A DEVELOPMENT STRATEGY AND EVALUATION:
CONSTITUTION AVENUE SITE IN CHARLESTOWN
by
C. David Carlson
Bachelor of Environmental Design
University of Minnesota
Minneapolis, Minnesota
1974
Bachelor of Architecture
University of Minnesota
Minneapolis, Minnesota
1977
SUBMITTED TO THE DEPARTMENT OF ARCHITECTURE
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF THE DEGREE
MASTER OF SCIENCE IN REAL ESTATE DEVELOPMENT AT THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
SEPTEMBER 1986
C. David Carlson
1986
The Author hereby grants to M.I.T.
permission to reproduce and to distribute publicly copies
of this thesis document in whole or in part.
Signature
of
the
Author
O.
davdCarlson
Department of Architecture
August 15, 1986
Certified by
James McKellar
Professor of Architecture and Planning
Thesis Supeyvisor
Accepted by
rec
.
ST.
SEP 0o5 l&a
Rotrwh
James McKellar
Chairman
Interdepartmental Degree Program
msT.
\ss.
in Real Estate Development
A DEVELOPMENT STRATEGY AND EVALUATION:
CONSTITUTION AVENUE SITE IN CHARLESTOWN
by
C. David Carlson
SUBMITTED TO THE DEPARTMENT OF ARCHITECTURE
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF THE DEGREE
MASTER OF SCIENCE IN REAL ESTATE DEVELOPMENT AT THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
ABSTRACT
The purpose of this thesis is to evaluate the
feasibility of the redevelopment of a waterfront site in
Charlestown. The site is the only remaining underdeveloped
waterfront site on Boston harbor between the Charlestown
Navy Yard and the Fan Piers in South Boston. Because the
site has been on the market for almost eighteen months, it
was suspected that the seller was asking more than the
property is worth. However, the owner recently signed a
creative agreement, to sell the property for an attractive
price to a prospective developer, provided the owner will
share some of the development risk.
The focus of the study is to first understand the
potential risks and rewards inherent in the redevelopment.
Next, it evaluates the risks and their effect on the
seller's interests. Finally, it suggests strategies the
seller may use to manage the risks and protect his
interests.
The conclusion drawn from this study is that many deal
structures are not as simple as the may first appear. The
motivations of each participant may be vastly different from
the other. In addition, the analysis demonstrates that it
is unlikely this development will proceed according to the
prospective developer's plan, and opportunities will arise
to renegotiate the initial agreement. Therefore, the
management of that ongoing relationship will be as important
as the initial deal structure.
Thesis Supervisor:
Title:
James McKellar
Chairman, Interdepartmental Degree Program
in Real Estate Development
TABLE OF CONTENTS
Introduction..............................................4
Chapter One
The Potential Development............................8
Urban Design Issues
Social and Political Forces
Government Regulatory Agencies
Regional and Local Markets
Timing
Chapter Two
Preliminary Development Physical Organization.......35
Chapter Three
Preliminary Development Cost Analysis...............41
Hard Costs
Soft Costs
Chapter Four
Proposed Development Schedule........................45
The Proposed Schedule
Alternative Schedules
Chapter Five
Economic and Financial Analysis.. ...........
Basic Development Economics
Financial Risk Analysis
...
Chapter Six
Recommendations..................
50
68
Notes................................. ...........
Attachments....... ....................
The Harborpark Plan
Harborpark Zoning (IPOD's)
Intergovernmental Coordination
..
......
73
.................. 75
INTRODUCTION
"When Rapids Furiniture Co. moved out of its 90 Canal
Street headquarters after doing business there for 70 years,
it represented another step in the changing nature of the
North Station area.
The neighborhood had long been
dominated by the furniture industry, and the move by Rapids,
the last of the major furniture outlets, was the end of an
era.
In the past five years the area has been gaining
strength as one of the city's newest office centers." 1
The decline of the North End furniture businesses also
directly affected other properties in nearby communities
such as Wharf Number 3 in nearby Charlestown.
Wharf Number 3 and its buildings have long been used by
the Rapids Furniture Company as a warehouse for storing
furniture and as a distribution base. The decline in the
North End furniture industry and the close of Rapids
showroom greatly reduced this property's value as a
furniture warehouse.
At the same time, the Boston real
estate market experienced dramatic expansionary moves
providing enormous opportunities and profits for land owners
surrounding the rapidly expanding downtown financial
district.
In addition, recent redevelopment efforts have
taken place in the Charlestown Navy Yard, expansion of the
National Historic Park at Constitution Wharf, and an
enormous volume of housing redevelopment has occured in
Charlestown itself.
This situation convinced the owners of
Wharf Number 3 that perhaps furniture warehousing may not be
the highest and best use for their property and they might
realize substantial gain by selling this property to someone
with real estate development experience.
Consequently, the
property was listed with the firm of Peter Elliot and
Company, an established Boston real estate broker with
extensive experience in commercial and industrial property.
The property remained on the market considerably longer
than most observers envisioned.
It has been suggested that
perhaps the asking price of 2.5 million dollars was a bit
high, or that either the Boston Redevelopment Authority or
Massachusetts regulatory agencies impose development
restrictions that limit what can be built and make
redevelopment of the property too risky for most developers
to consider purchacing the property. Further, it was
suggested that perhaps the owner was unwilling to structure
the sale in such a manner so as to share in some of the
risks inherent in Boston's lengthy approval process.
This
speculation has recently ended when it was announced that a
developer has signed an agreement with the property owner to
purchace the property in two years for 4.5 million dollars.
It is now assumed that the developer is willing to
pay more than 2.5 million for the
property because he has
time, two years, to complete government agency review and
approval processes before closing on the property, therby
reducing his exposure and risk.
It is also assumed that the
seller is willing to wait for two years before realizing
substantial gain from the property, because at that time he
will receive considerably more money.
In fact, the
increased sale price represents an anualized return on the
seller's $2,500,000 investment of almost 35%.
It may appear that this arrangement has a number of
potential advantages to both buyer and seller.
However, the
situation is not as simple as it appears and the advantages
will not be realized without significant risk to the seller.
For example, the buyer may simply interested in realizing
appreciation in a rapidly inflaying real estate market with
alot of speculation by selling his agreement, rather than
developing the site.
Or, he may
tie up the property for two
years only to discover that his proposed development is not
allowed, that it is allowed but doesn't generate as much
value as projected, that market forces will not support
proposed uses at the assumed rates, or that unforseen
construction or infrastructure costs have excceded
expectations.
At this point he will be in a very favorable
barganning position to re-negotiate the sales price and terms
in a way which benefits him and certainly not the seller.
If
he cannot sell his option or renegotiate the deal to his
satisfaction, he may walk away from the deal leaving only his
small deposit.
This paper examines the various risks and rewards
inherent in this deal structure, indicates measures the
seller should take to understand and manage these risks,
protect his interests, and under what conditions he should
consider using the contingencies, built into his agreement
with the buyer, to terminate the agreement and renegotiate
with another potential developer.
CHAPTER ONE
THE POTENTIAL DEVELOPMENT
It is important, to both the buyer and seller of the
Wharf Number 3 property, that the development proposal
presented to the appropriate public agencies is indeed the
highest and best use of the site.
In order to understand
what is the best use, it will be necessary to examine the
proposed development from a number of different points of
view.
For example, an urban design point of view will show
us how the site fits in to the surrounding environment and
how surrounding uses, amenities and nusances will affect the
development uses and location of those uses within the
site.
Second, an understanding of the
social and political
structure of the community will help us understand the
concerns of the neighbors and the
influence the development.
power they have to
Third, an examination of the
appropriate government regulatory agencies controls and
powers will
show us how they control the development uses
and development schedule.
Fourth, regional and local market
forces will have a great deal of affect on the uses
scheduled for the development and the proportions of those
uses.
Finally, an understanding of how these forces are
expected to change, over time, is essential in selecting the
most appropriate uses for a development that cannot be
completed for a number of years.
URBAN DESIGN ISSUES
From an urban design point of view, The site has the
potential to be extremely well located. See Exhibit 1,
Wharf Number 3 Location.
It lies immediately adjacent to
the Charlestown bridge, directly in the path of all
pedestrian traffic between downtown Boston and the new
housing development in Charlestown,
the Charlestown Navy
Yard redevelopment and the National historic Park at
Constitution Wharf.
EXHIBIT 1
WHARF NUMBER 3 LOCATION
On a typical week day, more than 1,000 people walk by
the site on their way to and from work and, according to the
Boston Globe Extra Index, an additional 1,000 tourists visit
the nearby Constitution Wharf.
On weekends, an estimated
5,000 tourists visit Charlestown and Constitution Wharf each
day.
As the present renovation and construction activity in
Charlestown and at the Charlestown Navy yard continues, the
population in these areas will continue to increase,
exposing the site to even more pedestrian traffic.
The site is also located in a position that is readily
visible from the Charlestown bridge, Boston's north end and
Boston harbor.
By the same token there are excellent views
of the Boston Harbor from the south and east sides of the
site which overlook the Constitution Wharf Marina.
Unfortunately, the buildings that occupy space on Wharf
Number 3 are of recent, utilitarian, concrete block
warehouse design, and contribute little to the historic
nature of the site.
Thus, the most appropriate building
form may be new construction that echos the character and
environment of Charlestown, yet provides for the functional
requirements of today's uses.
11
EXHIBIT 2
WHARF NUMBER 3 SURROUNDINGS
Because the site's present use, warehousing, makes
little use of this pedestrian traffic and these amenities,
access to the site is not pleasant. At present,
access
consists primarily of service roads more suitable to heavy
trucks than to pedestrians.
However, according to Jim
English, Director of Design and Development: Boston
Harborpark, the Harborpark plan will require development of
amenable pedestrian access along the waterfront through this
site. 2
In addition, the state highway construction project,
beginning in late 1986, will depress the existing overhead
expressway shadowing nearby City Square, and is expected to
be completed by 1991.
This highway construction will open
City Square to extensive redevelopment, creating a
comfortable and friendly approach to Charlestown and Wharf
Number 3.
Also, plans for expanding the Boston harbor
water ferry network will make the site more attractive and
accessable.
Ferries will dock at nearby Constitution Wharf
and will go to the north shore, Logan Airport, the financial
district, the Fan Pier development, South Boston and the
south shore.
SOCIAL AND POLITICAL FORCES
The social and political forces in the community
surrounding Wharf Number 3 are undergoing enormous change.
"Charlestown was recognized as a good residential area at
the turn of the century, but between 1930 and 1980 the
population declined to only 50% of its former level.
This
decline in population was largly due to encroachment of
industry and unsightly transportation facilities. (the
elevated "T")." 3
"By 1963, a six room house in
Charlestown would sell for only $4,000 and a townhouse
mansion on Monument Square would sell for $12,000.
That
year, the BRA developed urban renewal plans to help blight
by building new parks, schools, removing the elevated "T",
and building new subsidized housing in the worst parts of
town."
4
Recent economic growth of Boston's financial and service
businesses have fueled residential redevelopment and
associated gentrification in many of the historic
communities surrounding the downtown financial district
including Charlestown.
Thus, the number of new residents in
Charlestown appear to outnumber the existing former
residents.
This rapid change has created an understandable
concern by the present residents about any further change.
This concern has not, at least yet, been directed
14
toward potential development at Wharf Number 3.
Because the
site is on the waterfront, separated from the rest of
Charlestown by active Constitution Avenue, the elevated
expressways, and the deserted City Square, it has been
overlooked in many of the Charlestown planning studies and
by many of the neighborhood groups.
However, once the
overhead expressways are depressed, Wharf Number 3 will
become an important element of the City Square redevelopment, and will present a visitor who crosses the
bridge into Charlestown with his first impression of the
city.
One political or community force that does express
interest in the site is the group led by Father David
Murphy, pastor of St. Peter and Paul's/St. Vincent Church.
His group is interested in maintaining waterfront locations
for traditional water related industries, therby maintaining
water related employment opportunities in Boston. This group
has the expressed public support of Mayor Flynn, who has long
standing ties and commitments to the South Boston maritime
industry.
Even though the present warehouse use of Wharf
Number 3 does not take advantage of its waterfront location,
and employs no people who's job could be classified as water
related, these groups may be interested in maintaining the
present waterfront industrial zoning out of principle.
This
group has had a great deal of influence on the Harborpark
land use guidelines and on proposed development of other
Charlestown waterfront properties such as the Revere Sugar
plant redevelopment, and the Pier-4 and Fan Pier
developments in South Boston.
Therefore a strategy for
for incorporating and dealing with their concerns must be
included in any development proposal for this site.
GOVERNMENT REGULATORY AGENCIES
Government regulatory agencies are another story.
There are almost fifty different city, state and federal
agencies that must review an approve development along the
Boston waterfront. These include the Boston Redevelopment
Authority (BRA), the Civic Advisory Committee, the
Massachusetts Environmental Policy Act (MEPA), Chapter 91
(the Tidelands Licensing Statute), The Executive office of
Transportation and Construction, the Office of Coastal Zone
Management and the state Inter-Agency Coordinating
Committee.
In additon, permits are required from the US
Army Corps of Engineers, the US Fish and Wildlife Agency,
the Bureau of National Marine Fisheries, the US
Environmental Protection Agency,
the State Department of
Environmental Quality Engineering and Executive Office of
Environmental Affairs, the City Conservation Commission and
the Boston Harbormaster.
Recently, the Boston Harborpark overlay district was
created to provide unified design control and guidelines for
16
all development along the water's edge.
In October of 1984,
the BRA established interm planning zones to prevent
unwanted development in these areas. The zones create
overlay districts (IPOD's), suspend existing zoning, exclude
certain uses, and force developers to obtain case-by-case
approvals.
The BRA has
attempted to streamline the
approval processes for development within this district. 5
According to Stephen Coyle, BRA Director, "Permits should be
concurent, not consecutive."
Further, he says "Everybody
has the right to do their review, but there should be a
limited number of evidentiary hearings."6
Even in its
streamlined form, the approval process for a development on
this site is expected, by Jim English, to take at least
eighteen months.
The site's zoning, at present, is W-2 or Waterfront
Industrial.
