Fenway Center (One Kenmore) | Turnpike Parcel 7, Beacon Street | Fenway

Menino begged that this not be torn down. Vornado promised. Millennium broke the promise. Sad.
 
It's probably not a question of not wanting to do it, but more of a question of finding a residential partner willing to take on the project. IQHQ is a life science developer right? Presumably they would need to find a residential developer that is willing to take on the existing debt of the project as well as making the residential pencil. If they are only "putting the project on hold" it means they can float the project for the time being, so the only reason they would hand it off to another developer would be if said developer took the entire liability off their hands. There doesn't appear to be an incentive for IQHQ to offload the project and I'm willing to bet there is not a residential project that could make the entire liability pencil at the moment.
 
CBCArch61 said:
It's probably not a question of not wanting to do it, but more of a question of finding a residential partner willing to take on the project. IQHQ is a life science developer right? Presumably they would need to find a residential developer that is willing to take on the existing debt of the project as well as making the residential pencil. If they are only "putting the project on hold" it means they can float the project for the time being, so the only reason they would hand it off to another developer would be if said developer took the entire liability off their hands. There doesn't appear to be an incentive for IQHQ to offload the project and I'm willing to bet there is not a residential project that could make the entire liability pencil at the moment.
Click to expand...
All fair points, but...
a) I think there may be some delusion in their assessment of how soon the market will rebound enough for this...this is not your typical downturn cycle; there are millions of vacant new-build square feet of prime lab space ahead of them in drawing top life science tenants
and,
b) It's not like they're just sitting on a piece of land. They're sitting on a massive amount of non-rent-earning sunk cost. You'd think they may need to settle for a less than ideal off ramp out of necessity (do they really have the wherewithal to keep carrying this debt for an extended period)?
and,
c) Samuels & Associates (to the rescue?)
 
I still don't understand how seemingly nobody at all of these companies, investing at minimum hundreds of millions of dollars per project, ever took a look at all of the Lab Space being proposed and said, "Perhaps this current market is a bit oversaturated?"

Obviously the outcome of the 2024 election and the subsequent hatcheting of science funding wasn't on the radar when these projects were first being proposed but the fact that vacancy rates were rising before this year shows that this would have happened anyway.
 
PrancingRaven said:
I still don't understand how seemingly nobody at all of these companies, investing at minimum hundreds of millions of dollars per project, ever took a look at all of the Lab Space being proposed and said, "Perhaps this current market is a bit oversaturated?"

Obviously the outcome of the 2024 election and the subsequent hatcheting of science funding wasn't on the radar when these projects were first being proposed but the fact that vacancy rates were rising before this year shows that this would have happened anyway.
Click to expand...
Just my 2 cents: I think this pattern of overinvestment has been seen with pretty much every example of a market with booming demand right (canals and railroads in the 1850s, dotcoms and telecoms in the 90s/2000s, pre-great recession housing, the current Chinese real estate situation, probably AI now lol, etc.). All of the above bankrupted a lot of people lol so at the very least lab builders are no stupider than investors in general. I think I remember reading some economists arguing that tending towards overinvestment is game theoretically optimal for individual firms even if a coordinated supply and pricing would be beneficial. Calling the top of any market is incredibly difficult and even if you were right but you missed it by a few years, you will have paid very large opportunity costs. Missing a real boom would obviously also be bad news, economic history is littered with firms that missed the bus. I think the fact that there are so many booms and busts is evidence that this decision is a lot harder than it seems.

I just wish that we made it easy enough to build residential that we could get a similar oversupply dynamic lmao.
 
Yeah I'm not in real estate development but have a number of detailed insights into the lab space construction cycle and like anything fear (of missing out) and greed (of maximizing upside) drove so much of this. Plus, with long business and construction cycles where projects were being planned even before the pandemic, it meant that when shovels were going into the ground there were already massive sunk costs that were prohibitive to walk away from. Some groups really did make out OK for a lot of the development cycle but there are quite a number of losers and dead sites that are now being sold at huge losses. Indeed calling the top is one hell of a challenge.

Also on timing, the administration's science cuts are definitely a headwind, but the industry at large is going through a cleansing cycle where a lot of dumb money and bad bets are being metabolized. A bunch of companies that should never have been financed are failing, leases and headcount are being cut, and things are resetting (and the XBI is finally moving back upwards). All of that hype and crash on the background of a stable lab supply would have been bad enough, but when the construction firms are also chasing that boom it throws the supply and demand balance massively out of sorts and now we have a glut that will probably take 5-10 years to resolve. There's something like 3 million square feet of SUBLEASE space available in the greater Boston area, not to mention recently completed or stalled new projects...

