Profit center
Harbor development presents a huge economic opportunity for the region --- if we can catch the wave
By Joan Vennochi, Globe Staff
The ``new Boston.'' The next frontier. The most attractive development opportunity in the nation.
The 1,000-acre stretch of South Boston waterfront that seems poised at last for major development is now routinely described in the most grandiose of terms. And predictions of its economic impact on the city, state, and region are just as breathtaking.
An analysis done by scientists at the Massachusetts Institute of Technology estimates that the new Seaport District could generate 10 million square feet of new office space, 1 million square feet of retail space, 1 million square feet of entertainment uses, and 2,000 housing units on the waterfront.
It could create nearly 60,000 jobs and pump an additional $2.2 billion annually into the regional economy, the study found. An invigorated harbor economy could require 5,000 new hotel rooms, beyond the 3,000 needed to support the planned convention center on Summer Street.
The MIT analysis paints an optimistic picture of the future for this expanse of mostly undeveloped land. As always, there is a less rosy view to consider.
The MIT projections are, like most projections, ``a reasonable attempt to be realistic. They have more validity than nothing,'' says Peter Linneman, a Chicago-based real estate fund manager who participated in last spring's Boston Harbor Conference on waterfront development. But when it comes to projections, Linneman cautions, ``none of us want anyone to read them five years later.''
Key questions remain about how best to harness the Seaport District's potential. The fundamental tension is over how quickly development can and should take place and what that development should look like.
Some argue for a seize-the-moment attitude. They say that because economic conditions now are just right - low interest rates, high demand for office space, private investor enthusiasm - the Seaport District should be developed quickly, within three to five years.
Linneman would be in this camp, except that he thinks Boston has already missed ``the moment of real bullishness.''
``You made a huge error,'' he says. ``You weren't ready when the cycle was ready.'' Given that reality, ``Get on with it, guys,'' he says. ``Let the market tell you what to do, rather than a bunch of planners.''
Linneman speaks as an expert from outside Boston: He's a senior managing partner in Equity International Properties, a new fund that targets international real estate and related investments for Chicago-based Equity Group Investments, and is on leave as director of the Real Estate Center at the Wharton School of Business.
One local real estate executive who makes the opposing case for caution is Kevin Phelan of Meredith & Grew, who sees a ``built-in conflict'' between proposals for the Seaport District and the amount of major development already under way in other parts of the city. Because of the volume already in the pipeline, he says, ``You can't say the waterfront is a slam-dunk and that's the total future.''
For their part, city planners argue there is no need to rush development of the Seaport District. Rushing, they warn, could lead to the wrong kind of development - too many office towers filled with too many people from the service industry sector of the economy.
The future of the Seaport District is clouded by other unknowns as well.
Will the private sector make the wholehearted commitment necessary for it to take off? How much will private landowners' agendas, neighborhood agendas, city and state bureaucratic agendas, and various political agendas slow things down? What if development in the Seaport goes forward but critical infrastructure decisions do not keep pace?
``If everything is done well, it will be a major contribution to the economy,'' says Lyn Zurbrigg, now a principal consultant with Abt Associates of Cambridge, who worked on the MIT study as a vice president and managing director of Standard and Poor's DRI.
Samuel R. Tyler, who heads the Boston Municipal Research Bureau, says, ``The real challenge is managing the planning - being farsighted enough to predict what the future will look like, being patient enough to make sure it does evolve properly.''
But as an outsider, Linneman again sees it differently: ``You have a neat chance to do something right and an extreme opportunity to do something wrong.'' What would be wrong, he believes, is doing ``what the market doesn't want. There's no shortage of urban areas designed in a way planners think the world should work, as opposed to the way the world really works.''
Linneman thinks planners often ask for too much open space, particularly in cold climates, and worry too much about building heights. ``If you don't make it tall enough, you can't make the economics work,'' he says.
If the market works in the Seaport District, economic ripples will wash through the neighborhood like the waves reshaping a beach.
