Boston Commercial Real Estate Development Boom Presents Opportunity and Due Diligence Considerations

Looking around Boston these days, it seems like wherever you go in the city, construction cranes are omnipresent. In fact, Boston is in the midst of an historic building boom. As of July, Boston had the ninth-most cranes of any city in the US, while housing permits were up 12% in 2017, compared to the previous year. From new dorms for the many Universities that adorn the city, to much-needed housing, retail, office and mixed-use centers, development is not only transforming the city’s skyline, but also attracting business, new residents, and future opportunities.

The most popular neighborhoods in Boston are undergoing exciting development with mixed-use construction. This includes the 1.1 million-square-foot Fenway Center, 1.26 million square feet of housing, offices and retail by the Back Bay Station, an ambitious 1.5 million square foot complex called The Hub by the old Boston Garden site, and a garage conversion into a new center called Bulfinch Crossing. Two new hotels, The Four Seasons and Omni Boston Seaport, will provide a boon to visitors, while thousands of new condos and apartments are springing up all over the city.

Some of the most rapid changes in Boston are happening in older, previously undeveloped or more industrial neighborhoods. Dudley Square is a storied commercial hub and transit center that is at the epicenter of Boston’s up-and-coming development scene. Several projects are planned in Dorchester and South Boston to anchor a rapidly changing area. Yet no neighborhood is more emblematic of the development boom transformation than the Seaport neighborhood. Launched in 2010 as the Boston Waterfront Innovation District, the original goal was to convert 1,000 acres of underdeveloped land on the South Boston waterfront into a work/live/play area and attraction for Boston’s robust biotechnology industry. Less than ten years later, the new neighborhood is a premier destination for tenants, has attracted startups and established companies (such as GE, PwC and Reebok), and is far from complete. Projects continue to develop at a dizzying pace, and the district now leads all of Boston in adsorption and rental pricing for Class A and Class B space.

Ultimately, the development is creating opportunities for businesses (large and small) to move into previously inaccessible locations in downtown/historic/financial district, particularly as additional office space becomes available in additionally rehabilitated neighborhoods. 60 State Street, for example, which used to be occupied by a large law firm, is now occupied by Berkshire Bank. This space wouldn’t have ever been accessible given the long-term leases of many of Boston’s historic neighborhoods. Indeed, three major companies, Living Proof, Burns & Levinson LLP and Analog Devices, have announced plans to move to newly developed spaces. GE, newly relocated to Boston, gave a sneak peek of its new headquarters campus. Boston, now considered the world’s biggest biotech hub, has experienced an explosion of new business growth, dubbed the “BioBoom.”  These growing opportunities from major companies are creating good jobs and a good economy, which will probably collectively fuel sustainable CRE growth in the future. It is also attracting foreign investment, large corporations, an influx of new residents, and expanding the footprint of where people live, shop, and work.

Some of the challenges developers face in the boom include lack of available land in some of the most popular neighborhoods, and slower changes in zoning and public infrastructure in certain areas. Because of this, developers are getting creative and relying on adaptive reuse to transform previously abandoned or historical sites into ambitious projects. Abandoned industrial parcels, particularly by the seaports and in South Boston, are being converted into apartments, condominiums, and other commercial spaces. Six major garage conversions on precious space are currently underway in Boston alone to add thousands of apartments, condos, hotel rooms and offices to the city. Historic buildings and neighborhoods are being preserved, while making way for sleek and modern dynamic destinations such as the rebranding of the new mixed-use development in Congress Square.

With such robust development and limitless opportunity (with seemingly no end in sight!) comes caution about protecting investments from liability and risks. Don’t assume anything about properties or land, particularly for older buildings or historically industrial areas. Careful physical building assessments and environmental due diligence will help determine any risks associated with asbestos, lead paint, industrial environmental concerns or any other potential remediation issues that might impact the property. These assessments are especially necessary for new developments on wetlands like the Back Bay or land that buttresses up against harbors, for evaluation of soil erosion or resiliency during catastrophic events. Zoning and feasibility studies will help navigate ever-changing neighborhoods and municipal requirements. As Boston looks ahead to stay prepared for ever-changing severe weather patterns and storms, the City has launched an ongoing initiative called Climate Ready Boston to reduce risk while improving the community. At the same time, the City has launched a Climate Action Plan with the goal of reducing greenhouse gas emissions by 25% by 2020 and becoming carbon neutral by 2050. To help meet these goals, developers and CRE stakeholders would be well advised to engage with knowledgeable consultants to ensure proper energy sustainability, benchmarking and building energy audits are performed for new properties.