Re: BRA approves Emerson College's Paramount Center
Toby, economics isn't called the dismal science for nothing. There're few hard-and-fast, crystal-clear laws in most of economics, and the dismal science of real estate is no exception.
I don't see how having zoning that encourages four buildings per block, e.g., or eight, instead of one, is categorically, a priori economically unviable. It's less profitable ... but unviable? If you can produce some numbers, then we'd be talking.
Sure, Boston development tends these days (as it has since the bad old Ed Logue days) to emphasize the mega-blocks and mega-developments. And without question, that maximizes profits for a very small pool of local and national developers, who are the only ones with the cash flow to develop those mega-lots. But is it the only way? Do you really think it is?
Economics can be slippery. Especially in real estate, economic decisions and one's ability to profit are chunk-blowingly tinged with politics. As a developer, you do what you can to max out your ROI based on the laws you have to work within. But why should those laws be drawn up to max out developers' ability to max out their ROI? Is that the highest good for the city? What about the quality of life? Opportunities afforded to small businesses and entrepreneurs? Economic diversity? Street life? All of these things are very much affected by zoning and the choices politicians make.
The question, then, is whether it's possible to have zoning that, in certain areas, limits the width of buildings and ability to assemble adjacent parcels. To answer this, you need to ask whether someone will invest in buildings that aren't a block wide. And, in turn, you then have to ask whether you can profit off of such buildings. That's the crux of the matter. At a time when most REITs are abgefarked and investors are chasing yield like a drunken passenger going after stewardesses, just a wee little profit, if it's a sure thing, will attract money. Treasury notes are offering almost a miserable 3%, but they're the most in-demand investment around. Obviously, you'll make a greater profit if you have a block enabling you to build a 40-story "luxury condo" tower with all the charm of a U-Mass dorm. But will there be investment if you zone to limit width?
The easiest way to answer that is to do whatever is done when someone wants to value a parcel or measure the growth/decline in a real estate market -- look to other buildings.
To that end, the vast majority of buildings in Boston are not the First National Bank Building / One Financial Center / One Marina Park Drive or other gems of such girth. Most buildings are pretty small spaces, even downtown and especially in Back Bay. And since most of them aren't falling apart, they're able to make money. Obviously, someone like Druker will try to knock down whatever smaller buildings he's got ... not because they're not profitable but because he can do something MORE profitable. That's his motive. But allowing developers to profit isn't always the city's motive. Otherwise, we'd have turned the entire city into a Charles River Park of Druker boxes (only, mercifully, with less open space). But the city has decided that limiting or encouraging certain types of buildings is in the interests of however it defines quality of life it (and oftentimes it does so idiotically) and worth the haircut developers have to take.
Sure, many of those buildings are already built and thus require no cap investment (other than what's required to renovate spaces for new tenants). So let's look at where most construction in the area occurs: the suburbs. The vast majority of Boston metro area inhabitants (nearly 90%) aren't even in Boston. They live in suburbs in detached, single-family homes. People keep on building them, because they can make a profit on them. Sure, land is cheaper, but developers would still be able to make more money if they built office parks in Newton, rather than homes. The City of Newton has decided it doesn't want to be overrun with offices, though, so it forces developers to build according to its rules. That may keep out the Vornados of the world, but it hardly turns Newton into an investment-starved Third World enclave.
I simply can't believe that building a few thousand units of housing/small-floorplate commercial in the Seaport would be so unprofitable that the outcome would be worse than the one we have today: Parking lots for the forseeable future, with the hope they'll one day be replaced with One Marina Park Drive's poorer cousins (as the eldest, it's quite possible it'll be the blingiest -- to impress, as it surely does).
The economics of real estate are a political question. You'll always find someone who can profit building a project on 1/8 of a Seaport lot. The question is if you force a model that allows only a very limited number of developers to be able to do anything, putting a huge amount of power in their hands, great profits potential, but also huge potential for the s$&% to blow up (as it seems to have done). Or if you encourage diverse, narrower buildings owned by different people. Like Rome, the Back Bay or any of the current Seaport plans, it won't be built overnight. But it'll be a model that has less risk insofar as it's less reliant on 5 or so parties that can even afford it; it'll be profitable, though to a lesser degree (if you think you couldn't turn profit on a 10-unit condo in the Seaport because land and building costs are too high, well, they're doing it on much more expensive land in chic NY neighborhoods like the Far West Village, Meatpacking District, Tribeca, etc.); and it'll create a better quality of life/experience for residents and tourists than a handful of office buildings that look, like One Marina Park Drive, like a recycled Sheraton design with greener glass. Telling me "you don't understand the economics of development" doesn't cut it -- most Boston neighborhoods are zoned smaller, and even new developments do make money; just 'cause Druker or the faux historians he's hired (sorry, that's inside baseball) says he'll lose his shirt doesn't mean it's true.