Representatives of the BRA have indicated that
redevelopment of the site for other uses will simply require
rezoning.
set out in
However, the
BRA's development restrictions, as
the Harborpark planning documents, for this site
are quite specific.
than two stories.
First, new buildings cannot be higher
However, Jim English indicated that in
other similar developments the requirement had been ammended
to allow "buildings no higher than surrounding buildings." 7
At this site, the nearest buildings are the Barretts
building and the Hoosac Pier building, both aproximately 45
feet high.
Second, parking for the site's uses must be developed
within the site.
The exact number of required spaces
however, is unclear and may be the product of some
negotiation.
Most likely, one space will be required for
each condominium unit and two spaces for each 1,000 sf of
commercial space.
Third, as part of the Harborpark overlay district, open
and unrestricted public access to the waterfront side of the
development must be provided according to the Harborpark
guidelines.
In addition, continuous pedestrian access must
be provided across this site connecting the Charlestown
bridge pedestrian walkway to the Harborwalk system now under
construction
at Hoosac Pier, Constitution Wharf and The
Charlestown Navy Yard.
Finally, the Harborpark planning documents say that in
the Charlestown Waterfront area, "no structure other than
those which facilitate public access and recreation, or
which are necessary for water-dependent and maritime uses,
should be built at the water's edge."8
It was indicated by
BRA officials that on this particular site, a great number
of uses may be considered to facilitate public access and
recreation, while in other more industrial areas, specific
guidelines may be enforced more strongly.
Based on this potential zoning, and assuming Charles
River Avenue can be vacated within the site limits, the
developable area on the site is as indicated on the
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EXHIBIT 4
POTENTIAL SITE DEVELOPMENT FLOOR AREAS
FOR BOTH HOUSING AND COMMERCIAL DEVELOPMENT
TOTAL
SITE
76,000 sf
AREA
Developable site area
Harborwalk site area
53,000 sf
23,000 sf
Maximum Gross building area
(assume 5 floors)
265,000 sf
HOUSING DEVELOPMENT (if developed only as housing)
Parking area:
200 cars * 350 sf
(Housing at 1 space/ 1000 sf)
Gross saleable or rentable area
70,000 sf
195,000 sf
T OTAL
265,000 sf
COMMERCIAL DEVELOPMENT (if developed only as commercial)
Parking area:
350 cars * 350 sf
(commercial at 2 spaces/ 1000sf)
112,000 sf
Gross saleable or rentable area
153,000 sf
TOTAL
265,000 sf
REGIONAL AND LOCAL MARKET FORCES
Regional and local market forces will have a dramatic
influence on both the mix of uses developed on this site and
the profitability of those uses.
It is understood that the
buyer of the site intends to develop the site largely as
housing.
One must ask the question that if the site has the
opportunity to be intensely used by pedestrian traffic,
should not the mix of uses be more directed toward uses that
benefit from high levels of pedestrian traffic, great
visability and harbor views.
On the other hand, there appears to be an extreme
shortage of housing in the Boston area.
That shortage of
supply is creating a demand that is driving local housing
prices to the highest of any city in the nation. At todays
sales prices, the returns to the land from intensive
development of housing appears to approach, and even exceed,
returns from traditionally more high paying commercial uses.
In addition, the apparent high demand for housing within
easy walking distance from the financial district may reduce
the traditionally high marketing risks associated with the
development of
housing.
Therefore, it may make good
economic sense to redevelop this site, which otherwise may
be more appropriate for commercial uses, principally as
housing.
21
LOCAL HOUSING MARKETS
In order to better understand the Boston housing
market, and determine if housing is the most appropriate use
for this site, therby creating enough value to justify the
stated purchase price, a unit pricing strategy and
absorbtion rate must be assumed. To do this we must look at
the local supply and demand for waterfront housing. "Brokers
state that it is this market (young professionals) and the
empty nester and divorced persons which has created the
great demand for condominiums in this area.
From 1969 to
1983, 1,022 condominium units were established .... through
conversion of rental property, rehabilitation of existing
buildings and some new construction." 9
A number of
waterfront housing developments have been built,
and it may
be useful to look at how quickly they have been absorbed and
at what price.
The following table, Exhibit 5, lists average sale and
resale prices for Lewis Wharf, Union Wharf, The Mariner, and
Harbor Towers.
The sources of information include interviews
with waterfront brokers, two waterfront developers and sale
histories of the developments over the last three years.
EXHIBIT 5
AVERAGE SALE AND RESALE PRICES OF BOSTON WATERFRONT HOUSING
EXISTING DEVELOPMENT
year
units
Lewis Wharf
1977
84
Union Wharf
1977/79
59/27
The Mariner
1985-86
84
Harbor Towers
*
price/sf
resale/sf
295
302
75*
266
365
--
150-200
Prices for unfinished "loft space" units
PROPOSED DEVELOPMENT
year
units
price/sf
Lincoln Wharf
86-87
44
300
Rowes Wharf
87-88
100
450
Fan Pier/Pier 4
88-98
1500
San Marco
86-87
192
250-275
Units will be sold
at cost to North
end residents
Based on the prices for existing residential
waterfront developments averaging around $250/sf, proposed
waterfront developments averaging
about $325/sf, new
Charlestown condominium development at about $200/sf and
Monument Square condominiums at
$250/sf, an average sale
price of $250/sf may be assumed for the Wharf Number 3
development.
There is however, some concern, expressed by
real estate brokers that sites such as Wharf Number 3, with
the potential for high levels of tourist pedestrian traffic,
are not as desirable for housing as more private and
isolated locations.
The same brokers also suggested that
the Rowes Wharf development will not reach its expected
sales potential because of the high levels of pedestrian
traffic on the waterfront, at nearby Quincy Market, and from
the ferry terminals.
In addition to the negative impact of pedestrian
traffic on this site, other factors may reduce the value of
residential units.
For example, even though there exists,
at present, a tremendous demand for housing in downtown, a
number of factors may change over the course of this
project's development, reducing that demand.
Much housing
is now under development and construction. According to the
Federal Home Loan Bank Board, the pace of new Massachusetts
housing construction is at its highest in seventeen years
and may set a new record by the end of 1986.10
During the first half of 1986, permits were issued in
the city of Boston for construction of more than 2,300 new
housing units.
This is nearly double the rate of new
Boston housing construction in 1985 and is expected to set
record levels for 1986.
This rate of increase in the supply
of housing exceeds the household growth rate and will have a
net affect of reducing demand.
Further, the present high
level of housing demand has forced the city of Boston and
the state of Massachusetts to create new programs that
encourage housing construction through simplification of the
approval process.
In addition, many new Boston area
construction and development firms have been recently formed
to fill the demand for housing.
It is unlikely they will
quit building until the supply is increased enough to reduce
demand and prices to the point where housing construction is
no longer economical.
It is therefore expected that these present high levels
of Boston area housing construction will continue
satisfying any increases in demand, and softening the
present strong housing market.
Accordingly, $200/sf may be
a more conservative estimate of 1989 housing values at this
location.
Even at a "conservative" $200/sf, the $180,000 sale
price of a 900 sf condominium in this development will be
well beyond the means of the average two or three person
household within the Boston SMSA.
Assuming a 10%, 30 year
mortgage, the average two person household with an anual
income of $30,600 qualifies for slightly less than a
$100,000 loan.
Therefore a lender will require this buyer
to contribute more than $80,000 in downpayment to purchase a
unit.
If a potential buyer has only $25,000 for
25
downpayment, he will need to have an anual income of almost
50,000.
While this is significantly above the average
Boston SMSA two person household income, there still exists
a large pool of potential buyers in this income range.
If
however, mortgage interest rates rise to 13% during the
course of this development, the buyer with a $25,000
downpayment will have to earn slightly more than $60,000 per
year to qualify. The pool of Boston home buyers with incomes
greater than $60,000 is considerably smaller and unit
absorbtion rates will most likely be slower.
Thus, the
market for these units is extremely interest rate sensitive.
In addition to the pricing of the units, it is
important to better understand the rate at which they might
sell and what factors can influence that rate.
Exhibit 6
indicates absorbtion rates realized in other Boston
waterfront developments. 12
EXHIBIT 6
HISTORIC ABSORBTION RATES FOR BOSTON WATERFRONT DEVELOPMENT
Development
presale
period
sale
period
total
units
absorp.
units/mo
Lewis Wharf
12
8
84
4.7
Union Wharf
Phase One
9
12
59
2.8
0
27
2.3
Union Wharf
Phase Two
12
Based on these absorbtion rates, averaging about 3.5
units per month it is assumed that a well priced, well
marketed development on Wharf Number 3 will sell as least as
well as these other developments.
Therefore, we can assume a
conservative sales rate of 3.5 units/month.
After taking into consideration the pricing information
discussed earlier in this chapter, it is important to note
that a strong
absorbtion rate is dependent on the units
being priced below the bulk of other waterfront projects
expected be on the market at the same time, such as the Pier
4 and Fan Pier condominiums.
This will ensure few
waterfront substitutes exist and the largest number of
potential buyers in the development's price range.
Therefore, demand for these units may be less price elastic
than the higher priced "luxury" units with a smaller
potential pool of buyers and many housing substitutes.
RETAIL MARKETS
It is assumed that the retail or commercial portion of
this development will play a less significant economic roll
than the residential portion.
Nevertheless, an
understanding of the waterfront commercial market will be
helpful in ensuring the correct mix of uses for the site.
27
Retail space within the Pier 4 and Fan Pier development
is expected to come on line at about the same time as the
Wharf Number 3 development, and is expected to net more than
$45/sf.
This number appears somewhat high in light of
exclusive Quincy Market retail space renting today for the
mid 30s, according to Mary Ann Gilligan Rose, Manager of
Tenant Services, Faneuil Hall Marketplace.13
The rents in
Faneuil Hall and Quincy Market also include percentage rent
plus a healthy $30/sf "extra charge", typical of festival
market places, in addition to the mid 30s base rent.
(at a
typical suburban mall these extra charges amount to about
$7 or $8/sf)
"In
general," said Mary Ann Gilligan Rose,
"total rent should be about 10% of the retailer's gross
sales." 1
Based on this information, the expected high
level of tourist and pedestrian traffic,
it is assumed that
retail space on Wharf Number 3 will net about $30/sf.
However, due to the un-proven location, it may be
necessary to invite retailers with low base rents and expect
to realize the full rent in percentage of sales. Retail and
commercial rents at this location are extremely difficult to
predict, but as the economic analysis in Chapter Five
demonstrates, variability in retail rents achieved will not
greatly influence the expected returns, due to the low
retail space inclusion ratio.
TIMING
Even more important than today's demand, will be the
demand
in three or four year when this project is finally
ready to be occupied.
Therefore, a thorough understanding
of both the proposed development schedule and opportunities
that exist for flexibility
in that schedule is essencial in
evaluating the probability that the buyer will indeed be
able to pay the stated price.
For example, changing demographics, particularly the
large number of people in their mid thirties entering the
family formation and child rearing years, may make urban
housing somewhat less attractive than other alternatives.
Also, proposed changes in the federal income tax laws may
make condominiums less attractive to investors.
In
addition, if the demand is perceived to be slipping, many
investors who are currently buying urban condominium
properties for the expected appreciation may select other
investment alternatives, further reducing the demand for
housing. The market influencing power of these investor
buyers is not to be underestimated.
According to Mayor
Flynn's policy director, Neil Sullivan, "the study by the
mayor's office of 1984-85 condominium sales showed that 75%
of converted (condominium) units in Boston were sold to
investors." 1 5
Further, Bob Van Meter, legeslative director
29
of the Massachusetts Tenants Organization, says "a study he
conducted in April, 1985 showed that investors held well
over half the condominium market, especially in areas such
as the Fenway, Allston and Brighton." 1 6
There is some evidence that due to the changing tax
laws this may already be occuring.
According to the Boston
Globe, "Adding to the gloom of condominium converters and
investors are increasing indications that the housing market
in Boston has crested, which would mean an end to the fastpaced appreciation of recent years." 1 7
By the same token, current demand for office and retail
space is somewhat less dramatic than the housing demand, and
accordingly, developers are building fewer new office and
retail facilities along the waterfront than are building
expensive condominium projects.
years,
Therefore, in three or four
demand for retail or office space may dictate that a
greater portion of the development be dedicated to those
uses.
Regional economic health, currently strong due to
expansion of the service businesses, law, banking etc, and
the high technology and defense related industries, may
change, therby reducing the ability of some Boston area
companies and people to continue their present pattern of
increasing the quality and quantity of space they consume.
If the present trend changes, due to a change in political
30
administration or other macro-economic forces, demand for
all uses will be reduced and some uses will be more
sensitive than others.
In addition to demand and supply, other physical or
social changes, over time, can affect the proposed
development.
For example, the Massachusetts State Highway
Department's plans to depress the existing overhead
expressways at Charlestown's City Square will have a
dramatic impact on the marketability of this project.
Exhibit 7 illustrates the present expressway configuration
over Charlestown's City Square as it relates to Wharf Number
3, and Exhibit 8 illustrates the proposed expressway
configuration.
The expressway construction is expected to take place
over a five year period, starting in 1986 and completing in
1991.
At the time of completion, six parcels of land
surrounding the new City Square will be turned over to the
BRA and developers will be invited to submit redevelopment
proposals for those sites.
Accordingly, the ultimate
character of those sites will have a large influence on the
value of the Wharf Number 3 development.
31
EXHIBIT 7
EXISTING OVERHEAD EXPRESSWAY CONFIGURATION AT CITY SQUARE
\
~
/
N
\
\
/
//
/
I
\Y/
32
t.
-
1 V~-1\co/
14,Y/
EXHIBIT 8
PROPOSED EXPRESSWAY CONFIGURATION AT CITY SQUARE
\
/N\//
//
&vV(6-
)/)h
All this construction and change will affect the Wharf
Number 3 site in two ways.
First, during the construction
period, access to the site by both pedestrians and
automobiles will be extremely difficult.
construction
Thus, both
and marketing of finished space may be very
difficult until the highway construction is complete.
Second, the final configuration of surface streets and
development parcels surrounding City Square is not yet
determined, and may go through several evolutions before the
final character can be established.
This means that the
quality of ultimate finished access to this site cannot yet
be determined.