The more interesting question to me is if you were allocating capital in something like AI today, are you going to call the top now, walk away and pocket your gains, or are you going to chase the bull and think you can ride this another year or two?
 
bigpicture7 said:
Telling us what we already know:

www.bostonglobe.com

Near Fenway Park, a deck over the Pike is nearly done. But that’s all they’ll build for now. - The Boston Globe

Developer IQHQ says it will put the $1 billion project on hold until the life science real estate market improves.
www.bostonglobe.com www.bostonglobe.com

I don't know why this is so hard...r-e-s-i-d-e-n-t-i-a-l c-o-n-v-e-r-s-i-o-n
Click to expand...

It's hard because the mayor has made building residential completely infeasible in Boston. There is no way someone could build a residential tower here with 20% affordable units, net zero emissions, at the current interest rates. The revenue from the market units is not enough to pay the construction loan and the required return to lenders. If someone could do it, someone would do it. It's just math. So now we'll have an empty building site until someone can build commercial or lab because those are the only chances of something penciling out.
 
That’s true but if we’re in a lending environment that expects sky high rents to increase 5% a year forever, how are we supposed to do anything at all ever anymore? If I were a politician I would start to think IZ is the only countermeasure against that if rent control isn’t allowed, as short sighted a policy as IZ is. It feels like lenders have just eaten the entire economy with these expectations. We’ve left it so that the only way for rents to stabilize or lower is for owners to completely lose their shirts, like think about it—if we built enough supply to make rent increases infeasible, this framework supposes that a residential building built here would very quickly go under. There seems to be no breathing room.

But regardless it’s time to crank up the property taxes on this parcel until we get it back.
 
My recollection is that 100 Landsdowne Street in University Park shifted planned uses multiple times before construction. Originally, it was planned as residential. The dotcom bubble caused a shift to offices. It’s use as laydown delayed the start until the bubble had popped, so it returned to residential to get financed.
 
SuffolkHeights11 said:
It's hard because the mayor has made building residential completely infeasible in Boston. There is no way someone could build a residential tower here with 20% affordable units, net zero emissions, at the current interest rates. The revenue from the market units is not enough to pay the construction loan and the required return to lenders. If someone could do it, someone would do it. It's just math. So now we'll have an empty building site until someone can build commercial or lab because those are the only chances of something penciling out.
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You seem to assume I was directing my-why-is-it-so-hard comment at any one person or entity (e.g., the developer)...
 
SuffolkHeights11 said:
It's hard because the mayor has made building residential completely infeasible in Boston. There is no way someone could build a residential tower here with 20% affordable units, net zero emissions, at the current interest rates. The revenue from the market units is not enough to pay the construction loan and the required return to lenders. If someone could do it, someone would do it. It's just math. So now we'll have an empty building site until someone can build commercial or lab because those are the only chances of something penciling out.
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We're on a forum that has pages of residential development projects started in Boston under this Mayor...
 
I think this conversation is pointing out the many complexities that go into building in our city (really building in general). Residential is one of the hardest to build because the margins are so tight to begin with. Factoring tight margins with things like interest rates, construction costs, absolute need for affordability, complexities of land deals (ie ground leases/air rights). On top of all that is the most important item, who is holding all the risk. Residential should have the lowest bar to clear in terms of gaining approval, but face some of the biggest pushback from neighborhoods and jurisdictions. But even if the approval bar was lower does that fully overcome all of the market challenges, probably not. Its got to be a combination of municipal changes as well as market changes and getting those to work in lockstep is apparently very hard.
bigpicture7 said:
All fair points, but...
a) I think there may be some delusion in their assessment of how soon the market will rebound enough for this...this is not your typical downturn cycle; there are millions of vacant new-build square feet of prime lab space ahead of them in drawing top life science tenants
and,
b) It's not like they're just sitting on a piece of land. They're sitting on a massive amount of non-rent-earning sunk cost. You'd think they may need to settle for a less than ideal off ramp out of necessity (do they really have the wherewithal to keep carrying this debt for an extended period)?
and,
c) Samuels & Associates (to the rescue?)
Click to expand...
a) I don't disagree with the delusion, but this is a super high visible site that the developer probably believes would pay dividends down the road. When the rebound ultimately comes around, they probably feel like the location will prove fruitful. At least that is the logic I see.
b) Huge sunk costs, absolutely. But again, the high visibility of the site may be a leasing marketability item. Also, the design of the air rights deck may also be playing a role in that it is designed for a steel frame lab building when residential really wants to be concrete (look what south station tower did). That may be making a potential sale price not desirable for them.
c) Samuels had the chance to do an air rights, residential project and they went office/hotel. They were also able to design/engineer the air rights deck to that use. I think the risk would just be too high.
 
