Copley Place Expansion and Tower | Back Bay

[datadyne007]

Isn't Simon Cooley tower being built over the Mass Pike? That likely raises costs well above a building build on solid ground.

 

[KentXie]

Housing is, to a reasonabke degree, pretty fungible. These new upper income tenants aren't appearing out of thin air, so they'll be freeing up less valuable units, which can be occupied by those with lower incomes, and they, in turn, free up their old units, and it just works its way down.

I think the problem with your theory is that you're assuming the housing market is restricted locally. This is untrue as buyers come not just from the surrounding area, but globally as well. In fact, one of the drivers of the recent luxury market here is because foreign investors are willing to buy luxury condos in Boston as either a part time residence or as a solid investment. In this sense, these upper income tenants ARE appearing out of thin air. In addition, exacerbating this problem is the fact that those who are buying them as an investment will only keep buying these condos at a certain price range. When they deem prices to be too high, they'll wait until prices drop to a certain point before they start buying them again, essentially keeping luxury condos within that price range.

 

[odurandina]

^^(God help us) a few foreign buyers helped developers manage risk on the most difficult projects, create jobs, and a create a 3rd option for the wealthy to live in a vertical city, instead of gobbling up forest/s in Westford or land in Beacon Hill, and the multi-tiered effect of vacating less costly units. Don Chiofaro may be counting on a few disgraceful global pirates to put him over the top.

 

[bigpicture7]

I think the problem with your theory is that you're assuming the housing market is restricted locally. This is untrue as buyers come not just from the surrounding area, but globally as well. In fact, one of the drivers of the recent luxury market here is because foreign investors are willing to buy luxury condos in Boston as either a part time residence or as a solid investment. In this sense, these upper income tenants ARE appearing out of thin air. In addition, exacerbating this problem is the fact that those who are buying them as an investment will only keep buying these condos at a certain price range. When they deem prices to be too high, they'll wait until prices drop to a certain point before they start buying them again, essentially keeping luxury condos within that price range.

See my policy idea in Post 2173.

This would harness this foreign investment for the betterment of the city.

You keep pointing out that building these towers isn't fixing housing.
You downplay the fact that not building them isn't doing us any favors either.

Not building them has just meant that people convert triple deckers and sell the condos for a million bucks. That doesn't solve lower income housing either.

 

[fattony]

I think the problem with your theory is that you're assuming the housing market is restricted locally. This is untrue as buyers come not just from the surrounding area, but globally as well. In fact, one of the drivers of the recent luxury market here is because foreign investors are willing to buy luxury condos in Boston as either a part time residence or as a solid investment. In this sense, these upper income tenants ARE appearing out of thin air. In addition, exacerbating this problem is the fact that those who are buying them as an investment will only keep buying these condos at a certain price range. When they deem prices to be too high, they'll wait until prices drop to a certain point before they start buying them again, essentially keeping luxury condos within that price range.

To be clear, you are suggesting that a foreign investor who bought in Millenium Tower would not consider a South End brownstone instead? Can investors only see those buildings that are taller than their neighbors and so only skyscraper condos can be investment properties? The notion is absurd on its face.

Boston real estate is an attractive investment regardless of whether or not there is new construction. In fact, the new construction mitigates all the forces driving up prices. There is no mechanism by which an increase in the supply of expensive homes induces an increase in demand for luxury homes AND simultaneously increases the price of said homes (they aren't an investment if the price doesn't go up).

One thing you can count on is that rich people (obviously with a few exceptions) don't do stupid things with their money. They don't buy "overpriced" things. They wouldn't be/stay rich if they behaved irrationally.

 

[fattony]

You keep pointing out that building these towers isn't fixing housing.
You downplay the fact that not building them isn't doing us any favors either.

Not building them has just meant that people convert triple deckers and sell the condos for a million bucks. That doesn't solve lower income housing either.

This.

In my area between Davis and Ball Squares in Somerville, about half of the homes (mostly 2 families) have had major renovations in the past 10 years and 2-3 houses on each block are currently under renovation. 2-beds are selling for around $500 per sq ft and you can't get a 3-bed for under a million dollars. Those are the prices for half of a condo-ized 2-family, not the whole building.

What was a working-class, blue-collar community 20 years ago is now literally being converted to million dollar condos without a single new structure being built. If those flashy new downtown towers weren't there, do you think home prices would be higher or lower in Somerville right now?

 

[JumboBuc]

There's some weird economic theories surfacing in this thread.

You can say that again!

