The Druker Co president Ron Druker says 2015 was a good year for condos—and ’16 may follow—but he’s wary of diving into that market again. The risk is high, he tells Bisnow. Get his inside word on what’s ahead at Bisnow’s Boston 2016 Forecast: A View From the Top, Tues, Dec. 1, 7:30am, Boston Harbor Hotel. Join us!

Condos are a tricky business, especially compared to the reliable apartment sector, says Ron, whose grandfather, John, got the Drukers into commercial property 114 years ago. He developed the Hotel Kenmore and the Braemore Hotel in Kenmore Square. Son Bertram followed in the '70s, building the Colonnade Hotel on Huntington Avenue and affordable housing in Pittsfield, Lawrence and Boston's South End.

In 2015, some condo developers have had a great run. Millennium Partners at Millennium Tower in Downtown Crossing and Carpenter & Co’s super luxury residences at One Dalton—where Back Bay, Fenway and the South End converge—is rumored to be selling briskly. Both are well into construction.

But with condos, there’s a limited window for selling the units, Ron tells us. The developer who misses it can have trouble. Even when the project goes according to plan, Ron says, the risk is high and the reward may not be great. Sales can be strong, but the revenue is booked as ordinary income, which means that taxes can take a big bite. He says he was lucky twice: with The Heritage on the Garden in Back Bay and Atelier 505 in the South End. "I’m not sure I would be so again and choose not to tempt fate.” He’s also not about to build a big office/mixed-use project on spec.

The global construction giant Skanska built and leased a spec lab project in East Cambridge (above) and is building a spec office at the Seaport. But, Ron says, Skasnka has “deep pockets.” 

In recalling two of his spec developments, Ron tells us, we were “more lucky than skilled.” One Newton Place in Newton Corner was entirely leased by Cahners Publishing before the building was complete. But the other, Two Newton Place, smacked up against the recession of the late 1980s (a nasty downturn characterized by a property oversupply aggravated by mortal weaknesses in some big banks that are no longer with us). While Two Newton contributed to Newton Corner’s revival, it was only 50% leased when the economy turned.

For the past two years, Ron’s been patiently seeking anchor tenants to kick off two mixed-use projects in prime locations that the BRA has already approved. On the corner of Arlington and Boylston streets in Back Bay, he’s planning a $180M, 250k SF office building with substantial retail (rendering above). Designed by Robert A M Stern, the nine-story building would replace the existing office/retail building that once housed Shreve Crump & Low. Down Boylston Street, at 888, Boston Properties also waited for a creditworthy anchor before it brought out the shovels, Ron recalls. In the South End, Ron has a $200M plan to build a 320k SF  mixed-use retail and office building. 

What sets the current real estate cycle apart, Ron tells us, is the post-recession availability of inexpensive money, which has stimulated economic growth. But, he cautions, Boston is unusual for a US city. It’s in a class with top-tier gateway cities like New York, DC, San Francisco. The underpinnings of the Boston economy are the strong institutions—academic, medical and financial—that are generating jobs and a rare in-migration. Population growth, in turn, is spawning residential development. Investors are realizing returns in real estate, from 7% to 8%, which the stock market can’t match, he says. 

Even the pension funds that are buying Back Bay and Financial District offices (like Atlantic Wharf) at 4% to 5% cap rates will do well if they hold for the long term. Asset values may not hold forever, but the structures are high-quality and the locations unbeatable. No more land will be added to downtown Boston. So, Ron says, values may fluctuate but locations won’t.