CBCArch61 said:
I think this conversation is pointing out the many complexities that go into building in our city (really building in general). Residential is one of the hardest to build because the margins are so tight to begin with. Factoring tight margins with things like interest rates, construction costs, absolute need for affordability, complexities of land deals (ie ground leases/air rights). On top of all that is the most important item, who is holding all the risk. Residential should have the lowest bar to clear in terms of gaining approval, but face some of the biggest pushback from neighborhoods and jurisdictions. But even if the approval bar was lower does that fully overcome all of the market challenges, probably not. Its got to be a combination of municipal changes as well as market changes and getting those to work in lockstep is apparently very hard.
Click to expand...
I'd like to push back just a little on how restrictive the market challenges are. While it has undoubtedly caused a major slowdown in residential construction, the results of that have been very different in different places. Even with interest rates at their current highs, other cities are building 50% (Washington DC) to 150% (Portland ME) of what Boston does without dramatically different fundamentals. Houston was included just to show what the upper end of what is possible with permissible land use regulations and sprawl. And while many other regions are building notably numbers of SFH while Boston is not, feel free to dig into the data source (link below) more and you'll see that only explains some of the gap.

All of this is to say that while financing has made it harder to build, it has made it harder to build everywhere but that isn't stopping other places. If regulations were changed so Boston built more like Portland and less like San Francisco, we could conceivably see an increase in development. Interest rates are a convenient scapegoat, but the when looking at the whole picture, it's clear they aren't the main problem.

BostonHousingProductionComp.png

From https://housingdata.app/
 
BeansTheCat said:
I'd like to push back just a little on how restrictive the market challenges are. While it has undoubtedly caused a major slowdown in residential construction, the results of that have been very different in different places. Even with interest rates at their current highs, other cities are building 50% (Washington DC) to 150% (Portland ME) of what Boston does without dramatically different fundamentals. Houston was included just to show what the upper end of what is possible with permissible land use regulations and sprawl. And while many other regions are building notably numbers of SFH while Boston is not, feel free to dig into the data source (link below) more and you'll see that only explains some of the gap.

All of this is to say that while financing has made it harder to build, it has made it harder to build everywhere but that isn't stopping other places. If regulations were changed so Boston built more like Portland and less like San Francisco, we could conceivably see an increase in development. Interest rates are a convenient scapegoat, but the when looking at the whole picture, it's clear they aren't the main problem.

View attachment 68804
From https://housingdata.app/
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Theres one piece that that website fails to account for, which is that single family construction is often actually substantially cheaper and easier to build - its substantially less complex to build a subdivision full of cookie cutter townhouses and SFHs than any multifamily development. At the same time, its an in demand housing typology, with often the best ROI for homebuilders. DR Horton, one of the biggest publicly listed home builders, reports an homebuilding overall margin of 21.5%. Thats massive compared to the much thinner returns on much multifamily construction, and why IZ can make the financial case untenable. Just filtering to the same 6 MSAs, If you look at the source data, the vast majority of all housing production in Houston is SFH, but here in the Boston MSA we have the highest ratio of ≥5 units to SFH - 1.6:1. We want density, and not sprawl.
1000042316.jpg
 

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Equilibria said:
We're on a forum that has pages of residential development projects started in Boston under this Mayor...
Click to expand...

The new Inclusionary Zoning requirements that Suffolk is complaining about did not take effect until October 2024, so any project that has started construction likely did not fall under the newer requirements but the more permissive IZ requirements last tinkered with under the Walsh administration. There are even projects still pending city approvals grandfathered under the old IZ requirements.

But if history is any guide, the new IZ requirements will result in more income-restricted housing units, but fewer approved housing units overall. I’d argue that this is not a happy outcome, particularly since Boston was not a picnic to build in previously.

