MARKET ANALYSIS
Executive Summary
The development potential for 505 Congress St. is considered here in
light of economic indicators, supply and demand projections, and site
characteristice, all of which will influence development decisions.
Market: The Boston area has made a meager economic recovery since
2002, generally lagging the US but showing recent steady growth with
expectations for fair continued performance. Lackluster performance in
the stock market and low interest rates have driven demand for real
estate, particularily in the housing for purchase market.
Demand:
Supply:
An eager supply market, driven by a positive demand outlook
and fueled by available capital, is pressing forward with completions
at a rate not seen in recent history. This will lead to a slight rise
in vacancies over five years, but without much damage to rent growth.
In South Boston, several developers are looking to leverage off the
immense transportation infrastructure investments in the area. The
number of projects planned in the area necessitates careful timing and
positioning in order to meet absorption and vacancy targets.
Site: The parcel is oblong, with 430 feet of frontage on Congress St
to the north, and is bounded by tunnel ramps on the remaining three
sides. The property is within two blocks of the Convention Center, the
waterfront, and Silver Line T station. Despite these strong
attributes, heavy traffic presents concern for visual, noise, and air
pollution, as well as pedestrian access.
Likewise, the property’s
unusual geometry may hinder development of an efficient building.
Conclusion: Despite some risk of oversupply and low cap rates which
are prevailing the market, current and projected demand suggest the
market is accepting new hotel and residential development.
Given its
prime location balanced with marginal site characteristics, this
parcel affords a real opportunity for value creation.
Market Overview
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Demand Analysis
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Supply Analysis
Residential
In the Boston MSA, current inventory is 410,107 units, up by only 4.6%
from 1996. This reflects a steady but low supply in the last 10 years.
Completion rates ranged between 0.3% and 0.7% from 1996 through 2003,
far below national trends, due to the relatively mature Boston market.
Low vacancy rates and rent inflation in 2000 and 2001 induced the
current high levels of supply. Completions rose to 4,002 units in
2004, or 37% higher than the previous year1.
High completion rates are forecasted to continue after 2005. 2005 and
2006 completions are forecasted at 6,096 units (1.5%) and 5,648 units
(1.3%), about 50% over the long term average. This will decline
beginning in 2007, and after 2008 completions will drop to below 1%.
Net absorption has shown volatility in the last decade. Until 2000,
relatively high absorption prevailed, but rates dropped precipitously
in 2001 and 2002, a fallout of negative employment growth.
The recent
employment recovery is propping up absorption; net figures in 2004 and
2005 exceed completions by 2,743 and 3,011 units respectively. In
spite of steady employment growth beyond 2006, completions will remain
ahead of absorption going forward. Therefore, following a decline in
vacancy rates to 4.2% in 2005, forecasts show a gradual rise to 4.9%
in 2010. Yet rents are forecasted to rise to $1,523 in 2010 from
$1,291 per unit in 2005. It would result in 18% increase for 5 years.
Hotel
There had been almost no variation in hotel inventories for 10 years
until 1999, due to flat demand.
Supply in Boston and Cambridge began
to rise at 2000, reflecting a growth in demand.
As a recent supply
trend, although Boston struggles to regain occupancy and ADR levels,
new hotels are cropping up around the CBD, driven by current and
1
Market data, charts, and projections in this section from Torto Wheaton
Research unless noted otherwise.
forecast demand growth. The number of total units provided in 2004 was
507, and the projection for 2005 and beyond is total 2,8041.
Submarket
It is noticeable that the large number of projects proposed in the
neighborhood. Following figure is what we organized projected
residential projects in South Boston. South Boston area can be
separated to water front, and southern existing city area.
The rapidly developing waterfront has a projected total of 1,559
residential units planned or under construction2.
Major projects
include “Fan Pier”, totalling three million square feet of building
area and 675 residential units, and “Pier 4”, one million square feet
and 200 units. These large scale mixed-use projects include hotel,
retail, office and residential space. Both are currently approved,
though start dates are uncertain.
