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Real Estate Bisnow
The largest commercial real estate publication in the United States.
January 17, 2012 

Not Enough Apartments?


The big wave of new apartments being developed in the Boston metro won't meet demand. There was agreement on that among the expert panel at Bisnow’s second-annual Boston Multifamily Summit Thursday. Indeed, the mulfamily market is a raging bull, as one panelist told the 525 of you who joined us.


Equity Residential’s Alec Brackenridge, Centerline’s Paul Donahue, moderator Fred Copeman of The Reznick Group, CBRE’s Simon Butler, and Winn Development prez Larry Curtis. They agreed that multifamily has not returned to the glory days of a few years ago, but it's strong and will remain so for several years. Yet for a top US market, Boston has a surprisingly small supply of institutional-grade multifamily assets. Buildable sites are scarce, and in many communities, triple deckers are preferred over high-rises.

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Multifamily investment whiz Simon says he expects starts on 3,000 units in Boston proper this year (almost 1,000 at the waterfront). Over the long term, he says, the waterfront will transform into a vibrant new live/work/play neighborhood. The 3,000 starts are good, but far from the recent peak of 4,500 units. Apartment development costs are high (about $400k/unit) due largely to rising land prices. Add to that cap rates around 4% and that's why owners are focused intently on rent growth, which Simon says will continue regionally for the next few years.

Winn Development’s Larry Curtis

Larry says some institutional grade properties don’t have high rents; they’re the multifamily complexes that Winn builds for working people earning less than $100k/year. Average rents in his properties are $2,000/month for a two-bedroom, two-bath apartment, at least half the rent of the many luxury units in development. Winn projects often are renovations of historic properties and usually have some form of subsidy, he says. That, plus locations beyond downtown Boston, can bring development costs closer to $200k/unit. In five years, he predicts, luxury investors may be disappointed by higher-than-anticipated replacement costs.

Alec Brakenridge, EQR

Alec says his team is looking for properties to buy at the Boston waterfront and throughout the Rte 128 market. But there's a challenge in developing new buildings: finding a site where the municipality will allow the density he needs to be profitable. Other hurdles: getting through locally controlled permitting, finding a site that’s large enough, and a community eager for the large-scale multifamily lifestyle. In Boston and Cambridge, where small two and three-family housing predominates, Alec estimates there may be only 25 institutional grade properties versus 400 in DC. But as an investor that buys to own for 25 years, he likes Boston and is rewarded by rent growth that exceeds inflation.

Centerline’s Paul Donahue

Centerline’s Paul Donahue says Boston has been among the most stable US markets during the economic downturn. Population growth is slow, but the area is growing and the demographics (like household income) are “compelling.” (Warning: A compliment here, but not a charming pick-up line.) He says institutional investors are still focused on the city, while equity investors want to put their money into new buildings. But Paul says that even in 'burbs 30 minutes out, many apartment properties are almost fully leased. If the market remains strong, and if there’s job growth, look for condo conversions in a few years.

Bernkopf Goodman's Sheryl Starr, Lydia Chesnik and Ken Goldberg,

We snapped part of the Bernkopf Goodman contingent, one of our great sponsors: Sheryl Starr, Lydia Chesnick, and Ken Goldberg, all partners in the firm founded in 1894. They can’t discuss cases in detail, but Ken says that late last year, they worked with Chestnut Hill Realty on its acquisition of an apartment portfolio in Harvard Square.

Centerline's Hayley Huba

Boston mortgage banker Hayley Huba, of our sponsor Centerline, works with our panelist Paul Donahue. Last summer, he joined the company from CBRE and opened the Boston office to advance the firm's New England push. One example of a Centerline deal: last quarter, it financed Dune Capital’s $325M acquisition of eight DC multifamily assets sold by special servicer C III.

The Simon Cos’ SVP John Snyder

As the event ended, we ran into The Simon Cos SVP John Snyder, who tells us that it's launched a $25M program to reinvest in its portfolio by renovating 16 apartment communities with 2,000 units in Massachusetts, Rhode Island, and New Hampshire. He said that comments at the event reaffirm the appropriateness of the strategy. As the strongest of the CRE asset types, and with low cap rates, it’s a great time to put money back into your properties. Join us this Thursday for even more coverage of the event.

Martin Luther King Jr.

Like many of you, we took yesterday to acknowledge the service of Dr. Martin Luther King Jr. We admire his courage and continuing impact on American cities. This picture is from 1964, and if 95% of the Bisnow staff had been alive then, we'd certainly have been there to take it. But from what we can glean, it looks like Dr. King's response to someone asking, "How big an impact will transit-oriented development have on city centers in the year 2012?" Whether he's saying "a lot" or "why are you asking me this," it's an appropriate response.

And you can fill us in on your news and ideas. Please send them to Susan Diesenhouse, susan@bisnow.com.
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