A lot of this thread is dancing around and distorting simple supply and demand theory. It is 100% expected due to the most basic economic models that supply growth will slow as quantity increases and prices fall. There's nothing wrong with this. It's also expected that supply growth at the upper end of the market will be the first to drop off. Once the highest end of the market is satiated, high-end product is scrapped and the focus moves down the income ladder.

There are also a whole bunch of assumptions being treated as gospel in this thread which are simply not true:

• It is not true that developers are only targeting the super luxury building market. Remember just a few weeks ago when this forum was shaking its collective head at all the cheap "5 over 1" wooden apartment structures going up everywhere? Those aren't targeted at the super rich, they're targeted at the run-of-the-mill Boston educated professional class. And their rise is perfectly in keeping with supply theory: developers drop high end projects (like Copley) and shift to lower end projects (like all the 5-over-1) as those with highest willingness to pay are satiated.
• Overseas buyers are not the primary driver of this housing boom. They make up a tiny, tiny sliver of total demand. I'm gonna quote myself on this topic:

This narrative isn't present only in the Globe or among the "angry old-guard". Plenty of my young, progressive, millennial friends who never read traditional media discount the effect that new condo buildings have on overall housing availability by casting them aside as just "empty buildings for Chinese billionaires". You even hear this logic applied to apartment buildings, which by their nature cannot possibly be used by tenants to store wealth.

This is all despite the fact that all evidence shows that the vast majority of new condo units in Boston are occupied by "locals" of one form or another.

A lot of people have a lot of difficulty admitting that the Greater Boston area is chock full of well-paid workers and well-off retirees who can easily afford dropping a million-plus on a condo. They've convinced themselves that everything is doom and gloom, and when the local building boom provides evidence against their narrative they explain it away with phantom "Chinese billionaires".

Supply growth is good. It keeps prices lower than they would be otherwise. Anecdotes of high-end projects being scrapped is not evidence against this; if anything it's evidence in support of this.

Everything we're seeing here is perfectly in line with basic economic theory. It is strange, however, that Simon would sink a bunch of costs into their project, create a highly valuable asset (the approved plans), then just shelve it. I suspect there is negotiation going on behind the scenes the sell these development rights to another party. We just don't know about the details...

 

[odurandina]

Thank you.

 

[KentXie]

Bigpicture,

"You keep pointing out that building these towers isn't fixing housing."

No, I did not. What I pointed out was that developers WILL NOT keep building them if they can't turn a profit. Perhaps your policy that you suggested would work but there's no traction to do so.

"You downplay the fact that not building them isn't doing us any favors either"

Again, no I did not. As I stated before, not building them would increase the price which benefits the developers as they can now turn a profit (but does benefit not the city or it's residents). However, developers will stop building condos and wait until the luxury market to recover before the start building again. What I'm pointing out is that people that constantly say the solution is to just keep building doesn't seem to understand that developers won't keep building them if they are not making money. It's unrealistic.

"Not building them has just meant that people convert triple deckers and sell the condos for a million bucks. That doesn't solve lower income housing either."

I'm aware of that but what incentives can you offer to developers to keep building luxury condos at a loss and what incentives can you offer to people who wants to convert triple deckers to condos to not do so?

 

[KentXie]

To be clear, you are suggesting that a foreign investor who bought in Millenium Tower would not consider a South End brownstone instead? Can investors only see those buildings that are taller than their neighbors and so only skyscraper condos can be investment properties? The notion is absurd on its face.

Not what I'm saying. What I am saying is that the demand from investors, foreign or local, and prospective tenants increases once prices fall up to a certain level (due to oversupply). Basically there's a price floor, set either by developers' profit margin or by the buyers at the point where enough buyers jump into the market to eat up the oversupply. In short, there's a moving equilibrium that goes up and down within a certain price range, the price floor being higher than what would be considered affordable. I would group the South End brownstone within the luxury condo market by the way.

Boston real estate is an attractive investment regardless of whether or not there is new construction. In fact, the new construction mitigates all the forces driving up prices. There is no mechanism by which an increase in the supply of expensive homes induces an increase in demand for luxury homes AND simultaneously increases the price of said homes (they aren't an investment if the price doesn't go up).

It mitigates all forces driving up prices...for luxury condos. Elsewhere in the housing market have yet to see any downward pressure in prices.

 

[KentXie]

Supply growth is good. It keeps prices lower than they would be otherwise. Anecdotes of high-end projects being scrapped is not evidence against this; if anything it's evidence in support of this.

Everything we're seeing here is perfectly in line with basic economic theory. It is strange, however, that Simon would sink a bunch of costs into their project, create a highly valuable asset (the approved plans), then just shelve it. I suspect there is negotiation going on behind the scenes the sell these development rights to another party. We just don't know about the details...

