Looking at Boston today, it is hard to believe that not so many years ago it was one of the more depressed and run-down cities in the north east. It was the epitome of an older city which had lost its role.
Today, Boston bustles — the office market is good, the retailing is among the best in the country and the city is now arguably the hi-tech capital of the north east, boasting such well-known companies as Wang and Digital.
The city has seen an admirable turnaround in its fortunes, fuelled by a combination of public and private initiative. After years of gradual erosion of the city’s economy, the first signs of a reawakening came in the 1960s when serious efforts started to be made in stopping, and ultimately reversing, the rot.
For years the city had suffered decline, but efforts by the public sector in terms of investment and planning helped to attract private sector involvement and, from the mid-1970s on, the city has seen a steady revival of its fortunes.
So successful has this combination of efforts been that Boston succeeded, in 1984, in at last reversing the long-established decline in population.
One of the reasons for Boston’s decay, aside from wider economic factors, was the fact that the city administration in the first half of the century came into the hands of left-of-centre Democrats supported by the powerful Irish immigrant population.
The result was that the city was dominated for 35 years, up to 1949, by the colourful Mayor Curley, whose no doubt well-meaning but economically naive policies drove away the existing Boston financial hierarchy and ensured that nobody else was tempted to step in to take its place.
Because the politicians were, in effect, seeking to buy control of the city, Boston became a haven for tax-eaters rather than tax-payers, with the latter withdrawing from the scene in droves.
But the beginning of the 1950s saw the beginning of a new era for Boston, with the emergence of the so-called “New Boston” movement in politics.
“New Boston”, which won the backing of those with the financial clout in the city, was able in the 1950s to do the ground work on which Boston’s spectacular resurgence in the 1970s and 1980s was based.
A landmark was the setting up some 30 years ago of the Boston Redevelopment Authority, which was endowed with considerable powers to direct the spending of urban renewal funds to revive the city.
BRA (surely they could have come up with an acronym less likely to cause ribaldry in the cheap seats) is still a major force in the city. It is, in effect, the city planning authority, and all development projects go through the BRA mill.
One of BRA’s offspring is IPOD — Interim Planning Overlay District report — which, among other things, sets height limits on new developments downtown and on the waterfront and imposes stringent controls on what developers are allowed to do with landmark buildings.
One of the first schemes to go through the IPOD grinding wheels was the joint Investcorp/London & New York project at 64 Franklin Street, in the heart of the financial district.
All in all, says London & New York’s Lionel Kustow, it took some 15 months to obtain the blessing of the BRA under the IPOD guidelines.
However, he feels that the effort was worthwhile, since BRA now regards the submission for the Franklin Street redevelopment, with its sensitive height limitations and retained facades, as a model for future developers.
In this case, the time taken to clear the project with the planners was no great problem, since the developers will only secure vacant possession of the property next month. Debenham Tewson & Chinnocks acted in assembling the development partnership and acquiring the property.
Work is expected to start in September on the 100,000-sq ft development, with completion scheduled for the end of 1989 to shell-and-core finish.
Financing for the scheme, much of which will come through Investcorp’s Arabian Gulf subscribers, is being put together at present.
The project totals some 20,000 sq ft of retail space along with 80,000 sq ft of offices.
Initial thinking, says Lionel Kustow, is that the offices will be aimed at smaller users in the 5,000-sq ft to 20,000-sq ft range, although the overall size is such that they could attract a single tenant.
As for the retail space, there has been interest, but nothing is being done until the key office lettings have been agreed.
Lionel Kustow reckons that, if his calculations prove accurate, 64 Franklin Street will hit the market at just about the right time, with a bottleneck in new offices reaching the market in 1990.
Curiously, given the generally “back home” familiarity of the Boston property market in terms of planning, this is one of very few direct British property developments to have been planned in the city.
Having said that, Boston is not exactly new territory to London & New York, who have carried out a number of refurbishment schemes in and around the city.
Their first venture was at 955 Massachusetts Avenue in Cambridge, a 100,000-sq ft office building which they renovated and sold on.
Then came 20-24 Newbury Street, a prime retail location in the Back Bay district of Boston. This was a 23,000-sq ft office and retail renovation which again was sold on.
More recently came the retail building at 24 Winter Street, off the prime downtown Washington Street retail pitch. This is a 20,000-sq ft renovation which has been let on a triple net lease to the leading fashion chain Limited Stores. (Triple net is the closest US equivalent to an FRI lease.)
