Boston's Crash Will Come, But Don't Ask Developers When

After years of unprecedented growth, Boston seems overdue for an economic crash — just do not ask developers to pinpoint when that correction is going to be.

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Boston Global Investors Chief Operating Officer And Chief Financial Officer Kevin Benedix

“Boston’s economic fundamentals are so strong, any immediate concern comes from macroeconomics and not from local events,” Boston Global Investors Chief Operating Officer and Chief Financial Officer Kevin Benedix said. "It's the things outside our control."

Benedix’s discussion on Boston’s acquisition and investment climate Wednesday at Bisnow’s Boston State of the Market event recognized the city’s strong economic performance can only run for so long, but he and his fellow panelists noted any downturn would be a result of outside forces like an uncertain political climate and international events as opposed to anything directly wrong with the city.

Boston FiDi skyline

Occupancy rates have never been better in the city’s history while a steady stream of foreign capital and high-net-worth investments are a sign Boston is a strong market, KIG Real Estate Advisors founder Justin Krebs said. Boston is now ranked third behind New York and Los Angeles for U.S. cities receiving the most foreign investment.

While there might be a tightening of debt levels, Krebs said it is simply cautious investing as opposed to signs of a deep issue on the horizon.

“You almost have to hit an Armageddon before you are actually going to be in an issue where you are not going to be able to hold onto your property,” Krebs said.

Bisnow Archive/Cameron Sperance
KIG Real Estate Advisors founder Justin Krebs and Colliers International Executive Vice President of Boston Capital Markets Group Jeff Black

The measured growth Boston and the rest of the United States have taken is another reason why the panelists are not expecting an economic downturn like the one experienced from the financial collapse of 2007 and 2008. The economy has not been growing as quickly as it has in prior periods of economic recovery.

While the unemployment rate is 4.3% and it is the 80th month of consistent job growth, a significant underutilization of labor is creating a lot of slack in the market, according to Cabot, Cabot & Forbes Senior Vice President and Director of Capital Markets Daniel Nagler.

“In fact, it has been a period of anemic growth,” Nagler said.

Not everyone is expecting the strong performance streak to be indefinite. Even though Deutsche Bank economists estimate there is less than a 10% chance of a recession in the next 12 months, Stantec Vice President Fred Kramer is looking beyond the next year.

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Stantec Vice President Fred Kramer

“It’s a good time in the ballgame to wonder how you remain relevant to clients in July of 2018,” Kramer said.

Even if a recession were to occur, panelists said developers should take a long view of things and with their assets. Boston Global Investors invested in Seaport Square and held onto it for the duration of the last recession, and Benedix said they would continue to weather any future economic storm to strike the city. As to when that crash will come, none of the panelists would commit to a time frame.

“San Francisco and New York have been slowing down, and I sense that historically we follow them by six to 12 months, so we’ll see,” Benedix said. "I was the guy who sold Apple stock at $16, so I'm probably not the guy to ask about the future."

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