It can also be evidence of them waiting for the market to improve. Like you said, they sunk a lot of cost in it. To develop it at a loss would not make sense. To sell it at a loss wouldn't make sense either. To treat it as a long term investment in hopes that the market recovers so that they can either develop it at a margin or sell it to another developer for a profit makes sense. The former would probably makes the most sense as they would be able to build immediately as soon as the next business cycle starts, allowing them to catch the wave before it crests. Copley wouldn't be the first project to do this in Boston. Both the Kensington and Millennium Place got approval and waited until the market recovers to build (MP with the unique situation of having changed hands in the meantime). I don't remember hearing developers turning their eyes to building affordable housing during the '08 downturn either.

 

[lexicon506]

Posted this question in the "What's Happening with Project X" thread, but better chances of an answer here:

Copley Place is a tall, fully permitted luxury condo project in one of the most desirable spots in Boston, that overcame intense neighborhood opposition and is grandfathered in against the new shadow laws "protecting" Copley Square.

I would think developers from across the city/country would be banging down Simon's door to buy the development rights off of them. Just because Simon is inexperienced and risk-averse doesn't mean this project wouldn't be successful in someone else's hands. So why isn't this happening? Or is it happening and we just don't know about it?

 

[odurandina]

i asked that very question to Joe Larkin of Millennium Partners last December, at the 2nd public meeting for Winthrop Square; "why not just sell it to a developer like Millennium? Would MP get involved if Simon were to seek a partner?" i also asked if they were one of the developers engaged with the BPDA to bring back the Columbus Ctr project.

Flanked by the top executive on his team, Larkin gave a few terse words in candor; He expressed extreme skepticism about the viability of Copley Tower and Columbus Ctr due to the extreme costs of the decking, including the messy process of scheduling and traffic disruption/s. He made it clear that they were not the types of projects that Millennium would ever attempt to do given the current level of support by Mass.gov (without getting into specifics). Larkin further expressed doubt that any air-rights projects would be completed by any developer anytime soon.

 

[stellarfun]

Simon may have already written this off. They write down a lot of property / projects every year. Helps their bottom line when it comes to pay the tax man.

The idea of trickle down housing affordability is a strange one. If I own a $2 million condo and buy a $5 million condo, the notion that there is a ready and eager market for my $2 million condo is probably misplaced. If nearly all those in the demand side of the market couldn't afford my $2 million condo five years ago when I bought it, why would it become affordable now?

The following is data from a mini-recession period, but it reveals that income growth a decade plus ago was non-existent.

This memo describes the recent trend in real median household income in Massachusetts, Greater Boston, and the city of Boston from 1999 through 2006. Over this period, real median household income in the city of Boston grew 0.1 percent versus declines of 3.9 percent in Greater Boston and 1.8 percent in the Commonwealth.

file:///C:/Documents%20and%20Settings/Walter%20Groszyk/My%20Documents/Downloads/owens012808.pdf

I did not read all the way through to see if they broke out income by cohort, e.g., top 10 percent, top quarter, etc.

 

[bigpicture7]

^ they very likely wrote something off. But even if they did, they're still sitting on the approved plans which have value that will expire if not exercised. They would have been foolish to fully kill the asset on their books...If there's any viability to this project, you'd think another developer would inquire to buy the approved plans for cheap. It's hard to believe they got as far as they did if the feasibility were as doomed as Odura implies.

And secondly, when we're talking about triple decker condos selling for $1 mil in Somerville, we're not talking about an economic model where cost savings do or don't trickle down. We're talking about there birth of a conversion market. Property that was previously selling for $300k is selling for $1mil because there wasn't supply for luxury buyers downtown who wanted a seven figure condo, so the conversion market was born in the urban outskirts of Boston. I refuse to believe that someone who had seven figures to spend on a condo would prefer one in a triple decker in Somerville versus one downtown were both available. This market in Somerville is there because of insufficient supply downtown.

(and this is no dis to Somerville, I lived there happily for 10 years).

 

[TallIsGood]

Bigpicture,

. . . but what incentives can you offer to developers to keep building luxury condos at a loss . . .

Isn't the better question, how can we reduce costs for developers so that they can build the same product cheaper and, therefore, have more viable project and increase supply?

By reducing review regulatory review time, reduce community benefits costs, reduce low income set asides, etc.

 

[DZH22]

.....reduce low income set asides, etc.