The property, one of the few examples of an Art Deco building in Boston, is being retained in L & NY’s portfolio.
L & NY will be opening an office in Boston in September, following in the footsteps of one of the few other British firms to carry out direct development in the city, Centros Properties.
Centros already have an office in the city, in one of their own projects, the restored turn-of-the-century building at 176 Federal Street.
The project was completed in spring 1987 and, although height restrictions applied, Centros were able to secure permission to add a double-cornice penthouse to the building. The result is that in a sense the building has, after a gap of nearly 90 years, finally been completed.
For, with the addition of the penthouse level, 176 Federal Street now displays the typical classical revival three-tier architecture of the period when it was first built. In the view of Ranne Warner, president of the US operations of Centros, the building now looks as it should originally have done.
In total, 176 Federal Street contains some 82,200 sq ft, of which 64,400 sq ft is offices and the balance retail units with frontages on Franklin, Purchase and High Streets.
The building is virtually fully let, with offices being taken by mainly smaller users in the legal, accounting and financial sectors. Office rents have averaged around $33 per sq ft, with tenant fit-out allowances and rent-free periods of two to six months depending on the structure of the lease.
Retail space has been taken up mainly by service tenants such as Avis, a camera and film-processing firm and a shoe-repair and dry-cleaning operator.
Among Centros’ earlier projects is the Westwood Business Centre on Route 128, the principal ring road around the city. This development, let mainly to sales and marketing tenants in the 2,000-sq ft to 20,000-sq ft size bracket, is fully leased at gross rents in the $21 to $23 per sq ft range.
An earlier development was the 173,000-sq ft Centros House at Framingham, on the Massachusetts Turnpike, completed in 1984 and fully leased to Prime Computer and Puma at rents in the $20 to $22 per sq ft bracket.
Currently, Centros’ holdings in and around Boston total some 500,000 sq ft, and their preference is to hold and maximise rather than to sell on investments.
Boston is also attracting the attention of London & Leeds whose US operations, headquartered in New York, are headed by Tony Grant.
Tony sees Boston as a logical location for the company’s next stage of expansion, thanks to its combination of a good mixed economy and tight development controls.
He has already appointed a local vice-president in an office in the city and there are several deals under negotiation at present. Initially, the likelihood is that London & Leeds’ first deal in Boston will be the acquisition of an existing building for improvement.
Already active in Boston is Pan American Properties, the New York-based real estate arm of British Coal’s pension fund, headed by Wendy Luscombe.
Pan American’s holdings are currently all in decentralised locations on R128, although Wendy says that she would look at downtown opportunities if the right product became available.
Among current holdings is a 90,000-sq ft office building at Burlington which was acquired on a forward commitment basis with a local developer some five years ago. The building is fully leased to a single tenant and a lease renewal is currently under negotiation.
Rents in the area are currently around $12 to $14 per sq ft.
Another project, carried out in partnership with the same developer and again acquired on a forward commitment via a convertible mortgage, is the Watermill Centre at Waltham, near the intersection of R128 and the Mass Pike.
This comprises some 210,000 sq ft of office space, fully leased at gross rents of $24/$25 per sq ft. Plans are currently being sorted out with the local authority for a further extension of the Watermill Centre which could add another 100,000 sq ft to the development.
Also on R128, Pan American own an 80,000-sq ft office/R & D building at Billerica (no, not a typing error). This was also acquired on a forward commitment some two years ago and is fully let on a triple net lease to a computer company.
Taking a more general look at the city, Jim O’Brien, of the local office of Coldwell Banker, points out that Boston is the fifth largest office centre in North America and the fourth largest in the USA.
What is more, vacancy levels are low by national standards, although relatively high by recent local standards.
Over the period from 1987 to 1990 Coldwell Banker estimate that some 10.4m sq ft of new space will reach the market in Boston, with the result that rents are likely to flatten during this year, although they can be expected to show growth again from 1989 onwards.
Currently, leases are being written at around $40 per sq ft and it is calculated that rental growth in the city has outperformed both inflation and the Dow Jones index over the past 17 years.
