Equity's Busy in Boston
There’s bountiful equity for commercial property and it likes Boston. That's why we've assembled some of the most influential investment pros to speak at Bisnow’s Boston Capital Markets Summit, Wednesday, Oct. 15, at the Fairmont Copley Plaza, starting at 7:30 AM.
HYM Investment Group managing director Tom O'Brien, a panelist at our event, says he's fielding lots more investor calls these days about the mega mixed-use projects he’s developing downtown and in Cambridge. Large pension funds and sovereign wealth funds want to work directly with developers rather than through advisory funds, says Tom who’s developing the $2B Government Center Garage complex (aka One Congress) and the $2B North Point project with Canyon Johnson. These investors want to have more control over their investment dollars and freedom from advisory fund fees. The HYM projects are unique because their large size gives them the potential to transform their neighborhoods and that’s appealing to equity investors, Tom says.
National and foreign money also consider Boston to be relatively less expensive than cities like New York and San Francisco. In the Big Apple, land for residential development may be priced at $700/FAR/SF compared to $100/FAR/SF here, Tom says. Another draw for The Hub: the population is growing; investors like that. In the second half of next year, Tom expects to break ground on the first phase of One Congress, which HYM is developing with the National Electrical Benefit Fund and Britannia Pacific. It’s a 455-unit residential building that now includes condos because similar units downtown are selling for $2,000/SF, he explains.
There’s more equity looking for Boston multifmily projects to develop and acquire now than there was six months ago, says JLL SVP Travis D’Amato. To meet demand, some projects on the market include: Gatehouse 75 in Charlestown, 315 on A in Fort Point and The Arlington in Back Bay. These are the type of product that equity invstors want: new construction in core urban locations. Institutional investors consider stabilized multifamily as a hedge against inflation that provides greater returns than credit-rated fixed rate investments, he says.
It’s a time to take some chips off the table, says New Boston Fund director Jim Rappaport. Consider Boston Properties; they have about $3B in commercial property assets on the market or selling, says Jim who’s winding down his Boston fund. His investors traditionally seek 15% to 20% returns, deals that are now difficult to find. There’s a “tremendous” amount of equity in the market and institutional money is happy with 5% to 6% cap rates.
Jim is “very pleased” with the progress of the $170M One Greenway multifamily project. The two-building complex between the Greenway and Chinatown that’s under construction is a JV between New Boston Fund's Urban Strategies America Fund and the Asian Community Development Corp. Unlike so many multifamily projects targeting the luxury market, 40% of One Greenway’s 363 units will be affordable. The downtown multifamily market still has legs; it’s where young people want to live and work, Jim tells us.
There’s big buzz around the investment sales activity in Boston, says Cantor Commercial Real Estate’s Peter Scola. The latest sales activity reflects the pace of equity targeting the area. It’s attracted by strong regional fundamentals and development progress at the Seaport that’s creating an exciting new community. Some large owners are taking advantage of low cap rates and buyers are locking in low cost long-term capital. It’s likely that the confluence of low financing costs, improving fundamentals and significant amounts of equity and debt capital will lead to record pricing, Peter says.
Lots of equity chasing deals means lots of competition that’s driving asset prices up and cap rates down, says Sullivan & Worcester’s Lou Monti. More hands-on, active investors and fewer blind pools, however, make equity arrangements more complex. Another complicating factor: entities that might have acted on their own in the past are now combining with others to get deals done, he tells us. As a result, we’re seeing more institutional JVs with partners of equal size. Hear more from Lou and the other plugged in panelists at Bisnow’s 4th Annual Boston Capital Markets Summit, Oct. 15, at the Fairmont Copley Plaza, starting at 7:30 AM. Sign up here!