A developer turns steel, glass, and concrete into an office building. The building fills with people; they need food and transportation and support services. Some decide they would like to live close to where they work, so they need homes. Once they settle in, they need places to shop, eat, enjoy themselves.
The first economic ripples have begun to hit the new Seaport District.
Fidelity Investments opened its 200-foot-high Seaport Hotel across from the World Trade Center last spring. Already, hotel guests are patronizing nearby restaurants like Anthony's Pier 4 and Jimmy's Harborside. Taxis carry them to their business downtown. They take harbor cruises during their down time.
Fidelity is banking on even more ripples. In July, it broke ground for a 250-foot, 16-story red brick office building that will stand next to the hotel. Fidelity, AEW Capital Management, and Cabot Corp. will be the tenants. Another office tower of similar size is planned for the other side of the Seaport Hotel.
The new federal courthouse on Fan Pier kicked off development with public dollars. Now, the expectation is that office towers, paid for with private dollars, will rise around it, filling up with lawyers who want to be close to the judicial action. And significant economic ripples are expected from the new convention center, planned for Summer Street, which taxpayers are also underwriting.
But what if something - a downturn in the economy - or someone - a private landowner - slows down the ripples?
James Pappas, for example. Pappas, 52, is a real estate developer; he is also one of a handful of people who can claim a piece of the Seaport District as their own.
The Pappas family immigrated to Boston from Greece around 1908. They started a grocery business in the North End, beginning with a pushcart, before expanding to a building on Salem Street. In the 1940s, they put their first stake down in South Boston, buying property now listed as 410-540 E Street.
As a boy, James Pappas worked summers in the E Street building, packing olives and cheese in jars. Today, he owns about 20 acres of land in the Seaport District, including a critical one-acre parcel at the edge of the planned $700 million convention center. Already, the one-acre parcel has been the subject of much controversy, as has Pappas.
Pappas says he wants to hold on to the land, to build an office tower there. The state and city want to acquire it so a hotel next to the convention center can be built on it.
``My father and my uncle were as clairvoyant as they come,'' says Pappas. ``Did they say in the 1940s this was going to be the `new Boston'? I think my father felt that way.''
But as Pappas points out, aside from Fidelity's major investment and what is happening via government fiat - the federal courthouse, the infrastructure overhaul, and now the convention center - ``nothing much has happened here.'' The view from his office at 625 Summer Street isn't much different from the view from the E Street buildings where he helped pack cheese and olives.
As a businessman, he says, ``When you own the property, you want the highest and best use ... the highest and best return. If you could go to the moon, you would go to the moon.''
In other words, Pappas is not ready to tip his hand on the critical acre he owns next to the convention center site. The city can take the land through eminent domain, but at what cost? There is speculation Pappas wants as much as $50 million for the one-acre parcel.
The back-and-forth over his property is just one tiny example of the gap between glowing economic predictions and reality. If one individual can slow things down, imagine the impact of a major economic downturn.
The econometric model MIT's analysts used to predict the Seaport District's future assumed that there would be economic peaks and troughs, but that a strong base level would be maintained. ``If we got into a tremendous decline, with Asia going further down the tubes or Latin America imploding, that's a short-term cycle that could stall things,'' acknowledges Zurbrigg, of Abt Associates.
Even in a strong economy, there are possible pitfalls. One is a labor shortage resulting from the current phenomenally low unemployment rate; another is the fact that the new jobs would be mostly either high-end or low-end - lawyers and financial service people at the top, waiters at the bottom - with few in the middle of the market.
A failure to resolve transportation issues would also hurt Seaport development. State officials are still torn over where to build ramps from the Back Bay to the Central Artery, to provide a critical link between the Back Bay and the new district. And a battle continues between the Massachusetts Port Authority and surrounding neighborhoods over building a new runway at Logan Airport.
Warns Linneman: ``The worst-case scenario is that this becomes another Boston political harangue. Everybody talks until they're red in the face, five years go by, nothing gets done, and you miss a real nice opportunity to start something.''
Joan Vennochi is a Globe columnist focusing on business and political issues