Further, it means that future City Square
developments may either compliment or compete with Wharf
Number 3 uses.
Therefore, a developer of this site must
start immediately to understand the potential character of
future neighboring uses and to lobby for the most positive
"front door" possible.
Also there is political support, at present, for
inclusionary zoning that will require condominium developers
to make a percentage of their units available and affordable
to low or moderate income families.
Mayor Flynn supports
this movement and, if it is incorporated in zoning rules,
will have a serious affect on the profitability of the
development.
34
CHAPTER TWO
PRELIMINARY DEVELOPMENT PHYSICAL ORGANIZATION
In order to thoroughly evaluate whether or not
redevelopment of the Wharf Number 3 property will generate
sufficient value to cover development costs and leave a
residual value to the land that will justify its sales price,
it is important to examine more specifically the optimum
organization of site uses.
The following diagrams define a
physical development that attempts to take best advantage of
the urban design, social and political, government agency
regulatory, market forces, and timing issues discussed above.
35
EXHIBIT 9
SITE ORGANIZATION PLAN
36
EXHIBIT 10
SITE ORGANIZATION CROSS SECTION
48Units
48 Units
48 Units
26 Units
Retail
Harborwalk
Site
Section
EXHIBIT 11
DEVELOPMENT PROGRAM
Housing
170,000 sf
(170 units at 900 sf = 153,000sf net)
Designated parking for housing
(170 spaces at 350 sf/space)
60,000 sf
Retail/Commercial space
20, 000 sf
Public parking
(outdoor unstructured)
(40 spaces at 350 sf/space)
15,000 sf
Public Harborwalk area
(25 X 550)
13,750 sf
37
Incorporated in this preliminary design are a number of
important features.
The public Harborwalk access can be
provided along the water side of the Wharf, connecting the
Charlestown bridge on the west side of Wharf Number 3 to
continuing pedestrian activities at Hoosac Pier,
Constitution Wharf and the Charlestown Navy Yard on the
Wharf's east side.
Immediately adjacient to this walkway is
located all the commercial activity within the development.
It is hoped that this walkway and commercial activity will
be attractive enough to "pull pedestrians off the
Charlestown Bridge and through this development on their way
home to Charlestown or the Navy Yard.
Immediately behind this commercial activity is the
required parking and service activities with ready access
along Charles River Avenue to Constitution Avenue.
On the
second level will be residential units located on the east
side of the Wharf with views of Boston harbor, and
residential parking on the west side adjacent to Charles
River Avenue and the Charlestown Bridge.
On the upper
floors will be additional residential units with views
toward the east and Boston harbor as well as toward the
west, over the Charlestown bridge toward the Charles River.
It is likely that the upper units with harbor and downtown
views will sell at a significant premium above the $200/sf
average, and that lower units with Charlestown bridge views
will sell at a discount.
The extreme south end of the Wharf appears to be a good
location for a restuarant.
A well designed restaurant in
this location, with fair weather expansion potential for
outdoor seating and
excellent views of the Boston skyline
and Boston harbor, will give the development a unique
identity and special character.
This unique character has the potential to aid the
marketing of condominium units provided the concerns for
privacy expressed in the local housing markets section of
Chapter One are addressed.
therefore,
Of critical importance
is maintaining the perception of separation
between residential units and retail or commercial activity.
If commercial activity and public walkways are limited to
the first or wharf level, this space will be accessable and
attractive to pedestrian traffic.
By placing the
residential units above the commercial activity, public
walkways, service traffic and parking, and by emphasizing
privacy and security in the unit construction and design, a
number of the concerns about living close to public retail
activity can be addressed.
It is important that balconies and outdoor spaces be
designed with privacy in mind, and that views from the units
be directed toward distant amenities but shielded from
nearby tourist activity.
Additionally, lobbys must be
39
designed to provide private, dignified and secure access to
the private residential portion of the development.
Also,
the construction must be of a type that reduces noise
transmssion from the public level retail spaces to the
housing.
Accordingly, the insulation, windows and doors
must be selected with privacy and sound control as primary
criteria.
CHAPTER THREE
PRELIMINARY DEVELOPMENT COST ANALYSIS
An evaluation of the various hard and soft costs
involved in the development of the Wharf Number 3 site is
most important at this stage, and yet very difficult to do
without a more specific idea of the exact uses and building
design.
Further, it is assumed that the exact mix of uses
and density of the development may change before
construction is started and during the course of development
to take advantage of changes in market conditions,
regulatory modifications, or community concerns.
Therefore
it is important to develop a model for these costs that can
be easly modified to represent different mixes of uses for
future economic analysis.
HARD COSTS
An estimate of the hard costs associated with the Wharf
Number 3 development, previously described in Chapter Two,
Preliminary Development Physical Organization, are
in the following table.
included
These costs are inflated to 1988
dollars based on a three per cent per year inflation rate.
Infrastructure costs, costs for utilities, streets, wharf
repair, etc, are based on recent BRA Harborpark planning
41
guide estimates.
In addition, wharf repair estimates are
based on conversations with Maurice Freedman P.E. of Sasaki
Associates Inc.19 Site costs represent only those costs
associated with the surfaces required by the BRA on the
public Harborwalk portion of the site.
Costs for
construction of housing units, commercial and office space
were taken from recent development proposals within the
nearby Charlestown Navy Yard.
In general, if there existed a
difference of opinion about a particular cost, the higher
cost was used.
Therefore these cost estimates may be
somewhat conservative.
EXHIBIT 12
UNIT PRICE ASSUMPTIONS AND DEVELOPMENT HARD COSTS
UNIT PRICES
Site (Landscape)
Infrastructure
Demolition
Housing
Retail
Parking
DEVELOPMENT HARD COSTS
7/sf
allow.
allow.
70/sf
45/sf
25/sf
Site Costs
$161,000
Infrastructure $1,100,000
Demolition
$500,000
Housing
$11,000,000
Retail
$900,000
Parking
$1,847,000
$16,486,000
Contingency 5%
HARD COSTS
$824,000
$17,310,000
A number of risks are associated with these hard cost
assumptions and should be monitored during the course of the
development.
For example, the wharf itself may require
significant repair, the BRA may require significant
public walkway improvements site or infrastructure costs
may exceed the estimate, or the architectural design of the
buildings may not fall within the expected price ranges.
Also, micro-economic conditions in the local construction
industry, such as strikes and material or labor shortages
may drive prices up.
Finally, macro-economic construction
industry trends affecting costs
of materials such as steel
and lumber may increase or decrease the cost of building the
development.
SOFT COSTS
An evaluation of the soft costs associated with the
development is equally important,
particularly in a
complicated and heavly regulated project that may take as
long as four years to complete.
The following table of soft
cost values is based on soft costs included in recent
developer's proposals for other mixed use developments within
the nearby Charlestown Navy Yard.20
Construction loan
interest costs are calculated based on a 10 % interest rate
and a unit sales rate of 3.5 units per month.
Construction
loan interest is a large expense and will have a large
influence on the profitability of the development.
43
Therefore
variations in this amount due to changing interest or
absorbtion rates are addressed in the financial risk analysis
portion of Chapter Five.
EXHIBIT 13
DEVELOPMENT SOFT COSTS
Architecture and
Engineering
% of hard costs
Developer's fee
% of total cost
Marketing
% of sales
Real Estate Taxes
Charlestown Contrib.
Legal and Accounting
Fees and Permits
$824,300
5%
$1,000,000
3%
$1,580,000
5%
$633,333
$100,000
$200,000
$100,000
$4,437,633
Contingency 5%
$221,882
TOTAL SOFT COSTS
$4,659,525
HARD COSTS
SOFT COSTS
INTEREST EXPENSE
LAND COST
$17,310,000
$4,659,525
$3,762,686
$4,500,000
TOTAL PROJECT COST
$30,232,211
CHAPTER FOUR
PROPOSED DEVELOPMENT SCHEDULE
Based on the present understanding, the developer of
Wharf Number 3 plans to gain all necessary approvals and do
necessary preparation during 1986 and 1987, purchase the
property in 1988 and begin construction immediately.
If he
proceeds on this schedule, he will be able to complete the
construction in mid-1989 and complete selling out his units
by 1992. Exhibit 14 illustrates a preliminary schedule for
this assumed plan.
EXHIBIT 14
PRELIMINARY DEVELOPMENT SCHEDULE "A"
Schedule
"A"
assumes
construction
purchase
beginning
'
SCHEDULE
PROJECTED SEQUENCE OF
Market
Research
Approval
site
1908
198?
XXXXXXXXXX
xx
Financing
XX
XX
XX
1989
XX
XX
1991
XXXXXXXXXXXXXXXXXXX
xxxxxxx
XX
Construction
XXXXXXXXXXXXXXXXXXXXX
Residential
1990
XX
Purchase Property
Sell
and
XXXXXXXXXXXXXXXXXXXXX
Rrch./Engineering
Space
1988
XXXXXXXXXXXXXXXXXXXXXXXX
Process
Lease Retail
in
EVENTS
1986
Program
Establish
of
immediately.
XX
XX
XXXXXX
XX
XX
XX
45
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXx
1992
Based on the BRA's estimate of an eighteen month
approval process for a development on this site, it is
necessary
that the developer complete initial market and
feasibility studies by early 1987.
Then, during the
approval process further architectural development,
community relations financing and cost control work can be
accomplished so that, once the land is purchased in mid1988, construction can immediately begin.
The construction
period is expected to extend for aproximately eighteen
months with units ready to occupy in early 1990. This
construction period is a little longer than one might
usually expect for a development of this size.
The longer
construction period includes delays resulting from potential
site accessability problems and the BRA Harborpark
requirments for continued public pedestrian access across
the property.
On the other hand, nearby pedestrian traffic
while construction is in progress,
will help to pre-sell
residential units and pre-lease the retail space.
It is
assumed that the 170 residential units will continue to be
sold, at the conservative rate of aproximately 3.5 per
month, through the end of 1991.
It may however, be in the developer's best interest to
change this schedule.
Accordingly, the seller should be
aware of, and prepare for, such an occurance.
For example,
due to the uncertianty and limited access during the highway
construction associated with depression of the overhead
46
expressway at nearby City Square, the developer may feel it
is in his best interest to delay starting construction.
He
may wait until the outcome is more certain and access to his
site for both construction and residential unit buyers is
secure. This may simplify the construction process, reduce
construction costs and ensure that the retail space and
residential units are marketable when they are complete and
ready for occupancy. This will mean closing on the property
in 1988, performing
market research, approval, and design
work in 1989 and 1990, once the final City Square character
can be better determined.
Then construction can be started
in late 1990, putting new residential units on the market at
the same time the new City Square is complete, but before any
of the redevelopment occurs on the six parcels surrounding
the square to compete with Wharf Number 3 units.
An
illustration of this revised schedule is included below in
Exhibit 15.
EXHIBIT 15
PRELIMINARY DEVELOPMENT SCHEDULE "B"
Schedule "B" assumes purchasing site in 1988 and delaying
construction start until 1990.
SCHEDULE 'I"
PROJECTED
SEQUENCE
OF EVENTS
1986
Establish Program
Market
Research
198g
1989
1990
1992
1993
XX XX XX XX XX XX XXXXXXXXXXXMXXXMXXXXXXXX
Arch./Engineering
XX XX XX XX XX XX XXXXXXXXXXXXXXXXXXXXXXXXX
XX
XXXXXXXX
Purchase Property
XXXXXXX
XX
Construction
XXXXXXXXXXXXXXXXXXXXX
Lease Retail Space
XX XX XXXXXX
Sell Residential
Expressway Const n
1991
XXXXXXXXXXXXXX XX XX XX XX XX XX XX XX XX
Approval Process
Financing
198?
XXXXXXXXXXXX XX XX
XX XX XX XXXXXXXXXXXXXXXXXXXXXXXXJXijQ(
00000000000000000000000000000000000000000000000000000
0000000000
While Schedule "B" may make more sense from a
construction and marketing point of view, it has some
negative aspects.
For example, the market for housing and
commercial space can change dramatically during 1988 and
1989, making alot of the market research and architectural
design and government approval work obsolete and out of date
by 1990 when construction is due to start.
In addition, a
substantial amount of money will be expended quite early in
the project, during 1987 and 1988, for research, design, and
particularly for the property, only to accrue interest
expense during 1989 and 1990.
As we shall see in Chapter Five: Economic and Financial
Analysis,
these holding costs are not insignificant and
directly affect the profitability of the development.
Therefore, an astute or shrewd developer may attempt to delay
the majority of his market research, government agency
approval, and architectural design work as long as possible
and stall the property purchase until he is ready to begin
This strategy will reduce his risk by
construction in 1990.
delaying his expenses as long as possible, and still bring
retail space and residential units on the market at the best
time.
In addition, it postpones his true decision point
until 1990, a time when he has a better idea of market
Exhibit 16 illustrates this potential schedule.
conditions.
EXHIBIT 16
PRELIMINARY DEVELOPMENT SCHEDULE "C"
Schedule "C" assumes delaying the site purchase and
construction start until 1990.
SCHEOULE"C'
OF EVENTS
SEQUENCE
PROJECTED
1986
Establish Progran
Market
R.rearch
Approval
Construction
Lease Retail Space
Sell Residential
Espressway Const'n
XX
XX
XX
XXXX XX XX XX
1991
1992
1993
XXXXXXXXXXXXXXXXXXXXX
Arch.iEngineering
Purchase Property
1990
1989
1988
XX
XXXXXXXXXXXXXXXXXXXX
Process
Financing
1987
XX
XX
XXXXXX
XX
XXXXXXXXXXXXXXXXXX
XX XX XXXXXX
XX XX XX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
0000000000000000000000000000000000000000000000000000000000000000000000
CHAPTER FIVE
ECONOMIC AND FINANCIAL ANALYSIS
Based on a land price of 4.5 million dollars and the
potential of constructing 170 condominium units, the
property is selling for $26,500 per unit.
This represents
less than 15% of the $180,000 unit sales price and, by
traditional rules of thumb, is a reasonable sales price.
However, there are a number of factors unique to this
specific development that require a more complex analysis of
the project economics before predicting a successful
development.