The tenant mix downtown is well diversified, although the leasing pattern during 1986-87 showed that law firms (21.4% of leases) and financial services firms (28.1%) dominated the market. Currently, there appears to be a decline in activity by the financial services sector, probably reflecting a loss of confidence following the events of last October.
Taking a brave look into the future, Coldwell Banker project the Boston of 2000 compared with the Boston of today and predict that the total downtown office stock will grow from a current 37.3m sq ft to 56.3m sq ft. Rents will advance from $40 gross ($30 net) per sq ft to $96 gross ($80 net).
Moving from projection to certainty (as far as anything can be certain), by 2000 two important projects ought to have been completed — the building of a third harbour tunnel and the removal underground of the hideously ugly elevated John F Fitzgerald Expressway.
What dreadful offence the unfortunate Mr Fitzgerald committed to warrant his name being linked to this noisy eyesore is not recorded. Its relocation underground can only be of benefit, since this will remove a visual and physical barrier between downtown Boston and the waterfront.
To what degree the removal of the elevated expressway will generate new development opportunities is debatable.
On the whole, it is unlikely that it will open up opportunities for any vast new projects, but it must create some new sites and should at the same time make some existing sites more attractive from the development point of view.
That, however, is all in the future.
Looking to the more immediate prospects, Coldwell Banker say that in their view the strongest investment activity during 1988 will be from US pension funds and Japanese investors chasing institutional grade properties in the $20m-plus price range. Supply in this sector is tight and prices can be expected to reach record highs.
Quality properties in the $10m to $20m bracket are tipped to attract strong demand from both institutions and professional real estate firms. However, the projection is that the supply of such investments is likely to show a slight increase, with the result that prices are expected to keep fairly level.
Looking at the financial district alone, George Lovejoy of Meredith & Grew (the Boston members of the Office Network) puts current vacancy at around 6.4%, although he adds that there is a bulge of supply coming along.
With about 4m sq ft being added to the market, financial district vacancy could rise to around 10% or 11%, but that is not seen as being any great problem and is in any case expected to fall back again by 1990-91.
Rents on the whole fall in the $35 to $45 per sq ft range at present, say Meredith & Grew, although they can reach as much as $60 in exceptional small top of the market suites.
The other main downtown market is in Back Bay — the Boston equivalent of London’s West End — which Meredith & Grew estimate has an even lower vacancy than the financial district. Vacancy in Back Bay, which lies to the west of Boston Common, is put as low as 3.6%, although some subletting space is reaching the market in established developments such as Copley Place on Huntington Avenue.
As far as submarkets are concerned, Norman Rourke Inc note that Cambridge is an important centre on the Charles River opposite Boston. Cambridge, says Norman Rourke’s Paul Stanislas, consists of three sectors.
There is East Cambridge, close to Harvard and MIT, which attracts a lot of hi-tech and computer tenants; Harvard itself as an office and retail location; and West Cambridge, which is close to the subway system and tends to attract straightforward office users.
Another important location, says Paul Stanislas, is the Fort Point Channel area to the east of the city centre. This is a previously rundown area of mainly warehouses, where Town & City have long had major holdings.
A lot of major schemes are planned for the Fort Point Channel area, which has already had the stimulus of the Boston World Trade Centre and will be further boosted by its role as the start point for a new tunnel under Boston Harbour.
Something around 6m sq ft of offices are planned for the Fort Point Channel area.
On the other side of the channel, on the edge of the financial district, South Station is being revamped to provide offices and a hotel. Most of the 120,000 sq ft of offices have been taken by Bechtel, who are to carry out the tunnelisation of the expressway.
Over on the north-western side of downtown there are plans for a redevelopment of North Station and Boston Garden stadium, although there have been problems here as a result of the disagreement between the city and state authorities over the rerouting of the railway tracks.
The development, when it does finally get built, will provide a new stadium, offices, a hotel and possibly some retail space.
Moving further out of the city, locations along the Route 128 ring road around Boston — once a focus for industrial activity — are now given over to business parks and hi-tech users, while the industrial users have moved further out to Route 495.
Looking at the overall Boston market, Julien J Studley’s Stephen Davis commented that the city began the year as one of the more balanced office markets in the USA, with its growth in recent years largely being internally generated in the downtown area.
The question was, he argued, whether that growth — coming, to a considerable extent, from the financial services sector — would be sustained in the aftermath of the events of last October.
Against that, he noted, the new inventory reaching the market was limited, so that a reasonable balance between demand and supply seemed likely.