Other projects, such as “Waterside
Place”, 1 MSF and 209 units, are under review.
The convention center
hotel (800 rooms) is under construction, with an additional 320 rooms
planned. Additional projects are planned in the Fort Point area. The
total planned or under construction is 3,244 units.
Even though many projects are proposed, following the expected
economic trends, it is unreasonable that all these projects will be
realized in the near future.
While South Boston’s stock accounts for
only 4% of the MSA stock, the 14 MSF of planned projects in the
vicinity equal 29% of projected net absorption for the MSA over the
next five years. Clearly, the area will develop at a slower pace.
Supply Summary
This area potential is very high, due to the proximity to the CBD and
Silver Line connecting to Logan Airport. The convention center opened
2004 will also create huge impact on this area, not only drawing
visitors but also creating related jobs as a core facility.
1
Ernst & Young National Lodging Report
2
All local project info taken from Boston Redevelopment Authority website.
6
In the Boston MSA, stable supply is forecasted because of employment
recovery. However, future supply is estimated to be slightly higher
than absorption, which would slightly raise vacancy rates for 5 years.
The South Boston Waterfront is the most rapidly developing area in the
mature city. Location advantages associated with this area are
attracting many new developments, both residential and hotel use, so
high levels of supply can be expected to continue in proximity to the
sight for at least the next 5 years.
Units
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Units
10,000
8,000
6,000
4,000
2,000
0
-2,000
-4,000
-6,000
-8,000
-10,000
16
14
12
10
8
6
4
2
0
-2
-4
-6
1994
2010
1998
2002
Completions
mpletions
2006
2010
Jobs x 1000
Units
7,000
80
6,000
60
5,000
40
20
4,000
0
3,000
-20
2,000
-40
1,000
-60
-80
0
1998
2002
Emp Grow th
1998
2002
2006
2010
Net Absorption
100
1994
1994
2006
2010
Completions
Hotel Supply/Demand: Pinnacle Research
10,000
8,000
6,000
4,000
2,000
0
-2,000
-4,000
-6,000
-8,000
-10,000
1994
1998
2002
2006
2010
Site Analysis
Description and History of the Site
505 Congress Street is located at the heart of South Boston Waterfront
District, area under redevelopment since 1999, with the approval of
the Boston Redevelopment Authority’s (BRA)“Seaport Public Realm Plan”.
The site under consideration, currently owned by NSTAR, has an
assessed value of $1,163,000 for FY2005.
It was exchanged with the
previous owner, Massachusetts Highway Department (MHD), for a NSTAR
parcel on B Street needed for the CA/T project.
The proximity of the new Waterfront District to Boston’s Downtown
makes this area a natural choice in the expansion of the city.
With
the recent openings of the Central Artery/Tunnel Project (CA/T), the
Boston Convention and Exhibition Center (BCEC) and the Silver Line Bus
Rapid Transit (BRT) – multi-billion public investments – South Boston
is ready to take advantage of these enormous redevelopment efforts.
Physical Attributes
The narrow geometry of the site comprises an area of 30,437 square
feet (.70 acre), surrounded on all sides by recently reconstructed
roadways.
The south of the site is bounded by CA/T’s ramp D, with a
concrete retaining wall that holds backfill.
This indicates that
tunnel structures may affect foundation basement design for the new
building.
The site presents a long 430-foot frontage on Congress
Street, versus a shallow 75-foot average depth, restricting the shape
and size of building floor plates.
new development.
This may constrain the uses of the
Deep and extensive floor plates are more and more
desired by corporate offices, for example.
At the same time, the
geometry of the site offers more potential for visibility, although
not true for the lower floors on the south side, given the proximity
to CA/T tunnel exhaust vents.
The exhaust vents are a major concern in this project.