DEVELOPMENT ECONOMICS
Based on the following income and expense pro forma,
Exhibit 17, the development of Wharf Number 3 as assumed in
Schedule "A" provides an IRR of 18% and a Net Present Value
at 15% of $926,555, in an all equity development, before debt
service or tax considerations.
These return measures appear
to be sufficient to justify pruchase of the property and
preceeding with the development.
However, there is not a lot
of room within these returns for the developer to share the
profit with limited partners.
These returns are, of course, based on a number of
50
assumptions.
For example, it is assumed that all the soft
costs are equal during each of the first four years of the
Since these include costs that will be
development process.
expended later, rather that earlier, this averaging
Also construction costs are
convention is conservative.
simply assumed to be equal during both of the two years in
which construction occurs, rather than a more accurate, but
less conservative, " back end loading" of these costs. In
the same way, proceeds from the sale of residential units
are simply assumed to be evenly distributed over the three
While the favorable
year post construction sale period.
returns that result from these conservative assumptions
appear to justify proceeding with the project, there exist a
number of risks associated with the development.
EXHIBIT 17
INCOME AND EXPENSE PRO FORMA (SCHEDULE "A")
Schedule "A" assumes the site is purchased in 1988 and
construction begins immediately.
SCHEDULE 'A'
OPERATING PRO FORMA
1986
23
....
S3;22222222
EXPENSES
soft costs
Hard costs
Land cost
RealEstate Taxes
and opexp
($825,349)
($825,349)
.
2.
.2.
($825,349)
($825,349)
($9,067,3001 ($9,067,300)
($4,500,000)
($100,000)
INCOME
Retail rent (net)
Unit sales (less coaissions)
Cash Flow
($825,349)
IRR
NPV1 151
sus
181
$926,555
$10,904,003
.
.
.
($100,000)
.
.
.
.
3
(1100,000)
$570,000
$5,700,000
$470,000
$5,700,000
$570,000
$570,000
$570,000
$9,753,333
$9,753,333
$330,684
$10,223,333
$10,223,333
51
.
($100,000)
$9,753,333
($825,349) ($14,392,649)
1993
1992
1991
1990
1989
1988
1987
.
These risks may have a direct affect on the developer's
ability to produce a successful
seller's sale price.
development and pay the
For example, the approval process may
not go as smoothly as planned, resulting in substantial
program modifications, an extended time period required for
gaining approval or complete denial of the development.
Second, the costs of construction may greatly exceed
preliminary estimates, reducing the feasibility of the
project.
Of even more importance, the preliminary program or
expected markets for retail and housing on this site may
change, reducing the sale or rental price achievable or
increasing the time required to market the project.
The
following table, Exhibit 18, indicates the effect variations
in average residential sale price per sf, and average retail
rent per sf can
have on the IRR.
Given that all other
assumptions are accurate, the retail rent/sf can drop to
15/sf and the average residential sale price can drop to
175/sf, and the IRR only drops to 12%.
If however, retail
rent of 35/sf and residential sales of 275/sf are
achievable, the IRR can be as high as 44%. Based on this
analysis, it is understood that housing prices are more
important than retail rents in determining the ultimate
feasibility of the project, and in determining the
developer's ability to pay for the property.
EXHIBIT 18
IRR AS A FACTOR OF RETAIL RENT/SF AND HOUSING SALES PRICE/SF
RETRIL RENT / SF
10
UNIT SALES/SF
100
125
150
175
200
225
250
275
300
325
350
161
52z
582
20
15
-iU
-6x
22
10E
1?
25%
32z
391
-A
-3%
I2
121
19M
26a
33%
4ON
4?x
531
592
-
25
2
-11
71
12
21x
282
341
41
2.
a%
152
222
291
362
422
491
481
541
602
552
612
30
35
-32
71
102
172
24x
302
372
43.
6x
12x
18
252
312
382
4
412
491
562
622
50
561
622
While these projections of potential return from
developing the Wharf Number 3 property appear to indicate
the buyer should not have a problem proceeding with the
project and paying the seller, he may, for reasons
discussed earlier in Chapter Four, decide to delay starting
construction until 1990.
Exhibits 19 and 20 illustrate
income and expenses for developments described in Schedules
"B"
and "C" respectively.
Pursuing the course of action
described in Schedule "B" generates significantly lower
returns than those derived by building immediately.
The
developer who desires to delay construction beyond 1988 or
1989 may not find the development feasible unless he can
renegotiate the sale price or delay expenses as indicated in
Schedule "C".
On the other hand, while this delay helps the
developer, it results in the equivalent of a $1,097,000
lower sale price to the seller , on a 15% discounted basis.
EXHIBIT 19
INCOME AND EXPENSE PRO FORMA (SCHEDULE B)
Schedule "B" assumes purchase of the site in 1988 and
delaying construction start until 1990.
SCHEDULE '8*
OPERATING PRO FORMA
1986
EXPENSES
soft costs
Hard costs
Land cost
RealEstate Taxes
andop exp
($550,233)
1987
1988
($550,233)
($550,233)
1989
($550,233)
1992
1991
1990
1993
($550,233)
($550,233)
($9,067,300) ($9,067,300)
($4,500,000)
($100,000)
($100,000)
INCOME
Retail rent (net)
Unit sales (less comeissions)
$570,000
$9,753,333
$5,700,000
$10,223,333
$15,453,333
$570,000
$9,753,333
$9,753,333
manazaazzxszxacuxn*zzuzzax2zuxznxazazczznxzzxsmz===Zzzzizszz=zzzzzz=z==zxxxzzzzzxzzcxanxz=aaunuszaxazu2nz=zzsznxx
Cash Flow
($550,233)
IRR
NPY 1 15Z
suN
141
($154,383)
($550,233) ($5,050,233)
($550,233) ($9,617,533)
$605,801
$9,964,003
EXHIBIT 20
INCOME AND EXPENSE PRO FORMA (SCHEDULE C)
Schedule "C" assumes delaying site purchace and start of
construction until 1990.
SCHEDULE "C'
OPERATING PRO FORMA
1986
Zzma
mm xan2232z2azx.EEE33323Ema2.E
1987
1988
1989
1990
EXPENSES
soft costs
Hard costs
Land cost
RealEstate Taxes
and op exp
($825,349)
($825,349)
($825,349)
($825,349)
($9,067,300) ($9,067,300)
($4,500,000)
($100,000)
INCOME
Retail rent (net)
Unit sales (less cossissions)
Cash Flow
IRR
NPV I 15Z
sun
so
19Z
$867,749
$9,964,003
1991
23mc~asszzxz2=22=2jmzuzzxxzammxzzxsmamma323EEEEEEEEEE.BRREREz3E3E33sRERxmEER.E
$0
($825,349)
($825,349) ($14,392,649)
1992
1993
M.2($825,349)
($100,000)
$570,000
$9,753,333
$570,000
$9,753,333
$5,700,000
$9,753,333
$330,684
$10,223,333
$15,453,333
FINANCIAL RISK ANALYSIS
In addition to examaning the basic economics of this
development, it is necessary to look at a more complex,
leveraged development plan, and at the effect leverage will
have on the expected returns and associated land value.
This more realistic development model will enable us to
understand the affect variations in absorbtion rates will
have on holding costs and expected returns.
It will also
help us understand the interest rate risk and equity
requirements under our three different schedule assumptions.
The following income and expense proforma, Exhibit 21,
models development of the site with
a construction loan and
a permanent or take out loan for the retail portion of the
development.
According to this leveraged analysis, the
development yealds an IRR of 27% and an NPV at 15% of
$926,555.
These leveraged returns include enough profit to
split with potential limited partners and appear to justify
proceeding with the development.
55
EXHIBIT 21
LEVERAGED PRO FORMA (SCHEDULE
"A")
Schedule "A" assumes purchase of the site in 1988 and
beginning construction immediately.
SCHEDULE 'A'
OPERATING PRO FORMA
WITH LEVERAGE
1986
1987
1991
1992
($100,000)
($100,000)
($100,000)
$9,892,649
$1,168,651
$1,706,684
($12,033,333) ($9,753,333)
$4,560,000
$310,183
($3,412,016)
($456,000)
($456,000)
1989
1988
1990
1993
EXPENSES
soft costs
Hard costs
Land cost
RealEstate Taxes
and op exp
($825,349)
($825,349)
LEVERAGE
Construction Loan
Draw
Interest (accrued)
Repayment
Permanent Loan
($825,349)
($825,349)
($9,067,300) ($9,067,300)
($4,500,000)
($100,000)
$11,543,348
$577,167
($228,000)
Interest
Repayment
($100,000)
($456,00
($4,560,000)
INCOME
Retail rent (net)
Unit sales (less commissions)
Cash Flow
($825,349)
IRR
NPV 1 151
271
$1,177,435
sum
$4,989,317
($825,349)
($2,849,302)
$570,000
$570,000
$9,753,333
$570,000
$9,753,333
$9,753,333
$2,522,000
$14,000
$6,355,317
$570,000
$5,700,000
$14,000
$584,000
This pro forma assumes construction loan and permanent
loan interest of 10%. It also assumes
loan repays
that the construction
soft costs expended during the two years prior
to the construction loan closing.
It also assumes that the
construction loan does not "finance out" the site costs.
Construction loan interest accrues until cash flow is
available.
at that time,
all cash flow from unit sales and
one half the proceeds from retail space refinancing goes to
repay the construction loan.
Based on this schedule, total construction draw equals
about 25.6 million dollars or about 70% of the development's
market value.
Most lenders will find this an acceptable
ratio of loan-to-value.
In addition, it assumes net retail
rents of 27/sf (net of commissions) and condominium unit
sales of 190/sf net of 5% sales expenses.
assumptions,
Based on these
the development requires 4.5 million dollars
in equity over the first three years, equal to the site
costs since the soft costs are repayed to the developer from
construction loan proceeds.
While it appears that leverage improves the returns and
limits the equity requirements, this is not true if the
development proceeds more slowly as discussed earlier in
Chapter Four. According to Schedule "B", as indicated in the
Exhibit 22 pro forma, if the construction is not started
until 1990, the development requires more than 6.7 million
dollars in equity over the first four years and delivers
only an IRR of 15%.
The higher equity requirement covers
soft costs expended during the first few years that would
not be recoverable from construction loan proceeds because
they were spent so early on in the process.
While this is
considerably less equity required than the unleveraged
development plan presented in the economic analysis of
Schedule "B", it represents little additional return for the
risks incured with leverage.
EXHIBIT 22
LEVERAGED PRO FORMA
(SCHEDULE
"B")
Schedule "B" assumes that the site is purchased in 1988 but
costruction is postponed until 1990.
SCHEDULE '8'
OPERATING PRO FORMA
WITH LEVERAGE
1986
EXPENSES
soft costs
Hard costs
Land cost
RealEstate Taxes
and opexp
($550,233)
1987
($550,233)
1988
1989
($550,233)
($550,233)
1990
1991
1992
1993
($550,233)
($550,233)
($9,067,300) ($9,067,300)
($4,500,000)
($100,000)
LEVERAGE
Construction Loan
Draw
Interest (accrued)
Repayment
Permanent Loan
Interest
Repayment
$10,717,998
$535,900
($100,000)
($100,000)
$9,617,533
$1,044,436
$1,606,266
$173,547
($12,033,333) ($9,753,333) ($1,909,014)
$4,560,000
($228,000)
($456,000)
($456,000)
($4,560,000)
INCOME
Retail rent (net)
Unit sales (less commissions)
$570,000
$9,753,333
$570,000
$9,753,333
$5,700,000
$9,753,333
anazzzz=====ZZZKRNZZZZZZZ==ZZZZ=r--Zu=szzczzczzzzzzrzzzz=zzz2szz=czzzzzzzzzzzzzzman2azzmazzzxczsxzzzzzzzzzzczzzau
Cash Flow
IRR
NPV 1 151
sun
($550,233)
($550,233) ($5,050,233)
($550,233)
$1,100,466
$2,522,000
$14,000
$8,428,319
14Z
($131,774)
$5,363,854
On the other hand, if the developer can delay the land
purchase until 1990 as indicated on Schedule "C" in Chapter
Four, he will experience much better returns.
58
As indicated
in Exhibit 23, this delay in land purchase will not only
reduce the developer's risk and reduce equity required to
4.5 million dollars, but will increase the expected returns
to an IRR of 28%.
EXHIBIT 23
LEVERAGED PRO FORMA (SCHEDULE
"C")
Schedule "C" assumes that both the site purchase and
construction start are postponed until 1990.
SCHEDULE
'C'
OPERATING PRO FORMA
WITH LEVERASE
1986
333333z33333333z
1987
1988
1989
EXPENSES
soft costs
Hard costs
Land cost
RealEstate Taxes
and op exp
1990
.
33333333333333333333333333333333
($825,349)
($825,349)
1991
1993
($825,349)
($825,349)
($9,067,300) ($9,067,300)
($100,0001
$1,706,684
($12,033,333)
$4,560,000
($228,000)
$570,000
$9,753,333
a 1333333333333S33383333333333333333333:3*3333333333333z3
$0
$0
($825,349)
($100,000)
($100,000)
$1,168,651
$310,183
($3,412,016)
$9,892,649
$11,543,348
$577,167
INCOME
Retail rent (net)
Unit sales (lass commissions)
IRR
NPV 8 151
suB
1992
.3333333333333
($4,500,000)
LEVERAGE
Construction Loan
Draw
Interest (accrued)
Repayaent
Permanent Loan
Interest
Repayment
Cash Flow
.
.32.
($9,753,333)
($456,000)
$570,000
$9,753,333
33333333333333mxs am
($825,349) ($2,849,302)
$2,522,000
($456,000)
($4,560,000)
$5,700,000
$9,753,333
zX
$14,000
$6,925,317
281
$928, 309
$4,961, 317
While, according to these models, at least Schedules
"A" and "C", the development appears feasible, it is
difficult to precisely predict many factors that will
influence the outcome of a development completed in 1991 or
1993.
For example, Exhibit 24 indicates the effect
variations in achievable condominium sales price per square
foot will have on the development's IRR for each of the
three projected schedule alternatives.
Based on this
analysis the development does not meet the assumed financial
requirements of a 15% IRR if schedule "A" or "C" is
followed, unless units are sold for at least 190/sf.
