‘Let’s File Now’: Developers Aim To Avoid Fee Hike On Boston Labs But May Delay Construction
Boston is preparing to double the fees developers must pay to build life sciences projects in the city, but a series of new filings representing hundreds of thousands of square feet of lab space could avoid the hike, even if they don’t start construction right away.
Mayor Michelle Wu in December proposed to make linkage fees for life sciences higher than all other commercial projects, the first time since these fees were enacted in 1983 that they have been split. The proposal would raise the fee from $15.39 per SF to $30.78 for life sciences and $23.09 for all other commercial projects.
The proposal still needs approval from the Boston Zoning Commission. Multiple insiders told Bisnow they expect the higher fees to be approved soon, and a spokesperson for the Boston Planning & Development Agency said that once it is approved, the increase will be phased in over a one-year period starting January 2024.
With this historic increase in fees, some developers are accelerating the filing of project proposals to get ahead of the January date, experts told Bisnow. Once the fees are in effect, experts foresee a huge drop-off in applications, leading to a slowdown in life sciences development, especially given the headwinds facing the biotech industry.
Although the city could see an increase in these proposals and approvals this year, experts say many of these projects won’t break ground right away, and some developers might sit on certain sites until macroeconomic pressures subside.
“I get clients who will call me and say, ‘What's going on?’” said Joseph Hanley, partner and director at law firm McDermott Quilty & Miller LLP. “Well, it's not effective until something is enacted. And while they're talking about it but it's not enacted, let's file now.”
From its inception, linkage fees have collected over $282M from developers in Boston, and with this new boost, Wu hopes it will create a bump in money flowing to affordable housing creation and workforce training in the city. In 1983, the city started the fees at $5 per SF and increased them three decades later in 2013 to $8.34, a 63% jump.
However, developers now have a window in which they can lock in approvals before being forced to pay the higher fees. Since the proposal was announced in December, at least seven major projects have been filed with the BPDA:
- Jan. 20: Phase3’s 21K SF conversion of the top floor at 55 Summer St. downtown.
- Jan. 20: Trammell Crow’s 1600, 1800 and 1850 Soldiers Field Road mixed-use project will include an unspecified volume of life sciences.
- Jan. 23: IQHQ’s 461K SF 645 Beacon St. project in Kenmore Square.
- Feb. 2: Related Beal’s 99K SF 6 Elkins St. development in South Boston.
- Feb. 8: Wentworth’s 640K SF 500 Huntington Ave. mixed-use project, which will include one life sciences building in Roxbury.
- Feb. 10: Lincoln Property Co.’s 214K SF 147 West Fourth St. project in South Boston.
- Feb. 27: Tishman Speyer’s 455K SF 232 A St. project in South Boston.
In the same three-month period last year, the agency received only three new life sciences proposals and one notice of project change switching plans from an office tower to lab space, according to BPDA records.
IQHQ’s proposal calls for the conversion of the historic Hotel Buckminster and an adjacent property into a new life sciences building. Under the current policy, IQHQ would pay over $7M in linkage fees, but with the proposed fees, the company would pay more than $14M.
Tishman Speyer’s 232 A St. proposal, which would redevelop the former parking lot of Gillette’s World Shaving Headquarters into lab space, would also have to pay $7M more if it filed its plans after the fee hikes go into effect.
IQHQ and Tishman Speyer didn’t respond to requests for comment on the timing of their projects.
Although the increases would cost developers millions of dollars, city officials say it is a well-intentioned change to help residents and create more affordable housing.
"These proposed nominal increases in linkage fees for developers would make a significant, positive impact on support for the creation and preservation of affordable housing, as well as the job training and job readiness needs of Boston’s residents," a BPDA spokesperson said in a statement to Bisnow.
Hanley, who helped file the proposal for Related Beal’s project, said the number of applications with the city could lead to a spike in approvals, but developers might sit on projects until construction costs and interest rates decrease.
"That's a false indicator,” Hanley said. “The city is sensitive to the fact that building permits are not being pulled and things have stopped. So, then they say, ‘Oh, we've approved these developments and we have them in the pipeline.’ There's a big difference between what is being permitted and what is actually being built."
Jennifer Schultz, a partner at law firm Sullivan & Worcester, said she hasn’t seen any of her clients rush to file this year because they have been preoccupied with securing approvals for applications they had already filed. She said there has been an almost nine-month delay to get approvals through the BPDA.
“I fully expect to see [more filings] once it's the beginning of Q4 of this year and sort of this backlog is cleared,” Schultz said. “Developers and clients have to make a decision of, 'All right, do I want to go now to save X millions of dollars in exaction fees, which might be advancing faster than I would otherwise want to, or am I willing to accept that that's the new price of doing business?'”
In 2018, then-Mayor Marty Walsh increased the fees by 8%, then did so again in 2021 by 42%. This newest proposal would be the biggest for new lab buildings in the city — a 100% increase. Unlike Walsh’s last fee hike, which came at the height of Boston’s lab boom, Wu’s would take effect as life sciences demand dwindles.
The life sciences market saw a slowdown in 2022, with vacancy rising to over 20% in Boston and 6% in Cambridge, according to Newmark’s fourth-quarter report. Newmark reported tenant requirements declined from 6M SF to 1.8M SF in the second half of last year.
Of the 15.3M SF of lab development in the pipeline at the end of the fourth quarter, 4.7M SF are in Boston, according to CBRE’s Q4 report.
Biotech companies face a series of headwinds, with stock prices falling, layoffs occurring and funding flattening out. This month’s collapse of Silicon Valley Bank is also predicted to have long-lasting effects on Boston’s life sciences community, as the bank was one of the biggest financial backers of local biotech startups.
“When you remove that Big Pharma demand, you're left with the early stage new companies or the VC-backed companies, and those companies are the ones being impacted the most right now by the difficult capital markets and fundraising environment,” CBRE Senior Vice President McKenna Teague said. “We're absolutely seeing people slow down the process, take a bit of a breather and just be more conservative as it relates to capital expenditure.”
Schultz said the increased fees don’t take into account how much more expensive life sciences development is compared to other asset classes. And she said fees could have other unintended effects, including driving up rents for tenants that may have moved to Boston to escape the higher rents across the Charles River.
“Everyone knew and felt that something was coming. But no one expected something like this,” Schultz said. “This increase, I would say on its own, for linkage is aimed to punish life sciences more than any other asset class. This is what's going to shift more life science companies back to Cambridge.”
NAIOP Massachusetts CEO Tamara Small said that although the commission hasn’t yet ruled on the linkage fees, she expects it will happen soon. She said she is happy the city is phasing it in rather than doubling fees all at once. However, she said that there are still concerns about the fees being overbearing on top of the other proposals Wu has in store.
“Given the many headwinds facing new development, combined with the need for new property tax revenue to ensure the city has the funds to achieve its long-term goals, we believe the City should be cautious before layering on costs that could prevent new growth and development in Boston,” Small wrote in an email.
Small said she believes some developers are waiting to see what the zoning commission has to say about the plans and what will actually be enacted by the city.
“Right now I think everyone is just waiting to see the final language. It’s obviously a tough time for the industry right now and there is a lot of economic uncertainty,” Small said. “The more certainty we can get from regulators, the better to ensure we can remain competitive.”