And this isn’t the one sided dialogue that comes to mind when one thinks of internet message boards–representatives from developers are highly attentive to the comment threads, sometimes responding within a matter of hours. One example of this dynamic exists in Legatt McCall’s responsiveness to the residents of East Cambridge on coUrbanize’s forum for the Edward J. Sullivan Courthouse renovation at 40 Thorndike Street. Here, the developer has been especially quick to respond to posts regarding the long awaited redevelopment of the brutalist court house which will soon be a mixed-use property including 430,000 sq. ft. of office/R&D space and 24 apartments.

We caught up with coUrbanize founder Karin Brandt to discuss the impact her site is having on the relationship between urban developments and those most intimately affected by them.

The story so often heard behind the formation of a start up is that you saw a need–be it a frustrating absence of professional service, or the lack of a specific item for a specific problem that was worth catering to. What was the need that you thought coUrbanize could address?

I always tell people that if you’ve been to a public meeting or if you’ve seen Parks and Recreation, then you know the problem coUrbanize addresses. Our founding team has a background in city planning and building technology. We went to many public meetings and saw the problems that developers and community members face with development review.

Neighborhoods are decided at the meetings–what gets built and ultimately, for whom. Because meetings are held on weekday nights and often last many hours, the process naturally draws out the vocal minority. Second, the facts about projects are very difficult to understand, especially traffic studies and engineering reports.

With coUrbanize, developers can distribute project information and gather online feedback so everybody has the facts and can easily participate. For developers, this reduces the costly delays that come from misinformation and misunderstandings and helps build a stronger relationship with the community.

An example of the ongoing dialogue surrounding the redevelopment of Brookline Place. Source: carbonize.com

An example of the ongoing dialogue surrounding the redevelopment of Brookline Place. Source: courbanize.com

Before coUrbanize, how would somebody interested in a development going on in their neighborhood access information regarding it? What, in your view, are the limitations of this traditional approach?

Traditionally, community members can learn about proposed development and weigh in at public meetings that are held on weekday evenings. Sometimes these meetings last for hours, which means that many residents with young children, multiple jobs and busy lives are not able to participate and their voices are left out. Technology provides opportunities to share information ahead of meetings to help more residents participate, which means the in-person conversations can be focused on the topics that matter the most.

Do you think that coUrbanize allows for a wider range of opinions to be heard with respect to a specific development than might be heard in a town hall meeting?

Our customers report that they are able to engage broader audiences through coUrbanize–often residents who haven’t shown up to meetings first, learn about projects online and then get involved in the development process. We also see that people, who may not stand up to comment at public meetings, go home afterwards and provide comments online.

CoUrbanize’s “sweet spot” has been described as helping developers and governments communicate issues that are hard to understand and visualize. What are some examples of issues that the public traditionally finds hard to understand?

One of the problems with development that we always hear from developers and communities is that the project impacts are hard to understand. Discussions around traffic, parking, shadows, and wind can be very emotional rather than fact-based. Our Data Scientist, David Quinn, worked with developers, architects and engineers to create map-based visualizations that help residents easily understand how a project will impact their street.

Development projects are long lasting and helping people visualize the process from initial design to approval to construction completion is important. Developers use our “Timeline” feature to document the steps in the process and help people understand what’s coming next.

Your first partnership was not actually with a real estate developer, but with Hubway, Boston’s bike share program. Are there other businesses that could have fruitful partnerships with coUrbanize that aren’t actually real estate development groups?

We really enjoyed working with Boston Bikes on their Hubway expansion. Since that partnership, we’ve worked on projects with Cambridge and Boston, and will be starting a project with the Town of Ashland. In some cases the city uses coUrbanize to manage real estate development and in others, the city planners use coUrbanize to gather local input on their proposed projects.

Some of our newest partnerships are helping customers gather community input on what types of retail and commercial space people would like in local storefronts. The increase of banks, or bankification, in many urban centers has resulted in communities calling for more active street-level storefronts. We’re looking forward to more ways coUrbanize can help residents connect with development to help create better cities.

CoUrbanize currently cover four regions–Boston, Cambridge, Brookline, and Devens–but Brandt aims to extend that roster extensively into the suburbs. Brandt says that suburban communities with smaller planning departments can use coUrbanize to help manage the permitting process. Furthermore, seeing as Boston isn’t the only place in the world where people take interest in the building going up next door, Brandt is hopeful that the success of this platform in Boston can be replicated in other major cities. “We’re looking forward to expanding coUrbanize into new market’s this year” Brandt says. “Development is not just difficult in Boston–many cities such as San Francisco, Los Angeles, Chicago, etc. face the same challenges.” Active community members of the nation–you may be getting your weeknights back.