I think you are on to something with this one. All affordable housing requirements should be eliminated for air-rights projects. There's a reason we haven't seen one in 30+ years or however long it has been. If we are serious about getting those projects built, they should be allowed to go 100% market rate, period.

 

[stellarfun]

Somerville is the exception, not the rule.
http://realestate.boston.com/buying/2015/10/29/yikes-the-latest-home-and-condo-prices-in-somerville/

For those too young to remember, the Great Recession was brought about in large part by creating false demand. A demand created to prop up housing prices and sustain a housing market built on upward movement in prices (and supposed affordability).

The sub-prime mortgage market was shut down, demand evaporated, and the propped out pricing collapsed. Homeowners found themselves underwater, and walked away.

Eight years out from the Great Recession, about 20 percent of the homes in Las Vegas were still underwater.
https://www.reviewjournal.com/busin...ownership-in-las-vegas-dips-below-20-percent/

 

[bigpicture7]

^Stellar,

I promise I am not trying to be a jerk - I honestly am confounded by this effect and am trying to understand it. I'm just not convinced Somerville is an "exception" marked by creation of "false demand".

There are people on this thread trying to use rational economics to explain this housing market, yet now we're talking about "false demand" and "exceptions." I actually do believe this is a basic supply issue, and that these rising prices in the urban outskirts are indeed rational.

I think Arlington and Watertown are right in Somerville's wings here. Somerville simply has better transit and thus has had the lead. But try buying a wood framed home / condo unit conversion along Mt. Auburn in Watertown or along Mass Ave. in Arlington. I see the exact same effect. Just maybe a 10-20% price lag.

Believe me I am old enough to see the trends. My family owns a triple decker in Watertown, and 25 years ago we were trying to figure out how to dump it. Now it's a totally different conversation about how to tactfully kick the tenants out and convert it.

Why would someone drop $700k for a Watertown condo if there were a plethora of high-end condos available in the core of the city? I love Watertown, but it's just not as comparatively nice or well appointed or well located.

Watertown, Arlington, Somerville...these would have been GREAT places for someone earning $100k to buy a home and make the short commute to the city. Now the middle class is being priced out of those neighborhoods. Unfortunately Boston probably doesn't care about the places outside its jurisdictional borders, but they are all part of the Boston housing ecosystem...if there was some cohesive planning here, we'd avoid making it so hard to build these towers in the city so we could preserve these comparatively shitty wood structures one rung out from the core to give middle class folks a chance to set up base.

EDIT: corrected my usage of "cost" and "price"

 

[fattony]

The idea of trickle down housing affordability is a strange one. If I own a $2 million condo and buy a $5 million condo, the notion that there is a ready and eager market for my $2 million condo is probably misplaced. If nearly all those in the demand side of the market couldn't afford my $2 million condo five years ago when I bought it, why would it become affordable now?

And secondly, when we're talking about triple decker condos selling for $1 mil in Somerville, we're not talking about an economic model where cost savings do or don't trickle down. We're talking about there birth of a conversion market. Property that was previously selling for $300k is selling for $1mil because there wasn't supply for luxury buyers downtown who wanted a seven figure condo, so the conversion market was born in the urban outskirts of Boston. I refuse to believe that someone who had seven figures to spend on a condo would prefer one in a triple decker in Somerville versus one downtown were both available. This market in Somerville is there because of insufficient supply downtown.

(and this is no dis to Somerville, I lived there happily for 10 years).

Thanks for the great response BigPic. I'll add that the current situation is that there are too many people who want to buy that $2 million (quality) condo and can't find one. A $200k home can be bought for all-cash and gut-renovated to luxury condo quality for another $200k - the same as a 20% down payment on that hypothetical $2M condo. (These are dumb, hypothetical numbers, but you get the point). If the market fails to provide what rich people want, they still find a way to get it. Often at the expense of poorer people. #factsoflife

Housing is very durable, especially the old timber and masonry buildings in and around Boston. Because of that durability - on a long enough time-scale, housing is fungible. If the market doesn't supply the quality and type of homes that people are currently demanding, then the housing stock will convert to accommodate demand. Right now Boston is in a situation where affordable homes are moving up-market through renovations. 50 years ago these same homes were drifting down-market through neglect (and really plummeted into the toilet during rent control). Large single family homes have been diced into smaller apartments. Multi-unit townhouses get consolidated into a single bigger unit. In short - things change.

Circling back to the thread topic - Copley tower not being built will contribute to the continued re-gentrification of Dorchester (recall that originally whole swaths of Dot were pretty posh) and Watertown, etc. It isn't about trickle-down affordability. It is about scarcity and the wealthy always win.