However, Stephen Davis also pointed out another problem which could affect the central office market — traffic congestion.
Traffic is becoming more congested and the cost of parking has risen markedly. And while it is true that there are major plans in place to improve the highway and tunnel systems serving the city centre, these will be taking some 10 years to complete.
At the same time, argues Julien J Studley, house prices in the greater Boston area have shown among the highest increases in the north-east. This could have an impact on recruitment programmes and fuel a shift in traditional patterns of expansion in the area.
Looking at some of the deals involving UK interests, Norman Rourke note that they acquired 125 Tremont Street in downtown Boston, along with a suburban building in Belmont, for Allied Dunbar. The acquisition was a leaseback deal with the banking sector vendors.
The Belmont investment was subsequently sold to show a good profit, while the Tremont Street building could form part of a larger redevelopment scheme or be retained and extended upwards.
Out at Mansfield on R495, Norman Rourke acted for Speyhawk and a local investor in buying a building plus 5 acres of land, where they secured consent for another building which was then built and let.
Following that, another 2.5 acres was bought for a third building. Then came the purchase of another 8 acres and the securing of an option on yet a further 10 acres, with the eventual prospect of a development totalling some 1m sq ft with an office campus, retail space and a hotel.
Norman Rourke were also involved in the sale of 60 Franklin Street in the financial district to Princeton International, who were represented by the New York office of Knight Frank & Rutley. The vendors were the London Harness Co, one of the USA’s oldest retailers.
The deal on the recently refurbished 8,000-sq ft property was a sale and leaseback at a price in the region of $3m.
Close to their own offices in Boston, Coldwell Banker are currently marketing the Gunwyn Co’s new develoment of One Bowdoin Square (once 15 New Chardon Street). This is an extensive remodelling and extension of a formerly rather dull building in the administrative and legal area of downtown which will provide 130,000 sq ft on 11 floors and will be ready in April 1989.
On the other side of downtown, Coldwell Banker are also acting on the Wormwood Realty Trust/Stanhope Development Co project known as Fort Point Place. This is a scheme between Wormwood and Binford streets in the Fort Point Channel area involving the refurbishment of four old industrial buildings to create 330,000 sq ft of office space.
Completed towards the end of last year, Fort Point Place is now around a third leased at rents in the region of $20 per sq ft.
In International Place, which at 1.028m sq ft is the biggest building to be completed in the city since 1984, Meredith & Grew were agents for the law firm of Ropes & Gray, who took 210,000 sq ft.
Phase one of International Place is around 80% let or committed at average face rents of around $35 per sq ft, although these can be diluted by tenant incentives which, say Meredith & Grew, can amount to as much as $100 per sq ft with a combination of fit-out, rent-free periods, moving allowances and space planning services.
Meredith & Grew are also acting on the award-winning 150 and 160 Federal Street development, which is a mix of old and new.
Now known as The Landmark, 160 Federal Street is a building dating from 1930 which has been refurbished at a cost of some $60m to provide 363,000 sq ft of offices.
The other part of the scheme is the completely new 150 Federal Street, which totals 530,000 sq ft.
Meredith & Grew are themselves tenants in the complex, in which 160 Federal Street is over 90% leased, while no 150 is about half leased. There are only four buildings larger than 150 Federal Street reaching the market this year.
Biggest of all is the Beacon Group’s 75 State Street, a blocky, gilt-decorated scheme totalling 750,000 sq ft, of which about 100,000 sq ft has already been let.
Next is Gerald Hines’ major project at 500 Boylston Street in Back Bay, being developed with New England Life and the Dutch pension fund PGGM. The 631,000-sq ft first phase was fully let on completion at rents in the upper $30s per sq ft.
The other major scheme, now completed, is the 550,000-sq ft 101 Federal Street, some 25% leased.
One of Boston’s great strengths is the diversity of its economy — the office users are from all sectors, backed up by a strong element of hi-tech and similar users attracted by the region’s strong university background. There is also a good foundation in both the defence and biomedical sectors.
And in retail terms the city is a natural regional centre strongly backed up by its very powerful draw as a tourist centre and to what is seen as the birthplace of the American revolution.
So much so that it is claimed that more tourists visited the Faneuil Hall and Quincy Market historic retail and entertainment complex last year than visited Disney World.