If
schedule "B" is followed, the average unit sales price must
be at least 210/sf.
EXHIBIT 24
IRR AS A FACTOR OF UNIT PRICE PER SQUARE FOOT
DATA TABLE
IRR ASAFACTOR
OF UNIT SALES
PRICE PERSQUARE
FOOT
IRR
AS A FACTI
OF UNIT PRICK PER 2F
SALES
IRR
IRR
IRR
PRICE SCHEDULE 'A' SCHEDULE "B" SCHEDULE "C"
LEVERAGED
LEVERAGED
PER SF
LEVERAGED
150
160
170
180
190
101
101
101
13%
24Z
-12
-1%
0z
61
11%
111
111
112
14%
251
210
220
230
240
250
38Z
441
49%
53%
572
181
211
231
25%
281
39Z
45%
497
54%
571
160
14
190MEDUL
60
170
A
160
+
200
210
LNIT PRICE
190
PER SF
OMEDULE
2
0
0
20
240
EULE
C
In addition to unpredictability in sales prices, the
projected absorbtion rate of 3.5 units sold per month may
not be accurate.
Exhibit 25 indicates the affect
variations in achieved absorbtion rates will have on both
IRR and NPV at the threshold value of 15% for each of the
three schedule alternatives.
According to this table,
absorbtion can be as low as two units per month under
schedules "A" and "C" and still achieve the desired returns.
This means that it can take as long as seven years to sell
all 170 units and still have a feasible development.
Under
schedule "B" however, 3.5 units per month is the lowest
absorbtion rate that will still return a 15% IRR, selling
the development out in less than four years (one year presale and three year post construction sale period).
EXHIBIT 25
IRR AND NPV @15%
AS A FACTOR OF THE RATE OF UNIT SALES PER MONTH
IRR
DATA TABLE
IRR AS A FACTOR OF THE RATE OF UNIT SALES PER MONTH
AS A FACTOR OF UNM SALES rER
mO
..
IRR
IRR
IRR
UNIT SALES SCHEDULE "A" SCHEDULE '8" SCHEDULE "C'
LEVERAGED
LEVERAGED
PER MONTH
LEVERAGED
2a
4.9
4.5
4.2
3.8
391
38%
361
341
18%
171
16%
16Z
401
381
37%
351
3.1
2.8
2.4
2.1
30Z
27%
241
211
14%
13%
11%
10%
311
282
25Z
221
2A4
20
2.1
-3
SCHMULE "A"
2.4
2.5
3.1
4
.3"6
-ra
UNIT SALES PER MONTH
SCHEDULu 16-
4.2
0
4.5
SCHEMULE
A-*
"'c
DATA TABLE
NPV 1 15%AS A FACTOR OF THE RATE OF UNIT SALES PER MONTH
NPV a 15Z
NPV # 151
NPV @ 15Z
'C"
'B" SCHEDULE
'A SCHEDULE
UNIT SALESSCHEDULE
LEVERASED
LEVERAGED
LEVERAGED
PER MONTH
=3sz22E323 z22z33E3u:33E2uzm3RE:zz223U3232z3z3z32
4.9
4.5
4.2
3.8
$2,091,848
$503,389
$1,619,736
$1,900,041
$371,952
$236,298
$1,474,703
$1,325,142
$1,170,984
3.1
2.8
2.4
2.1
$1,072,016
$849,344
$1,702,247
$1,498,373
$620,218
$384,543
$96,361
($196,623)
($349,803)
($507,530)
($669,872)
$848,596
$680,225
$506,973
$328,768
Exhibit 26 indicates variations in
the total
construction loan interest paid under the three development
schedules given variations in the rate of unit sales per
month.
This carrying cost is a considerable expense, even
at an interest rate of only 10%, exceeding the cost of the
site in all but the
most optimistic sales projections.
EXHIBIT 26
CONSTRUCTION LOAN INTEREST
AS A FACTOR OF UNIT SALES PER MONTH
DATA TABLE
TOTAL CONSTRUCTION LOAN INTEREST AS A FACTOR OFUNIT SALES PER MONTH
INTEREST
INTEREST
INTEREST
UNIT SALESSCHEDULE
*A' SCHEDULE
'" SCHEDULE
"C'
PER MONTH
LEVERAGED
LEVERAGED
LEVERAGED
4.9
4.5
4.2
3.8
$2,382,894
$2,826,555
$3,284,065
$3,755,637
$2,152,471
$2,554,539
$2,969,508
$3,397,578
$2,382,894
$2,826,555
$3,284,065
$3,755,637
3.1
2.8
2.4
2.1
$4,741,828
$5,256,881
$5,786,863
$6.331.995
$4,293,824
$4,762,405
$5,244,896
$5.741.504
$4,741,828
$5,256,881
$5,786,863
$6.31.995
In addition to understanding how the interest or
holding cost influences the expected returns, it is important
to understand at what point the total construction loan draw
will exceed the lender's ability to advance money, and will
require an infusion of equity to avoid forclosure.
Exhibit
27 indicates the variability in the total construction loan
draw and in the loan-to-value ratio for absorbtion rates
varying between two and five units per month.
The loan-to-
value ratio is calculated based on condominiums priced at
$200/sf and the retail space valued at a 10% cap rate.
Based
on this analysis, unit sales rates will have to exceed two
units per month to avoid reaching a lender's 80% cap on loanto-value.
EXHIBIT 27
TOTAL CONSTRUCTION LOAN DRAW AND LOAN-TO-VALUE RATIO
AS A FACTOR OF UNIT SALES PER MONTH
TOTAL LOAN DRAW
As A FACTcR OF UNIT SALES PER MONTM
-
DRAW
DRAM
DRAW
"C"
'8" SCHEDULE
'A" SCHEDULE
UNIT SALESSCHEDULE
j
PERMONTH LEVERAGEDLEVERAGEDLEVERAGED
=====
==
ss~au
4.9
4.5
4.2
3.8
$23,818,891.
3.1
2.8
2.4
$26,177,825
2.1
$27,767,991
$24,262,551
$24,720,061
$25,191,633
$26,692,878
$27,222,860
:S:===::::
-
2
=======
$22,488,002
$22,890,070
$23,305,039
$23,733,109
$23,818,891
$24,262,551
$24,720,061
$25,191,633
$24,629,355
$25,097,936
$25,580,428
$26,077,036
$26,177,825
$26,692,878
S27,222,860
$27,767,991
-
24
,
2.1
3
2.4
2.a
5.1
SCHEDULE"A'
4
5
52
4.2
UNIT SALES PER MONTH
SCHEDULE -'
*
4!
SCHeDUIE
4.9
-C-
LOAN TO VALUE
AS A FACTCa OF UNrr SALES PER MOnrH
7 750
LOAN/VALUE
LOAN/VALUE
LOAN/VALUE
UNIT SALES SCHEDULE 'A' SCHEDULE '8" SCHEDULE 'C'
PER MONTH
LEVERAGED
LEVERAGED
LEVERAGED
ffzz
z
3
==
U
SS53z~uauzzz~
4.9
4.5
4.2
65%
66%
681
62%
632
641
651
661
68
3.8
69%
65%
691
3.1
2.8
2.4
2.1
72%
73%
75%
76%
67%
691
70%
711
72%
73%
75%
76%
84
as
2.1
O
SCMHEDULE "A"
2.4
2.n
5.1
4
UNIT SALES PER MONTH
SCHEDUL E
M
H
42
*
A.5
A-9
SCHMULE "C"
While the unit absorbtion rate may vary, the
construction loan interest rate may also vary, influencing
the total construction loan draw and the loan-to-value ratio.
Exhibit 28 explores this relationship and indicates that,
given all other asumptions, an interest rate of more than 15%
will create an infeasible project or threaten a development
under construction with forclosure.
In addition, an increase
in interest rates will either increase the buyer's
downpayment requirement or the minimum income required to
qualify for a mortgage, therby reducing the number of people
qualified to buy units.
This reduction in the size of the
development's market will reduce the rate at which units
sell, and together with increased holding costs have a
compound affect on threatening the development's success.
Therefore interest rate sensitivity may actually exceed that
indicated in this table and must be closely monitored at
each step in the development process.
EXHIBIT 28
TOTAL CONSTRUCTION LOAN DRAW AND LOAN-TO-VALUE RATIO
AS A FACTOR OF CONSTRUCTION LOAN INTEREST RATE
TOTAL DRAW
AS A FACTOR~ OF iIISTEIffT RATK
DRAW
DRAW
DRAW
INTEREST SCHEDULE
A SCHEDULE
'8" SCHEDULE
'C'
RATE LEVERAGEDLEVERAGEDLEVERAGED
28
27-
6% $23,994,707
71 $24,443,882
8% $24,906,991
91 $25,384,248
$22,647,294
$23,054,498
$23,474,684
$23,908,050
$23,994,707
$24,443,882
$24,906,991
$25,384,248
111 $26,382,069
12 $26,903,067
131 $27,439,082
14% $27,990,335
15% $28,557,048
$24,815,131
$26,382,069
$26,903,067
$27,439,082
$27,990,335
$28,557,048
$25,289,252
$25,777,365
$26,279,678
$26,796,397
26
2
.
2A
4
25-
22
0
eHEMULE
"A-
4
4WRIscrFATE
SCMEULE "9K
*
:ECHIEULE "C"
LOAN TO VALUE
AS A FACTOR OF 1?TrEREST RATE
LOAN/VALUE
LOAN/VALUE
LOAN/VALUE
"C'
'9" SCHEDULE
'A' SCHEDULE
SCHEDULE
INTEREST
RATE
LEVERAGED
LEVERAGED
LEVERAGED
6%
7%
8%
9%
66Z
671
601
70%
621
63%
64%
667,
66%
67%
68%
701
68%
69%
71%
72%
73%
721%
74% 75%
77%
781
o
74
73
7
70 -
......
11%
121
131
14%
15%
721
74%
75%
771
78%
-
ya
a64-
0.0
0
7.0
SOMMULE A
a.0
100
*A
+
1 1.0
IP-TEREST PATE
SHEULE a
12.
13.0
0
t4.
tI
SCHEDULE C
Because the potential variability in interest rates
will have such a dramatic affect on the development and the
feasibility of acurately predicting 1993, or even 1989
interest rates, is low, this is a serious development risk
and must be examaned more closely.
Exhibit 29 attempts to
indicate the effect variations in the interest rate will
have on
expected IRR due to compound effects
holding costs and lower absorbtion rates.
of increased
As one might
expect, the projected returns are extremely sensitive to
variations in the interest rate over time.
66
EXHIBIT 29
IRR AS A FACTOR OF CONSTRUCTION LOAN INTEREST RATE
IRR
AS A FACTOR OF INTERET PATE
DATA
TABLE
IRRAS A FACTOR OF CONSTRUCTION LOAN INTEREST RATE
IRR
IRR
IRR
INTEREST SCHEDULE "A' SCHEDULE 'A' SCHEDULE 'A'
RATE
LEVERAGED
LEVERAGED
LEVERAGED
6
7
8
9
43
40
38
35
22
20
1e
17
43
41
39
36
11
12
29
25
13
11
30
26
13
20
14
15
18
15
9
7
6
3$
a
-
.
21
10
18
15
a
0
SCHEDULE
7
-A
a
9
4
to
.11
INTEREST RATE
SCHEDULE --
1.%
12
0
14
SCHEDULE
to
-C-
CHAPTER SIX
RECOMMENDATIONS
The present owner of Charlestown,s Wharf Number 3 is
not a real estate developer and has little interest in the
development process.
Accordingly, when he determined that
the buildings on his property were no longer the most
profitable use and "higher and better" uses now existed, he
decided to realize the property's appreciation by selling it
to a developer.
However, the creative agreement he struck
with the prospective developer has put him
to share many of the development risks.
in the position
The agreement makes
him, in effect, a partner in the development process.
While
this partnership position affords the seller significatly
greater share of the property appreciation, the land
residual created by converting to a higher and better use,
it also exposes him to significant risks.
The seller must
now understand those risks and endevour to manage them to
his benefit.
There are basicly three risks for the seller.
First,
the prospective developer may not have the required skills
or be financially able to cover the early expenses required
to bring the development along to where he or another
developer can commit to proceeding.
It is important to
understand that the developer's interests, particularly in a
68
rapidly appreciating real estate market with alot of
speculation, may be quite different from the seller's.
For
example, he may be interested in tying up the property for a
relatively small investment, and then selling his option for
a profit if real estate prices continue to inflate. Thus, if
the property value inflates to $5 million over two years,
his option, which may have cost $100,000, will become worth
$500,000.
This represents a 124% IRR on his $100,000
investment, and may be more attractive to a risk adverse
buyer than entering the more risky development process. The
new developer, however, may not have the ability to proceed
with the development and actually pay the purchase price.
Second, if the developer has not completed his
preliminary approval work or has identified reasons to delay
the development, he may not be ready to proceed at the
designated time, and will stall until he is ready. The
stalling technique can take many forms, but will delay the
property sale and reduce the present value of the sale
price.
Third, because of ineffective approval work, changes
in regulations, markets or interest rates, the developer may
no longer feel the project is as profitable as predicted.
Therefore, he may attempt to renegotiate the sales price or
the terms of sale.
One may question if the developer's
interests in presenting the development plans to the
government regulatory agencies are the same as the seller's.
69
The developer may be satisfied with approval of a lower
density development that has less marketing resk, provided
this lower density justifies modifications to his agreement
with the seller.
He may even renegotiate the seller's
interest to a partnership in the development,
potentially
exposing the seller to considerable development risk.
It is the seller's responsibility to to understand the
risks and protect his interests by reducing as many of those
risks as possible.
Reducing those risks may take two forms:
monitoring the activities of the would-be developer to
ensure his "best effort" pursuit of the development; and
protecting the properties development rights for their
potential sale to another developer in the event that
relations deteriorate with the present buyer.
Monitoring the activities of the would-be developer and
comparing his progress to the assumed development schedule
is perhaps the most effective way to protect the sellers
interests and limit his risks.
For example, for the
developer to be prepared to buy the property and begin
construction in mid-1988, the developer must start the
approval process by early 1987.