As mentioned,
they affect the visibility of the proposed building and, like the
vehicular ramp access, may be harmful to the near environment.
They
may limit the possibility of uses in the new building.
The water table level may also be a concern, given the proximity to
the waterfront.
There is no considerable vegetation on the site, nor
water streams at the surface.
The site is currently served by
municipal water and sewer systems.
Ingress and egress to the site may represent a limitation, given the
shape of the site and the flux of heavy traffic on the adjacent
streets.
These factors will also make the construction logistics more
complex.
There were made no improvements on the site so far.
Legal/Political Attributes
The 1999 “Seaport Public Realm Plan” by the BRA determines the land
use of the site as “mixed-use”, maximum height as 150’ and Floor Area
Ratio (FAR) of 3.
The same masterplan indicates that 505 Congress St.
can be qualified as Planned Development Area (PDA):
A PDA is a special type of zoning overlay district that allows for a more
comprehensive balancing of the impacts and benefits of a project.
PDAs
will be approved only after an extensive public review process that
ensures the PDA plan conforms to the principles of the Seaport Public
Realm Plan and offers substantial public benefits.
PDAs provide for both
greater flexibility and additional controls for project development, and
are proposed to be allowed in the Inner Harbor district, the Fort Point
Waterfront, and the Enhancement Zone.
- Height:
This section will establish the maximum allowed building
heights for the Seaport which will range from 55 feet to 150 feet as-ofright with a limited number of sites able to achieve higher heights
subject to an approved PDA development plan that would balance height
with public benefits.
- Density:
This section will establish the maximum allowed floor area
ratios (FAR) for the Seaport.
As-of-right FARs will be specified as well
as whether additional density will be allowed through a PDA process.
- Use: This section will establish those uses that are allowed as-ofright, conditional and forbidden in the Seaport.
The zoning will also
specify those uses that are permitted or required on the ground floors of
buildings to create activity at street level.
To create a vibrant and
active 24-hour district and to ensure that the area develops at each
stage as a mixed-use area, it is necessary that housing be brought on
line concurrently with office space and hotels, whose markets may be
stronger and whose value per built foot is greater.
Therefore, zoning
requirements to promote the concurrent development of housing may be
considered.
Owners of property whose parcels include areas that will be
zoned for residential use could be required in PDA agreements to build or
cause to be built residential use, in each stage of development, in a
proportion roughly similar to the proportion that would be residential in
the overall development.
It is recognized that with the addition of many
new housing units and residents, certain new civic uses will be needed,
such as schools, libraries, and public safety facilities.
The BRA will
work with responsible City agencies to site such uses.
The site under consideration holds an already high FAR and building
height envelope.
Potentially, the PDA may be a good strategy to build
an even denser development in the site.
Linkage Attributes
The site benefits from the proximity to a series of distinguished
venues: the Boston Convention and Exhibition Center (800’ south), the
World Trade Center (700’ north), the new Institute of Contemporary Art
(ICA) (1,400 feet north), the MBTA Silver Line station (350’ east)
connecting directly to Logan Airport, and others still to come.
Interstate bus and train, and subway access at South Station are halfmile away from the site.
Downtown Boston and its CBD are also at a
walking distance to 505 Congress Street. This beneficial proximity
determines the market profile.
The immediate surroundings are under-developed, and there are poor
linkages to schools, recreational/health centers, and similar
facilities.
The lack of day-to-day context may be a concern in the
multi-family housing product.
Dynamic Attributes
The site is currently very prominent, given that the neighborhood has
not many buildings yet.
Also the verticality of the exhaust vents
from the CA/T calls attention from the passerby.
The proximity to the
openness of the waterfront is also a plus.
From the shore, approaching on a boat, one would be able to see a
nicely designed tower in the site under consideration, at least until
the adjacent sites are developed.
The same is valid for people
driving around South Boston, or walking.
Associating the image of the future building with the Convention
Center will be natural, and perhaps the design of the new project
should capitalize on the profile of dynamic business traveler, the
impression of mobility and tech-savvy.