Stay tuned to CBRE New England’s blog for updates on coUrbanize’s expansion and check out all of their active and completed projects so far at courbanize.com/projects.

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M&A Watch: Staples-Office Depot

CBRE New England's M&A Watch tracks mergers and acquisitions and analyzes their potential impact on commercial real estate in New England. Photo source: http://en.wikipedia.org/wiki/User:Mr_Stan_Zemanek

CBRE New England’s M&A Watch tracks mergers and acquisitions and analyzes their potential impact on commercial real estate in New England. Photo source: Mr. Stan Zemanek

by Lenny Pierce, Research Analyst

On February 4th, office supply chain Staples announced that they will be acquiring competitor Office Depot for $6.3 billion. The deal comes just over a year after Office Depot incorporated another office supply chain – Office Max in November of 2013. We reached out to our brokers here at CBRE New England to get their take on how this consolidation of the nation’s two largest office supply chains could affect commercial real estate in New England.

Sam Crossan, an office leasing broker for The Greater Boston Area’s Metro West market, says this acquisition will have a negligible immediate impact on Staples’ corporate headquarters at 500 Staples Drive in Framingham. “Considering Staples and Office Depot are direct competitors, a merger will result in organizational overlap,” Crossan said. “The acquisition will allow Staples to grow their market share, streamline their operations and increase efficiency, which at some level will result in restructuring their personnel. At this point, it isn’t clear where those cuts will be made, and whether there will be any impact on their Framingham office footprint.”

The impact on both Staples and Office Depot retail locations in New England is less clear. Kevin Higgins, a Senior Vice President/Principal of CBRE/Grossman Retail Advisors, LLC said that since some Staples locations are very close to Office Depot locations, Staples will need to consider which location to close on a case-by-case basis. “They will decide which location is best to keep open based on the rent and lease term, store size, condition of each store, co-tenancy, ingress/egress and where they are drawing customers from as one location may be more convenient to its customers than the other” Higgins said. According to Shopping Centers Today, the deal could mean the closure of 1,000 stores nationwide, since approximately half of all Office Depot stores are located within 5 miles of a Staples location.

Poto source: Lizsummers at English Wikipedia

Photo source: Lizsummers at English Wikipedia

All in all, Staples has about 1,300 US locations. Office Depot has 1,900 stores, but a portion of those are former Office Max locations which the company is still working to close.

Higgins noted that the notion of maximizing spatial efficiency has been a priority for Staples as of late. “Over the last few years, [Staples] has been rightsizing many of its stores, from 25,000 square feet to 15,000 square feet, either by downsizing in place or relocating. Office furniture used to be a big part of its business but it isn’t any longer, at least not in the stores where the furniture took up a lot of floor area. Now, people order it on line and it is shipped directly from the warehouse to their offices.”

Jeremy Grossman, Senior Vice President and Principal of CBRE/Grossman Retail Advisors, spoke to the ability of New England landlords to backfill the Office Depot and Staples space that will be opened up by consolidation efforts. “There are fewer retailers operating stores in their size range. This issue will force landlords to get creative with the space, subdividing or mothballing space to improve the chances for leasing” said Grossman. “Luckily, older leases will offer the landlord the opportunity to create additional value by achieving market rent from the replacement tenant(s), or at least cover leasing costs assuming a subdivision.” All in all, Grossman thinks the oncoming vacancies should be viewed as good news for growing retailers as the locations of said space are very competitive. “Both Staples and Office Depot did a nice job selecting quality locations in strong retail markets. Bringing new space to the market in such locations will be well-received by active retailers focused on growth.” Grossman identified fitness, traditional retail, and restaurants as retail types who would be great candidates for the spaces should they become subdivided, and larger tenants like Michaels, PetSmart, and entertainment concepts as options should the space remain intact.

This agreement comes 18 years after Staples’ first attempt to purchase Office Depot in 1997, a deal that was ultimately stopped by the Federal Trade Commission due to concerns over reducing competition in the office supply industry. Though this deal will still draw scrutiny from the FTC, Higgins feels that the modern conditions in the retail industry mean it has a much better chance of being approved. “Online shopping was not a factor at that time as it is now, which is favorable to the merger” said Higgins. “The consumer has many options when it comes to purchasing office supplies.” Staples is no stranger to the importance of an online retail presence. The company is currently the #3 internet retailer, behind only Apple and Amazon and since Office Depot was #9, the merger will only strengthen their internet presence.

For more updates on the Staples-Office Depot merger, including the final decision by the FTC, stayed tuned to CBRE New England’s M&A Watch by following us on Twitter at @CBRENewEngland.