In order to start the
process by early 1987, he must establish both his program,
mix of uses and strategy during the second half of 1986.
According to Jim English no one at the BRA is aware of any
plans for the site or has even talked to a prospective
developer.
Because the BRA has a tremendous control over
70
any Boston development, it is important that the developer
begin to work with them soon if he is to be prepared to pay
for the property in 1988.
It will be necessary for the
seller to have full access to the developer's plans and
process in order to monitor the development's progress at
each stage, making sure each hurdle is crossed on schedule.
In that way, the developer will have no alternative but to
buy the site at the stated price.
At the same time, the seller must maintain the
development value of Wharf Number 3 for potential sale to
another developer if the buyer doesn't follow through with
his plans. The ability to sell the site to another developer
is the only leverage the seller has if the buyer attempts to
re-negotiate the sales price. This includes working with the
neighborhood, the BRA and the Massachusetts Highway
Department to ensure re-development plans for City Square
and the depression of the overhead expressway, compliment
future development of the site rather than limit future
possibilities.
It also requires active participation in the
BRA's Boston Harborpark planning process, to ensure their
design guidelines
don't limit the potential development
opportunities, and at the same time require neighbors to
improve their property, therby improving the value of Wharf
Number 3.
In addition, it may be to the seller's advantage to
maintain friendly, ongoing relations with other real estate
71
developers during the initial years of this development.
These relationships may help him understand the subtle
changes in economic forces that affect the value of his
property to the buyer, and remind the buyer that the seller
cannot be encouraged to sell his property for too little.
In conclusion, it is important to note that this deal
structure is not as simple as it may at first appear.
The
attitudes, motivations and experience of each participant
may be vastly different from the other.
In addition, the
analysis demonstrates that it is unlikely the development
will proceed according to the prospective developer's plan,
and opportunities will arise to renegotiate the initial
agreement.
Therefore, the management of that ongoing
relationship will be as important as the initial deal
structure.
72
NOTES
1. Anthony J. Yudis, "North Station building makes
comeback," Boston Globe, July 5, 1986.
2. Interview with Jim English, Boston Redevelopment
Authority, May 15, 1986
3. Edwards and Kelcey, "Project Improvements: Charlestown
General Neighborhood Renewal Plan Area," June, 1963.
4.
Gordon T. Milde, "Place or People," Comment, May, 1963
5. Interview with Larry Brophy, Boston Redevelopment
Authority, May 12, 1986.
6. Anthony J. Yudis, "Harborpark today and tomorrow,"
Boston Globe, October 9, 1985.
7. Interview with Jim English, Boston Redevelopment
Authority, May 15, 1986.
8. City of Boston, Harborpark: a Framework for Planning
Discussion, October, 1984.
9. Charles R. Myer, Development options for Lincoln Wharf
on Boston's Waterfront, Thesis Department of Urban Studies
and Planning Massachusetts Institute of Technology, August
16, 1985.
10.
Douglas M. Bailey, "Housing starts in Massachusetts at
13-year high," Boston Globe, July 7, 1986.
11. Michael K Frisby and Sarah Snyder, "Goal of 3,400
housing starts is in reach this year, Flynn says," Boston
Globe, July 18, 1986.
12.
Charles R. Myer, Development Options for Lincoln Wharf
on Boston's Waterfront Thesis Department of Urban Studies
and Planning Massachusetts Institute of Technology, August
16, 1986.
13.
Interview with Mary Ann Gilligan Rose, Manager of
Tennant Services, Faneuil Hall Marketplace, May, 3, 1986.
14.
Ibid.
73
15. Kirsten 0. Lundberg, "Slowdown in condo conversions,"
Boston Globe, July 18,1986.
16.
Ibid.
17.
Ibid
18.
Interview with Larry Brophy, Boston Redevelopment
Authority, May 12, 1986.
19.
Interview with Maurice Freedman, Sasaki Associates Inc,
June 12, 1986.
20. City of Boston, Charlestown Navy Yard: Buildings 62, 96
105, 108 Summary of Proposals, November, 1985;
and City of
Boston, Charlestown Navy Yard, 1983.
74
ATTACHMENTS
The following documents provide additional information
about the various government agency controls that limit the
redevelopment of Wharf Number 3.
They include The
Harborpark Plan, Harborpark Zoning (IPOD's), and
Intergovernmental Coordination documents.
These are all
part of the Boston Redevelopment Authority publication
Harborpark a Framework for Planning Discussion, October,
1984.
75
Harborpark
HARBORPARK
Harborpark Phase One is represented by a proposed physical
plan for public and private improvements, presented on the
following page, and by a series of proposed policies and
guidelines regarding Inner Harbor Access and Urban Design,
the first and second sections, respectively. The third describes Harborwalk; the fourth presents Harborpark's related
objectives with respect to; Recreation; Culture, Education,
and the Arts; Economic Development; and Transportation.
Harborpark Phase One is the proposed plan for Boston's
It encompasses a seven mile area,' stretching
Inner Harbor.
between the Charlestown Navy Yard, the North End, downtown
waterfronts, Fort Point Channel, and the Fan Piers. As the
first installation of Harborpark, Phase One seeks to generate
a public discussion about the Inner Harbor. It thus presents
both a plan and a set of concepts. The plan is for a waterfront walkway, Harborwalk, and the provision of certain
public amenities along that walkway. Harborpark's concept is
to ensure balanced, controlled, and rational growth in the
Inner Harbor.
Central to the concept of Harborpark Phase One are the goals
of ensuring that all people have access to the water's edge
and access to the waterfront's economic and physical opportunities. The Harborpark plan and policies which follow aim to
meet these goals in a number of ways:
o
By encouraging a balanced mix of private development
and public improvements;
o
By proposing the creation of a continuous seven-mile
long waterfront walkway and the reforestation of the
waterfront adjacent to the walkway;
o
By establishing guidelines and criteria for private developments to ensure their compatibility with the character
of the waterfront and to minimize their adverse environmental effects; and
o
By proposing a series of public spaces and public facilities which will provide opportunities for recreational and
cultural activities.
ACCESS
An important proposed goal of Harborpark Phase One is to
improve public access to the Boston waterfront. Public
access in this context means not only that all citizens can
gain physical proximity to the Harbor, but that they can also
take advantage of the new jobs, housing, and recreational
opportunities that develop along the waterfront. Harborpark
Phase One seeks to guarantee pedestrian, visual, land, and
water access to the Harbor through the following concepts
and proposals.
Pedestrian Access
o
Harborpark Phase One proposes a continuous seven mile
public waterfront path, called Harborwalk, connecting
the wharves and linking waterfront activities together.
o
Harborwalk and its links to downtown, the North End,
and City Square could be clearly identified with lighting,
signs, special landscaping, and fine art.
o
Harborwalk could also include connections to the Freedom
Trial, the Esplanade and the existing network of open
space amenities, parks, paths, and bikeways.
o
Harborwalk could be free from barriers that would
inhibit wheelchair access; and paving textures and other
techniques could be used to facilitate access by people
with impaired vision.
........................
~---
____
-.
-
-----
.---
~-
--
----
- -. .
-
-
-
'I
Water Access
o
Harborpark Phase One proposes to encourage the use of
ferry service to East Boston, water-taxis to the airport,
Charlestown, and Columbia Point, and commuter boats to
the North and South Shores and to the Harbor Islands.
Creation of this Inner Harbor water transit system could
more than triple the current volume of 2,000,000 boatbased passenger trips.
o
Water transit terminals, marina facilities, dinghy landings
and moorings, and marine service and supply stations
are proposed for locations at the Fan Piers, Northern
Avenue Bridge, Rowes, Long, Commercial, Lewis, Sargent's
and Lincoln Wharves, and in Charlestown.
o
When new roads and bridges are needed, they should be
designed to accommodate marine activities and to enhance
the character of the waterfront.
o
The proposed private development plans for major wharves
Long,
Sargent's,
Lincoln, and Fan Pier --
now include
facilities for the docking of Tall Ships and for public
viewing, and present opportunities for special maritime
events.
Visual Access
o
Harborpark Phase One attempts to enhance existing
views of the wharves and the Harbor from the City at
City Square along Hanover Street at Fleet, Clark, and
Battery Streets; from Government Center along the
Walk-to-the-Sea; from the Downtown Financial District
along Broad and High Streets; and from South Boston at
Pittsburgh, Sleeper, and Farnsworth Streets. New
vistas should also be established by defining new view
corridors.
o
Harborpark Phase One proposes to secure unobstructed
public views of the City from Fan Pier, Long Wharf, and
Sargent's Wharf, and from across the Harbor, so that
the public pier-heads become attractive places to visit.
o
Viewing towers and large-scale sculpture are also proposed to identify major public docking facilities at Fan
Pier, Fort Point Channel, Rowes, Long, Sargent's and
Lincoln Wharves.
--
URBAN DESIGN
Harborpark Phase One design standards will seek to create a
new image that derives from the traditional scale and character
of the waterfront and that recalls the highest standards of
Boston's architectural heritage. The relationship between
land and water should be enhanced by sensitive site planning
and building design that encourages recollection of our history,
while recognizing the special design problems of a marine
environment. The Boston Redevelopment Authority will
publish interim design standards for Harborpark on
November 20, 1984. The following design principles will
guide these standards.
Site Design
o
Central to Harborpark Phase One's design concept should
be the provision of attractive public amenities on each of
the wharves.
-4-.
.o
New developments should be required to provide low
structures at the edge of the water and to enhance the
finger pier form for wharves.
o
The public nature of Harborpark Phase One should be
expressed through easily recognized symbols -- arcades,
domes, and observation towers. Piers should be designed
to be welcoming.
o
Fine art --
sculptures, murals,
and special gardens --
should be signatures that identify Harborwalk and
enhance the user's sense of quality.
Building Design
o
Harborpark building design guidelines should require
that new buildings be designed with respect for architectural history and traditions.
o
Building design should recall the traditional shape, rooflines, and massing of the historic waterfront.
o
The local architectural vernacular of penthouse and shed
structures should also be reflected in new buildings.
o
The careful use of color, texture, detailing, and
masonry materials could enhance the maritime character
of Harborpark.
o
Special public spaces should be recognized as deserving
special forms that have kinship with the best examples of
exhibit and waterfront architecture.
Landscape Design
o
Harborpark Phase One should offer citizens and visitors
of Boston a great many new plantings and respite from
city streets. This concept devolves from Frederick Law
Olmsted, designer of Boston's Emerald Necklace and
Marine Park/Castle Island among many other important
open spaces in the country. He designed his parks as
"places of respite from the City, spaces to provide... a
pleasure common, constant and universal .. , which results
from the feeling of relief.. . on escaping from the cramped,
confining and controlling circumstances of the streets of
the town." Olmsted also said, "The principal element of
a park is its plantings."
o
Harborpark seeks to return the edge of the Harbor to a
more natural state with the planting of thousands of
trees and plants.
o
Rows of leafy, canopy trees should edge broad promenades
and walks, providing dappled shade on hot sunny days
for the pleasure of strollers, joggers, and busy citizens.
Seasonal changes of color and texture, fragrant spring
and summer flowering trees, wind deflection and strong
feelings of place should be other benefits.
o
These street
the city and
Harborwalk;
with ribbons
trees will also link Harborpark back into
similarly lead people from the city core to
trees should define the streets and walks
of green.
o
Bosques and groves of evergreen trees in the more
protected garden areas could insure greenery for the
winter months, variety of form and texture, and windbreaks for easier access during stormy weather. Evergreen
trees could define space, frame and reveal views and
vistas, screen and provide privacy, and reduce glare,
noise, and air pollution.
o
The microclimate of the Harbor requires- the use of
hardy, seaside plant varieties, which will tolerate salt
spray and windy conditions. Sycamore Maples (Acer
pseudoplatanus), Thornless Honeylocusts (Gleditsia
triacanthos inermis), London Planetrees (Platanus acerifolia), and Pin and Red Oaks (Quercus palustris and
Quercus rubra) are therefore recommended, as are
Austrian Pines (Pinus nigra) and Japanese Black Pines
(Pinus thunbergii) as evergreens. Recommended shrubs
include the Juniper (Juniperus horizontals 'Blue Rug'
and 'Bar Harbor'), Yew (Taxus baccata), Rock Spray
Cotoneaster, Barberry, Bayberry, and Rosa rugosa since
they are at home in this ocean setting and will provide a
variety of color, texture, and interest.
o
Planting beds and tubs featuring hardy perennials, low
shrubs, spring bulbs and seasonal flowers could enliven
and beautify Harborwalk; they should be placed in quiet
sitting spaces with a backdrop of green trees and shrubs,
in large open plazas with vendors, in restaurants and
shops, on terraces of adjoining buildings, and on walkways and boardwalks.
o
The palette of landscape materials established at
Waterfront Park, the Marriott Long Wharf Hotel, the
Aquarium, Harbor Towers and 400 Atlantic Avenue
should continue in Harborpark Phase One to further
define and identify the space. These materials include
'Mariner' light fixtures, wooden benches with backs,
trash receptacles, and signage. Appropriate walkway
paving materials -- brick, granite, wooden deck,
stonedust -- could also permit ease of movement in all
types of weather.
THE HARBORWALK
When complete, the Harborwalk will be a seven mile pedestrianway that will provide access to both the waterfront and the
cultural and recreational facilities outlined in the Harborpark
plan. At present, less than two miles of the Harborwalk is
complete.
Over five additional miles of the Harborwalk will be built by
1990. As delineated in the following schedule, over half of
the improvements will occur during the next three years.
Harborwalk Completion Schedule
1984-85
Walk to the Sea
Constitu-tion Wharf
North End Playground
Subtotal
.61 miles
.63
.45
1.69 miles
1985-87
Rowes/Fosters Wharf
India Wharf
Union Wharf
Lincoln and Battery Wharf
Charles River Dam
Hoosac and Shipyard Park
Subtotal
.22
.11
.22
.50
.09
.23
1.37 miles
1987-89
Fan Pier
Northern Avenue
Long Wharf
Commercial Wharf
Lewis Wharf
Sargent's Wharf
Subtotal
1.24
.40
.11
.22
.05
.25
2.27 miles
Over 80% of this additional Harborwalk will be built, and
maintained, by the private sector.