Boston can likely get away with increasing IZ requirements, but it should be pared with broader zoning/regulatory reforms:
* Eliminate minimum parking requirements, like Cambridge, Somerville, and even now Salem. Boston just killed a housing development blocks away from a Red Line station because it did not have enough parking.
* Eliminate single-family zoning as Cambridge has.
* For the love of God, simplify the zoning and speed up review times for housing proposals.

Without these broader reforms, the new IZ requirements alone will increase the cost to build housing projects and reduce the overall amount of housing produced.
 
re the lab market: I suspect when it comes back, a lot of the secondary and tertiary sites are not going to be part of it. We've seen a lab building boom at Assembly Sq, at random locations on suburban arterials, and in the Boston/Cambridge core. The last of those is *clearly* the most valuable and will be the first to return. This site is next to the HQ of one of the largest biotech VCs + originators (Third Rock Ventures), very close to Longwood and the hospitals, and in a cluster of life sciences co's. A lot of the space being built is....not that. It's similar to the office market where new class A space is getting rented while class C space is looking terrible.
 
Stlin said:
Theres one piece that that website fails to account for, which is that single family construction is often actually substantially cheaper and easier to build - its substantially less complex to build a subdivision full of cookie cutter townhouses and SFHs than any multifamily development. At the same time, its an in demand housing typology, with often the best ROI for homebuilders. DR Horton, one of the biggest publicly listed home builders, reports an homebuilding overall margin of 21.5%. Thats massive compared to the much thinner returns on much multifamily construction, and why IZ can make the financial case untenable. Just filtering to the same 6 MSAs, If you look at the source data, the vast majority of all housing production in Houston is SFH, but here in the Boston MSA we have the highest ratio of ≥5 units to SFH - 1.6:1. We want density, and not sprawl.
View attachment 68808
Click to expand...
I'll just add:

Even comparing on a Multifamily: Multifamily cost basis across cities, as noted multifamily developments are often built in a much different way, with a lot more trades involved. CA and MA pay comfortable equitable rates consistent with the area COL, and are, based on historical political, social, and economic factors, more heavily union (depending on the developer and CM). TX - not so much. I don't have federal data, but readily available data on https://tradecareerpath.com/guides/national-trade-salaries points to some of the differences:

Electrician Median
Massachusetts: $82,120
Texas: $56,920

HVAC Median
Massachusetts: $76,990
Texas: $54,050

Plumber Median
Massachusetts: $83,260
Texas: $58,560

Average Median
Massachusetts: $80,790
Texas: $56,510

This alone isn't killing projects, but it's one of the more region-specific factors that differentiates us from some of the leading cities.

**[ETA / Clarification]
It is not being argued that Massachusetts trades should earn less, nor that Texas should be used as a wage benchmark. My point is simply that labor cost structures vary significantly by region, and those differences show up in project budgets. There were no intentions to state what any single person should make. Tradespeople should be paid rates that reflect their skills, market conditions, and local cost of living, which naturally differ across the country. An electrician in Massachusetts and an electrician in Texas are doing the same essential work within two very different economic contexts. The comparison is about regional economics, not about the value or character of the people doing the job.**
 
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Smuttynose said:
The new Inclusionary Zoning requirements that Suffolk is complaining about did not take effect until October 2024, so any project that has started construction likely did not fall under the newer requirements but the more permissive IZ requirements last tinkered with under the Walsh administration. There are even projects still pending city approvals grandfathered under the old IZ requirements.

But if history is any guide, the new IZ requirements will result in more income-restricted housing units, but fewer approved housing units overall. I’d argue that this is not a happy outcome, particularly since Boston was not a picnic to build in previously.

Boston can likely get away with increasing IZ requirements, but it should be pared with broader zoning/regulatory reforms:
* Eliminate minimum parking requirements, like Cambridge, Somerville, and even now Salem. Boston just killed a housing development blocks away from a Red Line station because it did not have enough parking.
* Eliminate single-family zoning as Cambridge has.
* For the love of God, simplify the zoning and speed up review times for housing proposals.

Without these broader reforms, the new IZ requirements alone will increase the cost to build housing projects and reduce the overall amount of housing produced.
Click to expand...
Fair point. In any case, I think that this particular site is probably high-profile enough that if Samuels or someone else came to the Mayor with a proposal for a lot of homes and some measure of plaza on the deck, they'd be likelier to get a pizza party than a slammed door.
 
Yup, it has gotten so bad that even an electrician can no longer afford a house in either Massachusetts or Texas. The margins are so thin that the modest amount that they must pay these guys brings development to a halt
 
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