The consolidation of the Waterfront District in the future is expected
to create an urban realm similar to the one of Faneuil Hall, that is,
a sophisticated, busy and pleasant waterfront neighborhood.
Among the negative aspects of the site, the design will have to deal
with the mentioned exhaust stacks, and the heavy traffic on every side
which cause problems of visual, noise and air pollution.
The current
sense of isolation at the site is expected to be ameliorated by the
incoming projects on the adjacent properties.
Surrounding sidewalks
would benefit from tree planting, paving treatment and other minor
changes, creating a better pedestrian experience.
Environmental Attributes
The gigantic public investments in the neighborhood will only make
sense as a dense, busy and consolidated realm.
There is not
expectation that the 505 Congress Street, developed as multi-family or
hotel products can cause any negative impact on the above mentioned
idea.
On the contrary, these products generate activity at different
times, desired to avoid a “dead” neighborhood at night.
Mixed-use neighborhood has become a consensus in city-planning except
in particular cases.
The development of the site under consideration
will be beneficial to the Seaport District, creating property tax
revenues, positive pedestrian and vehicular movement, and so forth.
No hazardous materials or wastes are expected in housing uses.
Special consideration to sustainable-intelligent design is naturally
expected from respected architecture firms.
Site Suitability for Alternative Uses
Multi-family housing and Hotel products seem the most suitable uses to
the site under consideration, especially because of the size and shape
of the property.
Small and narrow floor plates may be unreasonable
for current corporate offices.
a possibility.
Retail at the base of the building is
Industrial use is out of consideration.
Site Capacity for Alternative Uses
The following are rough estimates of potential buildable area:
Site area = 30,437 SF
FAR = 4
Building Height = 150 feet
Maximum area = 30,437 SF x 4 FAR = 121,748 SF, 14 floors.
For 1,000 SF (gross) apartments = approx. 120 apartments
For 600 SF (gross) hotel rooms = approx. 200 rooms
For office space: at 80% efficiency = approx. 100,000 SF net leasable
Conclusions
Employment gains and increased business travel are driving current
development activity, with vacancies and absorption rates posting
significant recent improvement. However, with employment and
population posting negative growth earlier in the decade, and much of
the recent gains only bringing numbers back to their pre-2000
positions, a cautious stance is prudent. This need for caution is
compounded by the rush to fill recent and forecast upticks in demand,
particularily around the South Boston waterfront.
With respect to our submarket, both hotel and residential provide
cause for some optimism.
For hotels, a number of larger planned
projects which are well situated (directly adjacent to the convention
center, or directly on the waterfront) seem likely to capture demand
for a higher end full service product.
The property seems well
positioned for a mid-priced limited service facility which would
differentiate itself from downtown full priced hotels as well as from
airport-oriented properties. Likewise on the residential front, the
waterfront district is awash in planned condominiums, but residential
for-rent, particularily at a middle price point, seems to be lacking
from development plans, despite the area’s downscale tradition.
Looking forward, a selection between hotel and for-rent markets will
require more detailed information on the likelihood and timing of new
supply in the immediate vicinity. No matter how carefully
differentiated a product is developed, absorption rates and market
acceptance of the property will be highly dependent on the pace and
type of development occurring close by.
Other development notwithstanding, the parcel does suggest carefully
considering the appropriate market segment.
While many uses could
take advantage of its excellent locational attributes, the site’s
physical characteristics indicate that the property may not have as
much appeal as close competitors, if it is not well targeted.
Lastly, should development on the site prove to be uneconomical, a
park or other open space set-aside developed as part of a larger
comprehensive Planned Development Area may be the most viable way of
capturing value from the site.
By turning the site into a public
asset, the Zoning Commission may allow a greater density of
development on adjacent sites than is currently authorized.
Boston Redevelopment Authority Master Plan for South Boston.