SUMMARY
Harborpark must be a cooperative effort. The map of the
walkway, the identification of specific improvements and the
statements of policies and guidelines represent a proposal for
an integrated plan to bring balanced and orderly growth to
the waterfront and make the waterfront more enjoyable and
accessible to all people. This proposed plan, however, is
only the beginning. Citizen participation is the essential next
step for Harborpark.
Balanced growth, economic and recreational benefits, improved
environment, and public facilities resulting from -implementing
Harborpark Phase One should provide an example and goal for
other parts of Boston's waterfront. The following chapters
describe the public benefits of Harborpark and a public
participation process for the implementation of the plan.
'op
*9
ZONING
Zoning is the most effective land use control available to
Boston.
Effective zoning is a valuable planning tool and an
instrument of economic development. By defining appropriate
locations for various uses, zoning encourages beneficial
development and limits the public costs of growth.
EXISTING ZONING
Boston's Zoning Code was adopted in December, 1964. Since
that time, major physical, economic and demographic changes
have occurred in the City. The area that has been most
critically affected by these changes is the waterfront. As a
result of the decline of shipping in this region, the demand
for waterfront space from water-dependent industrial users
has decreased. One third of the land bordering Boston
Harbor (excluding Logan Airport) is now vacant.
The 1964 Harbor zoning mainly codified then-existing industrial uses. Many of these uses are now considered unacceptable. For example, certain industrial uses along the Harbor
not only degrade water quality with hazardous chemicals, they
also make adjacent properties unpleasant to use and undesirable to develop.
In Charlestown, scrap metal is stored in
open space on the Harbor's .edge, and highly noxious uses
have been proposed adjacent to residential areas. In
Dorchester, next to the Port Norfolk residential area, a large
paper company which has stored toxic substances for several
years is moving out, but a similarly undesirable use could,
under the existing Zoning Code, replace the outgoing use.
The table below describes the permitted uses under the
existing zoning designations.
Table 1
EXISTING ZONING DESIGNATIONS - SUMMARY OF
PERMITTED USES
Zone
Name and Permitted Uses
W-2
Waterfront Industrial: Industrial uses allowed "if
waterfront activity is required for receipt or
dispatch of goods or for any other reason; otherwise conditional".*
Multi-family and temporary
dwellings are conditional; all other residential
uses are forbidden. Most commercial and business
*
Boston Zoning Code 8-7,66.
WATERFRONT OVERLAY PLANNING DISTRICT
/
STUDY AREA BOUNDARIES
1 INNER HARSOM
2 souTH BOSTON PEvS
3 oORCHESTER BAY BEACHES
4 CHARLESTOWN WATERFRONT
5 EAST BOSTON WATERFRONT
-
1~----
*---- -
_____-
Zone
Name and Permitted Uses
W-2
(con't)
uses are conditional. W-2 currently covers more
land on the waterfront than any other zoning
designation.
H
Residential Apartments: All residential uses are
allowed except lodging houses, which are conditional: All retail, business uses are conditional
or forbidden: All industrial uses are forbidden.
B
Retail Business and Office: All residential uses
and most office, retail and business uses are
allowed: Most industrial uses are forbidden in
B-1, B-2, and B-4, and conditional in B-8 and
B-10.
M-1, M-2
Light Manufacturing: Most light manufacturing,
industrial, retail, business, and office uses are
allowed. One and two farmily houses are forbidden;
multi-family dwellings are conditional; heavy
industrial uses are forbidden.
General Manufacturing: Residential uses are
forbidden except some group care residences,
which are conditional: Most other uses are conditional or allowed.
R~-.5,
R-.8 Two/Three Family Residential: Single family and
multi-family dwellings are allowed: Some institutional uses are allowed: Most commercial and all
manufacturing and industrial uses are forbidden.
PROPOSED ZONING
In order to change the pattern of waterfront use, to encourage and at the same time control Harbor redevelopment,
Boston must rezone its waterfront. Zoning revisions should
be the product of a comprehensive planning process, and
citizen participation must be the foundation of such a process. Thus rezoning the waterfront will take time. Over the
next year, a comprehensive planning process for the waterfront
will be initiated. During the planning period we must guard
against introduction of land uses that would be incompatible
with the land use goals and revised zoning designations that
In order to establish
will evolve from the planning process.
adequate safeguards, the Boston Zoning Commission will be
petitioned to establish an Interim Overlay Planning District
designation in the Boston Zoning Code. The Interim Overlay
Planning District will,. until December-31, 1985, apply to the
Boston waterfront.
BOSTON INNER HARBOR
GENERAL STUDY AREA-BOUNDARIES
The Interim Overlay Planning District will consist of five
planning areas. These areas, their general planning goals,
and existing zoning are described below:
Area 1:
Inner Harbor Waterfront
o
The downtown waterfront is generally defined by a line
running from the east side of Hoosac Pier in Charlestown
along Water Street to the new Charles River Dam along
Commercial Street and Atlantic Avenue; along the north
side of the Fort Point Channel to West Second Street;
West Second Street to B Street; and northeast to Pier 4.
o
The general goals for this area are public access and
mixed use commercial, residential, and recreational
activities that make the transition from downtown activities to water-dependent and water-enhanced uses. No
structures other than those which facilitate public access
and recreation use should be built at the water's edge.
Heights should be no greater than two stories at the
Harbor's edge. Inland heights should step up gradually
toward downtown Boston.
o
Existing zoning includes:
a)
light manufacturing (M-2, M-4)
b)
retail business and office (B-8,
c)
waterfront industrial (W-2)
A-rea II:
B-8-U)
South Boston Piers
o
This area is bounded generally by a line from Pier 4
southwest to West Second Street and along East Second
Street to Farragut Road.
o
The general goals for this area are increased public
access, and mixed use commercial, residential and industrial activities that are compatible with the adjacent
residential areas, and that improve the connection
between the Harbor and the land. No structures should
be built at the water's edge, and the structures closest
to the water should be no higher than two stories, stepping up to four stories inland.
o
Existing zoning includes:
a)
waterfront industrial (W-2)
b)
general manufacturing (1-2)
c)
light manufacturing (M-2, M-8)
Area IlIl:
Dorchester Bay Beaches
o
This area is generally bounded by Castle Island, and
ends at Granite Avenue on the Neponset River below the
Port Norfolk area of Dorchester.
o
The general goals for this area are retaining and enhancing the open space, parks, and beaches along the
Harbor, promoting residential uses, and protecting the
residential areas from industrial intrusion and impacts.
No structures other than for public recreational use
should be built near the water, and heights in this
planning area should be limited to three stories.
o
Existing zoning includes:
a)
two and three family dwellings (R- .5, R-.8)
b)
residential apartments (H-1, H-2)
c)
general business and office (B-1)
d)
light manufacturing (M-1)
e)
general manufacturing (I-1)
f)
waterfront industrial (W-2)
Area IV:
Charlestown Waterfront
o
This area is generally bounded by the east side of
Hoosac Pier, Water Street, Chelsea Street, and Medford
Street to Sullivan Square; Sullivan Square northwest on
Mystic Avenue to the Somerville line.
o
The general goals for this area are promoting public
access, mixed-use residential and commercial activities in
the Charlestown Navy Yard, mixed-use commercial and
compatible water-dependent manufacturing activities with
near-by residential areas, and providing employment
opportunities for the community.
No tructure
her
than
e which facilitate ublic acc ss and recreation
or which are necessary for water-d epndent an maritime
uses, 03LU-M be built at the water's edge, and no strucre greateWTban two stories Snould be built in this
-
o
Existing zoning includes:
a)
waterfront industrial (W-2)
b)
retail business and office (B-1, B-1-U)
c)
residential apartments (H-1-U, H-2-U)
d)
light manufacturing (M-1-U)
CHARLESTOWN-WATERFRONT
Area V:
East Boston Waterfront
o
This area is generally bounded by Chelsea Street from
the Chelsea River to East Eagle Street; East Eagle Street
to Condor Street; Condor Street to Falcon Street; Falcon
Street; to Meridian Street to London Street; London
Street to Maverick Street; Maverick Street to Harve
Street; Harve Street to Summer Street; Summer Street to
Orleans Street; Orleans Street to Webster Street; Webster
Street to Summer Street and east to Maverick Street;
Maverick Street to Logan Airport.
o
The general goals for this area are creating and integrating a compatible mix of water-dependent, waterrelated, and water-enhanced uses including housing,
commerce, recreation and open spaces, and public access
to and from the water. Buildings nearest the water
should not exceed two stories, and heights should step
up inland but should not exceed three stories.
o
The existing zoning includes:
a)
waterfront industrial (W-2);
b)
light manufacturing (M-1, M-2).
INTERIM EXCLUDED USES
All existing residential uses in the Interim Overlay Planning
District wiJI be entirely exempt from its controls. All other
changes in use or buildings within the Interim Overlay Planning
District will be subject to review and approval as explained
below. Changes in use must conform with the goals and
objectives of Harborpark which will be further defined in the
public planning process.
In the interim, the following uses
are excluded:
Area 1:
Inner Harbor Waterfront
- All general manufacturing and heavy industrial
uses including all uses which are objectionable or
offensive because of special danger or hazard,
or because of cinders, dust, smoke, refuse
matter, flashing, fumes or gases.
- All wholesale and distribution warehousing.
- All open storage of junk, chemicals, equipment
or vehicles.
- All motor freight terminal uses.
Area 11:
South Boston Piers
- All uses which are objectionable or offensive
because of special danger or hazard, or because
of cinders, dust, smoke, refuse matter, flashing,
fumes and gases.
Area II:
Dorchester Bay Beaches
- All general manufacturing and heavy industrial
uses including all uses which are objectionable or
offensive because of special danger or hazard,
or because of cinders, dust, smoke, refuse
matter, flashing, fumes and gases.
- All wholesale and distribution warehousing.
- All open storage and storage of junk, chemicals,
equipment or vehicles.
- All general business and commercial uses other
than those associated with residential uses.
Area IV:
Charlestown Waterfront
- All heavy industrial uses including all uses
which are objectionable or offensive because of
special danger or hazard, or because of cinders,
dust, smoke, refuse matter, flashing, fumes or
gases.
- All open storage of junk, chemicals, equipment
or vehicles.
Area V:
East Boston Waterfront
- All general manufacturing and heavy industrial
uses including all uses which are objectionable or
offensive because of special danger or hazard,
or because of cinders, dust, smoke, refuse
matter, flashing, fumes or gases.
-- All open storage and storage of junk, chemicals,
equipment or vehicles.
-
All motor freight terminal uses.
PROCEDURES
The Interim Overlay Planning District ordinance will be developed with citizen participation, as explained in the previous
section. The ordinance will be introduced this month.
Any applicant for a building or change-in-use permit related
to non-residential property, within the Interim Overlay
Planning District, will have to receive an Interim Planning
Permit from the Board of Appeal before the Inspectional
Services Department can issue the requested permit.
The Inspectional Services Department must determine if an
Interim Planning Permit is required by any application for
If so, the application will
change-in-use or building permits.
be denied and forwarded to the Board of Appeal and the
Boston Redevelopment Authority.
The Boston Redevelopment Authority, acting as the City's
planning agency must, within ninety days, report to the
Board of Appeals whether or not the proposed action is
consistent with the planning goals for the overlay district,
with the comprehensive planning process, and with contemplated land uses.
The Board of Appeals will not, in any case, hold a hearing or
make a decision on the appeal until it has received a report
from the Boston Redevelopment Authority, unless the Redevelopment
Authority has not issued its recommendation within the required
ninety days.
In order to issue an Interim Planning Permit, the Board of
Appeal must find that the proposed action is consistent with
the land use objectives of the Interim Overlay District, and
that the proposed changes will not adversely affect the comprehensive planning process.
Intergovernmental
MM
Ef
e
ggu
ung
u
a u
t
dEE
it
X-xpa
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-
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12
-
INTERGOVERNMENTAL
COORDINATION
Developing a plan for Boston Harbor would not be possible
without careful consideration of the roles, responsibilities,
and activities of the many government agencies, commissions,
and authorities that have jurisdiction over some aspect of the
Harbor. A study of Boston Harbor by the Massachusetts
Institute of Technology's Sea Grant program found over 100
government actors on Harbor issues.* That report listed lack
of coordination as one of the most serious problems preventing
optimal development and utilization of the Harbor. Since that
time new initiatives such as the Legislature's Special
Commission on Boston Harbor have improved intergovernmental
communication and coordination somewhat, but many problems
remain.
In addition to regulating activity on and around the Harbor,
government agencies are major investors in projects which
Federal,
affect the Harbor and the surrounding communities.
State, and local agencies have programmed approximately
three billion dollars for capital improvements around Boston
Harbor. The largest portion of these funds are for land
transportation projects (Central Artery Depression, Third
Tunnel, Seaport Access Road), sewage treatment and water
quality improvements, and development of the Harbor Island
State Park and related mainland transportation terminals.
Public investment of this magnitude will draw substantial
private investment to the Harbor. The agencies involved
must closely coordinate their activities to make sure that
maximum public benefit is squeezed from every dollar, public
or private, invested in the Harbor.
TFie Harborpark planning process will involve relevant government agencies at both the staff and executive levels. Five
spaces on the Advisory Committee are reserved for representaIn this
tives of Harbor-related agencies and authorities.
way, Harborpark projects will start from a base of cooperation
and coordination with funding and permitting agencies at the
regional, State and Federal levels.
*
Kildow, Judeth T., et al, Boston Harbor Management
Study, MIT SC 81-15, MIT, MIT Sea Grant College
Program.
100
PROPOSED PUBLIC INVESTMENT
USE & ACTIVITY
TRANSPORTATION
3rd Harbor Tunnel
Seaport Access Road
Depression of
Central Artery
Northern Ave. Bridge
Water Taxi
East Side & Main
Interceptors
COST EST.
