Spec Arrives in Surprising Markets
Although our small city has a finite amount of land, the property markets have shown us a grand opportunity to build in areas that weren’t deemed possible before. Boylston Properties’ Bill McQuillan, for one, is making a $200M bet on Watertown. We offer a few details below and invite you to learn more at Bisnow’s Emerging Markets event, June 24, starting at 7:30am at the Westin Waltham.
Since 2000, Bill and partner Mark Deschenes have been investing in this city on the Charles River, adjacent to Cambridge. First they redeveloped a lab building that sold well in ’05. In ’04, they acquired One Arsenal in Simon Properties’ Arsenal Mall: 60k SF of office, retail and parking. In 2013, BP, in partnership with the Wilder Cos and Jonathan Bush, bought the Arsenal Mall for $80M and are planning a major overhaul. Last month, they started construction on a $39M, 150-key Marriott Residence Inn. In the fall, they plan to start building a $60M, 185k SF spec office at 480 Arsenal St, also in partnership with The Wilder Cos.
Boylston Properties’ early experience with the town and its residents led the company to pay $5.1M for a 1.45-acre site then occupied by a Saab dealership. Now, 15 months of construction for the Marriott has begun. Bill says local officials have helped East Watertown expand its commercial property base, breathe new life into the mall and add the amenity of a new hotel.
Boylston Properties and its partners have acquired enough property to build the kind of mixed-use neighborhood that’s in demand. With a substantial amount of multifamily property in development by others, Watertown will be able to offer an urban live/work/play experience in a bucolic riverfront setting. Bill is confident the spec office will lease up because office supply is scant—1.2M SF—and vacancy rate is 3%. That Class-A Watertown rents are in the $30s/SF to $40s/SF versus the $50s/SF to $70s/SF and higher in neighboring cities can often seal a deal.
The wide range of “acceptable” new locations is "unprecedented," says Prellwitz Chilinski’s David Chilinski, who will moderate our event. Now, the clients of his architecture firm are looking everywhere from Dorchester to Bedford, NH, for multifamily sites. In South Boston’s long overlooked Andrew Square, one client, DJ Properties, is planning a mixed-use project that will create six new city blocks: 700 residential units, 80k SF of retail and 2.5 acres of public open space (rendering below), he says.
When his firm designed the Green District in Boston’s Allston neighborhood for The Mount Vernon Co a few years ago, it was the first new housing to come into the neighborhood in 40 years, David tells us. Developers’ new openness is driven by the low cost of money and a “profound change” in attitude—Millennials want to live in an urban village atmosphere. The renter pool is big, with some potential homebuyers still spooked by the financial crisis or unable to meet lender demands for a 20% down payment.
The Mount Vernon Co Chairman Bruce Percelay says there’s a renaissance underway in Boston thanks to a strong economy and growing population. Ready to pioneer, Bruce acquired a building on Parker Hill Avenue in Mission Hill.
After successful trailblazing in Allston with the nearly 300 new apartments in the Green District (above), Bruce is considering projects in East Boston and Dorchester—which hasn’t seen new development in many years. In Dorchester, Bruce may develop a 250-residence complex with an array of restaurants and other amenities. In all of these areas, there’s a strong demand for housing from people priced out of the South End and other more core locations.
Rents and sale prices are being driven up by the cost to develop. Four years ago, land could be purchased for $45k/unit; now it’s $75k/unit. And the price tag for construction has risen from $175/SF to $250/SF, Bruce says. Investment values are being propped up by low interest rates. If interest rates rise substantially, cash flow may slow to a trickle or even go negative. We have an exciting lineup of speakers planned, talking about the most important neighborhoods for you to know. Join us for Bisnow’s Emerging Markets, June 24, starting at 7:30am at the Westin Waltham. Register here.