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2015 Cambridge Market Outlook

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by Adam Brinch, Senior Vice President/Partner, Cambridge Brokerage Team

As usual, last year’s Cambridge statistics were a bit of a mixed bag with absorption being adversely affected by the big defections of CDM and Sonos, and vacancy staying relatively flat, hovering in the 6-7% range for both the office and lab markets.

However the two data points that kept commercial real estate investors happy this past year, asking rents and tenant demand, experienced staggering advances:

  • Office rents were up 35% and tenant demand was up 119% year-over-year
  • Lab rents were up slightly and tenant demand was up 108% year-over-year

 

To give some perspective, over the past 15 or so years since the early 2000 tech bubble began to rebuild itself, tenants and buildings fit nicely into one of four categories. On the office side, there were office tenants, meaning either a technology titan or new economy start up or service provider in the market to lease traditional space, or one of an existing inventory of office buildings in close proximity to MIT or Harvard or the T. On the lab side, there were lab tenants, meaning a major pharmaceutical company, or a young biotech, which was attracted to, and dependent on the market’s mature inventory of lab buildings–physically robust buildings with appropriate HVAC and MEP systems to support wet chemistry, biology and animal care experimentation.

In fact, the Cambridge market’s delineation of this sort of inventory and expertise in this type of real estate is one of the major reasons that both the high tech and life sciences industries have been so successful. Reflecting on the past year, and what the true market catalyst over the past 12 months was, the single theme that we kept coming back to was the border that began to blur between the historically rigid definitions of “lab” and “office”–bringing you the “la-BOFFICE”. We define it as a hybrid real estate deal where a lab tenant’s headcount growth, in departments ranging from regulatory to safety, HR to sales to data management­, all require strictly office space.

During the course of 2014, something really unique began to take shape as tenants and landlords began to ignore the way buildings were defined, and instead focused on the right real estate to support their businesses. What this broadly meant is lab landlords did office deals in their lab buildings and office landlords benefitted from lab tenants needing immediate growth space in their office buildings. Looking at the “la-BOFFICE” deals that have happened over the past year, some of the best-known pharmaceutical and hottest biotech companies transacted. The irony is that all of these were strictly office deals. Pfizer, Novartis, Biogen, Sanofi, Baxter, Infinity, Sarepta and others accounted for an astounding 550,000 RSF in transactional volume. In years past, most if not all of these companies would have grown proportionally in their need for both office and lab space. The blending together of these two types of real estate set off a chain reaction that rippled through all other aspects of the way the market acts and reacts.

With a majority of office growth coming from the life science industry, “la-BOFFICE” deals happening in both office building and lab buildings are putting upward pressure on rents in both types of buildings, while reducing available options for early and mid stage biotech tenants that need a traditional mix of lab and office space, but whose physical needs require them to be in a lab building. The scarcity and rising rents are causing landlords to re-think their tenancy strategy.

So the final chapter in our story begins to lay the groundwork for the year ahead, with fundamentals favoring office deals over lab and a few lingering thoughts on what sorts of buildings landlords with development projects in the pipeline will decide to build. Will it be pure office or lab-capable buildings with systems that can be upsized if the pendulum swings down the line? With Alexandria, MIT, HYM, and others controlling more than 5 million SF of development pipeline in East Cambridge, we will find out in the near future.

Office landlords are certainly looking forward to 2015, as tenant demand shows no sign of slowing down with 14 active requirements larger than 100,000 SF and a historical high of 4.5 million RSF of combined office and lab demand.

Greater Boston as a whole, and especially Cambridge, is still undervalued compared to other U.S. and global markets when you look at the absolute value of our intellectual capital, our educational network, our healthcare system and our dynamic cluster of new economy tenants.

The only problem, as my partner Greg Lucas is fond of saying with a smile, is “you can’t build dirt.” As tenants from around the globe pour into the market with an emphasis on being in Cambridge and homegrown companies continue their organic growth, the remaining vacancy will quickly be absorbed. The market is in desperate need of a relief valve, and rents will continue to climb. With the InterSystems and Microsoft leases rolling at One Mem, historical top tier office rents will undoubtedly be eclipsed.

For all these reasons, 2015 will be another happy year for landlords. For tenants, with mid-$40s rents, single digit availability and the now necessary live/work/play environment, Alewife is becoming as competitive as the other Cambridge submarkets and a severe lack of availability and rising rents could cause tenants to overstep the borders of the Cambridge city limits and consider suburban alternatives.

To view CBRE/New England’s 2015 Real Estate Outlook click here.

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