DPW
DPW
$ 1,000,000,000
400,000,000
$
1994
1994
DPW
DPW
Private
$ 1,000,000,000
$
14,000,000
1998
1988
1985
$ 2,414,000,000
MDC
$
54,550,000
Unfunded
MDC
$
5,314,000
Unfunded
MDC
$
20,386,000
Unfunded
MDC
BOS/
W&S
BOS/
W&S
$ 1,100,000,000 Unfunded
SUB-TOTAL
PARKS & RECREATION
Harbor Islands State
Park
Castle Island
Improvements
Dredging of Boat
Channels
$
5,485,000
Unfunded
$
66,500,000
Unfunded
$ 1,252,235,000
DEM/
MDC
MDC
WaterWays
SUB-TOTAL
PORT IMPROVEMENTS
Conley Terminal
New Marine Terminal
(@BMIP)
Fish Pier Renovations
Coast Guard Base
Upgrading
COMPLETION
DATE
AGENCY
SUB-TOTAL
WATER AND SEWER
Ft. Pt. Channel C&D
Station
Reserve Channel C&D
Station
East Boston CSO
Program
Court Ordered Harbor
Clean-up
CSO Improvements
IN BOSTON HARBOR
Massport
$
34,310,000
2005
$
5,400,000
1986
$
5,000,000
1986
$
44,710,000
$
18,000,000
80,000,000
Massport
Massport
$
18,000,000
C.G.
SUB-TOTAL
TOTAL
116,000,000
3,826,945,000
101
LAND AND WATER USE CONTROLS
Local Involvement
Along the Boston waterfront, land use decisions are the sole
purview of the City of Boston, except where the site is under
the control of another specifically authorized level of government, such as Commonwealth Commissions (MDC) or
Water use and management decisions
Authorities (Massport).
involve Commonwealth and Federal agencies, as well as the
City of Boston.
Federal Involvement
Federal interest in water use regulation focuses on three
issues, only two of which are germane to Boston Harbor.
These are protection of the navigational characteristics of
coastal waters, and improvement and protection of water
quality.
Although there are many Federal laws affecting coastal water
management and water use decisions, seven pertain in particular to Boston Harbor:
o
o
o
o
o
o
o
Clear Air Act;
Federal Aviation Act of 1958;
Federal Water Pollution Control Act;
Marine Protection, Research, and Sanctuaries Act;
National Environmental Policy Act;
Ports and Waterways Safety Act; and
Rivers and Harbors Act of 1899.
In some cases, management and control responsibilities have
been passed through to the individual States for adminisIn other cases, the authorities are exercised
tration.
through the issuance of permits (e.g., Rivers and Harbors
Finally, in some cases (e.g., Ports and
Act of 1899).
Waterways Safety Act), the legislated authority has not been
fully exercised. For example, through the Ports and
Waterways Safety Act, the U.S. Coast Guard has the
authority to regulate vessel traffic in coastal waters, including Boston Harbor, but has not yet chosen to exercise that
authority.
State Involvement
State interest in water use regulation centers on three issues:
the protection of public trust resources, the improvement and
protection of water quality, and the protection of ecologically
significant resources.
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DEVELOPMENT REGULATIONS
Feder-al Involvement
At the Federal level there are three separate but coordinated
permits, each with its own regulations, that must be obtained
before developing projects in or adjacent to Boston Harbor.
These are:
1.
Section 10 Permits control projects proposed for navigable waters to assure that they do not interfere with
navigation and that they live up to certain design and
environmental standards;
2.
Section 404 Permits control the effect that a proposed
development has on the quality of the water; and
3.
Section 103 Permits control the transport and discharge
of dredged materials into coastal waters.
The U.S. Army Corps of Engineers serves as the lead agency
for issuing these permits.
State Involvement
There are seven separate sets of State regulations that must
be complied with, prior to developing projects on Boston
Harbor. These include:
1.
Waterways Licenses to protect the Commonwealth's interest
in the public trust resources (submerged lands or tidelands) that would be affected by any proposed development;
2.
Consistency Approval assures that the proposed development is consistent with the policies of the Massachusetts
Coastal Zone Management Plan;
3.
MEPA Approval assures that the proposed development
does not adversely effect the environment as set forth
for in the Massachusetts Environmental Policy Act;
4.
Water Quality Certificates protect the quality of coastal
waters;
5.
NPDES Permits control the discharge of pollutants into
coastal waters;
6.
Dredging Permits control the disposal of dredged materials
so that they will not injure water quality, degrade the
environment, or harm public health; and
103
PERMITS REQUIRED BY LOCATION
Inland
Planned Development Area Approval
- Shore
Line
Pierhead
Line
Harbor
*
Chapter 121A Proposal Approval
Section 10 Permit
Section 103 Permit
* ** ***
Section 404 Permit
***
* *****
****
***
** ***
***
***
** ** *****
Waterways License
*****
NPDES Permit
* ** ***
Water Quality Certificate
******
Dredging Permit
Consistency Approval
* ************
*****
**********
Wetlands Protection Act Permit
Permit for Floats and Moorings
Approval for Floats and Rafts
MEPA Approval
Sewer Extension Permit
Municipal Service Connection
Permit
Cross-Connection Permit
Runoff Discharge Permit
Utility Installation Permit
Roadway/Sidewalk Construction
Permit
Municipal Water Service Permit
Water and Sewer Permits
Building Permits
Permit to Store Flammable Liquids
Curb Cut Permits
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*
7.
Sewer Extension Permits certify that the existing system
of sewers is adequate to accommodate the anticipated
sewage increase.
The Massachusetts Department of Environmental Quality
Engineering serves as the lead agency for the permits, license,
and certificate listed above and the Executive Office of
Environmental Affairs serves as the lead agency for the two
approvals.
Local Involvement
In addition to zoning approval, there are two separate sets of
local regulations that must be complied with, prior to
developing a project on the Boston waterfront. These are:
1.
Wetlands Protection Act Permits, issued by the Conservation
Commission, protect the public interest in tidelands by
preventing damage to water supplies and fishery or
shellfish areas, and by preventing increases in flooding,
storm damage and pollution. A Wetlands Permit is required
for development of property within one hundred feet of
the water or in a flood plain;
2.
Temporary Float and Mooring Permits, which control the
location of certain developments so that they will not
interfere with other water uses. This permit is issued
by the Harbormaster (a member of the Boston Police
Department).
COMMISSIONS,
AUTHORITIES,
AND AGENCIES
In addition to those agencies which regulate development in
Boston Harbor, there are agencies and authorities that own
or control land and facilities on the Harbor.
The Special Commission on Boston Harbor
This Commission was established by Chapter 25 of the Acts
and Resolves of 1979 to balance the economic, social, and
environmental interests related to Boston Harbor. Commission
members include representatives from both Houses of the
Massachusetts Legislature, representatives from Commonwealth
agencies having responsibilities relating to Boston Harbor,
appointed member from each of the cities and towns adjacent
to the Harbor, and representatives of major water user and
interest groups. The Commission meets monthly except
during the summer, and serves as a review board for all
legislation concerning the protection and development of
Boston Harbor.
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In its short history, the Commission established priorities for
expenditure of dredging funds, resolved disputes on complicated
legislative proposals, provided a means for inter-government
and citizen-government communication, and generally improved
the management of Boston Harbor.
The Commission is an important forum for assuring that, in
the Harborpark planning process, public and private efforts
are coordinated with public decision making.
Metropolitan District Commission (MDC)
The Metropolitan District Commission is a regional agency
responsible for water and sewer services, parks, roadways,
and policing in certain parts of the Boston metropolitan area.
As the agency responsible for metropolitan water and sewer
service, MDC owns and operates the treatment facilities at
Dear and Nut Islands in Boston Harbor. These facilities have
been a source of major pollution in the Harbor, but efforts- to
improve these facilities have not proceeded due to lack of
funding and organizational difficulties.
Legislation has been filed to remove the MDC's water and
sewer authority and place the responsibilities in a new
Metropolitan Water Resources Authority. This new Authority
would have complete responsibility for the court-mandated
Harbor cleanup, and authority to sell bonds to finance its
activities.
The MDC has recently initiated major rehabilitation of its
beaches and recreation facilities, from Castle Island to the
Neponset River and Mattapan Square. Considerable funds
have been spent on rehabilitation efforts, particularly at Fort
Independence on Castle Island, and on acquiring the missing
links in a continuous pedestrian system along the Dorchester
shoreline. Additional funding must be obtained to complete
planned improvements for the beaches along the Dorchester
and South Boston shoreline.
New waterfront recreation improvements have recently been
completed by the MDC in the North End between the Charlestown
Bridge and the City of Boston North End Playground.
Boston Water and Sewer Commission
The Boston Water and Sewer Commission, established by the
State Legislature in 1977, oversees water supply and sewer
The Commission has embarked
service in the City of Boston.
The New Boston Main
projects.
on two major construction
improve water
dramatically
will
and the East Side Interceptors
106
quality in Fort Point Channel; they are important components
in the overall Harbor cleanup program. The second major
construction project is the Combined Sewer Outlet Improvement
Program, which will greatly reduce dry-weather sewage flow
into the Harbor.
Massachusetts Port Authority (Massport)
Massport is the Authority that owns and operates seaports
and airports for the Commonwealth.
It owns marine terminals
in South Boston, East Boston, and Charlestown, the multipurpose Commonwealth Pier and adjacent Fish Pier in South
Boston, and Logan Airport.
Massport has been expanding and modernizing its facilities to
meet the growing needs of maritime shippers.
It is making a
$116 million investment in the Port of Boston's future to
insure that Boston remains a working seaport. Projects
include the following:
o
o
o
o
o
The $18 million Conley Terminal container facility;
The $80 million development of the 47 acre Massport
Marine Terminal - a multi-purpose cargo facility at the
Boston Marine Industrial Park;
The $18 million renovation of historic Boston Fish Pier;
The revitalization of Massport owned property -Commonwealth Pier, Hoosac Park, and Bird Island Flats,
all of- which have pedestrian access to the water; and
A contract with the Boston Redevelopment Authority to
prepare a master plan for the reuse of the Massport-owned
piers in East Boston (56 acres on Piers 1-5).
Department of Environmental Management (DEM)
(Commonwealth Office of the Secretary of Environmental
Affairs)
The Department of Environmental Affairs is actively involved,
as the State's responsible agency, in carrying out the Master
Plan for Boston Harbor Islands. Under the mandate of the
1972 Harbor Islands Master Plan, all of the Harbor Islands
(with the exception of the City of Boston owned Spectacle and
Long Islands, and privately owned Thompson Island) have
been acquired by the Commonwealth and preliminary improvements
DEM has entered into a contract for updating
have been made.
the 1972 Master Plan. Work is nearing completion and will be
presented to the public within the next few weeks. Preliminary indications are that DEM will require another $20 million
to complete the Master Plan recommendations and to improve
the Harbor Islands so that they are accessible to the public.
107
HARBOR ISLANDS STATE PARK
LOCATION
AGENCY
COST EST.
COMPLETION
DATE
Long Wharf
Long Island
Spectacle Island
Georges Island
Hewitts Cove
Bumpkin Island
Gallops Island
Lovells Island
Rainsford Island
DEM
$ 9,000,000
7,600,000
13,000,000
1,000,000
2,000,000
450,000
460,000
600,000
200,000
1985-87
1985-87
1993-95
1985-87
1985-87
1996-2005
1985-87
1996-2005
1996-2005
TOTAL
$34,310,000
DEM is also involved in current waterfront projects. The
Long Wharf reconstruction project, for example, is underway
with $9 million in State funding.
Department of Environmental Quality and Engineering (Division
of Waterways)
The Department issues tidelands licenses under Chapter 91
of the Massachusetts General Laws for development projects
on Boston Harbor. Under amendments to the legislation
approved last year, new regulations are being promulgated
which require public benefits to outweigh public costs for
non-water dependent Harbor developments. Enforcement of
these new regulations will greatly assist in adding public
access and amenities to Harbor related projects.
Coastal Zone Management (CZM)
This Federally mandated office is now a separate Department
of the Commonwealth.
CZM has developed a planning and
management program for coastal development activities. CZM
received $17 million to be granted to municipalities for construction of marine facilities. Projects of up to one-half
million dollars (matched with 50% local funds) may be funded.
Eligible projects include a variety of waterfront improvements,
ranging from fishing piers to wharf reconstruction.
Final
regulations for disbursing the grants are being drafted.
108
National Park Service
The National Park Service is proceeding with the rehabilitation of the USS Constitution National Historic Site in
Charlestown.
Pier 2 at the Charlestown Navy Yard will be
rehabilitated in 1985. All planned improvements for this site
will be completed within the next three years, at a total cost
of $1.7 million.
Land and Water Conservation Fund (LAWCF)
the Interior, National Park Service)
(Department of
The National Park Service, through the Land and Water
Conservation Service, is a major funding source for public
improvements along Boston Harbor. Beginning with the
Downtown Waterfront Park, and including the Charlestown
Shipyard Park and a portion of Long Wharf, LAWCF has
funded in excess of $15 million of public recreation and public
access facilities. Additional neighborhood waterfront recreation projects have been undertaken by LAWCF in East Boston
at North Ferry Park and at Jefferies Point Park. While Land
and Water Conservation funds have diminished due to Federal
cutbacks, LAWCF remains an important resource for continuing improvements along the Harbor edge.
Coast Guard
The Coast- Guard maintains navigation facilities, establishes
maritime regulations, provides protective and law enforcement
services and administers some marine facility grant programs.
In Boston Harbor, the Coast Guard is completing a major
rebuilding and renovation program for its North End base.
SIMPLIFICATION OF PROCESS
The proceeding section contains a partial list of the government agencies and government permits required for waterfront
development. The following flow chart shows how complex the
process of finding and satisfying all relevant government
requirements is for the construction of a relatively uncomplicated marina.
Harborpark proposes, as one of its goals, to coordinate and
simplify this process by organizing joint review, public hearing, and approval procedures for the maximum number of
Similar efforts have been successful elsewhere, most
permits.
notably for environmental approvals of projects on the Chesapeake
Bay, and as part of the Section 774 anti-snob zoning procedures..
109
The failure to resolve this problem has created a significant
barrier to new development, and has created unnecessary
costs which must be passed on by the developer. Simplification of existing procedures will reduce the cost and time
required for new developments, and thus make additionil
money available for privately funded public improvements
without burdening either the developer, the eventual owner,
or user.
If the private sector is going to be required to internalize the
cost of public improvements in its total development costs, the
public sector should incorporate efficiency into its regulatory
process.
110