Raffles Boston (40 Trinity Place) | 426 Stuart Street | Back Bay

stoweker

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Not really. Still ~50 unsold units at One Dalton. Only six or seven have closed at the Sudbury since May. Resales in lux/ultra-lux buildings are few and far between and often at a loss. Without the international investor demo that made MT these buildings are much tougher sells than you'd like to think. The Seaport seems to be the only place doing moderately well and not that I'd place it in the ultra-lux category with One Dalton and the Sudbury but even Echelon appears to still have a surprisingly high number of unsold units.
agree way too much aggregate luxury condo supply hitting the market right now. if you have the money you have a lot of options in Boston right now. I mean MLS has 144 options for condos above $3.5MM right now, and the excludes all of the unsold inventory at 1D, sudbury, echelon, st regis, raffles, that thing on lagrange, winthrop square....
 

curcuas

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You'd think with a whole tower you could remake it as many more, smaller apartments though? Maybe the price per sqft still doesn't pencil though?
 

DZH22

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I thought this tower was supposed to be apartments actually, but Simon Properties chickened out and decided to just stick with their malls. I still think they should partner with somebody else who is capable of getting this done.
 

stoweker

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You'd think with a whole tower you could remake it as many more, smaller apartments though? Maybe the price per sqft still doesn't pencil though?
smaller units rent more expensive on a PSF basis, but don't necessarily line up with what renter demand would likely be if you did a highrise at copley. would think your renter base would tend to be older, wealthier residents checking out the city for the first time before commiting to a condo somewhere; that would favor 2-3 BRs, with lighter studio demand. unit mix is probably densest in the 1x1, 1x1(den) and 2x2 floor plans to make it work.
 

stoweker

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I thought this tower was supposed to be apartments actually, but Simon Properties chickened out and decided to just stick with their malls. I still think they should partner with somebody else who is capable of getting this done.
i mean, in fairness to them they're a mall owner whose stock has been getting crushed since like 2016... they do retail well. Not that it's the same but GGP did condos at the "natick collection" and look how that turned out.

development of condos for a REIT also isn't a great use of cash, it's not FFO accretive and you have to pay corporate tax on the sale of units so you have some tax loss which makes it tougher.

All that being said, they probably should've set up a condo for the air rights then flipped it to someone like Related who has a ton of experience building complex condo deals. my gut is that probably won't happen now, Boston has a ton of supply to absorb, but in the long run it'll make sense to re-introduce the concept, need to add a lot more beds to the city.
 

bigpicture7

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i mean, in fairness to them they're a mall owner whose stock has been getting crushed since like 2016... they do retail well. Not that it's the same but GGP did condos at the "natick collection" and look how that turned out.

development of condos for a REIT also isn't a great use of cash, it's not FFO accretive and you have to pay corporate tax on the sale of units so you have some tax loss which makes it tougher.

All that being said, they probably should've set up a condo for the air rights then flipped it to someone like Related who has a ton of experience building complex condo deals. my gut is that probably won't happen now, Boston has a ton of supply to absorb, but in the long run it'll make sense to re-introduce the concept, need to add a lot more beds to the city.
All this being said, Simon is sitting on a BPDA-approved project with (what was) a 10-year approval shelf life and has to have been worth something. Getting an air-rights project of that magnitude approved is highly non-trivial. You would think they would at least try to sell the rights to someone else. Even if whomever that purchasing entity is doesn't develop the same building, a project change request goes through a lot more smoothly than a brand new proposal to the BPDA. We've seen a bunch of BPDA-approved projects get resubmitted for design changes and re-approved lately (e.g., GE's approved designs at Fort Point that got sold/redesigned/reapproved). It makes no sense for Simon to just sit on this massive investment and let it expire unless they still plan to do something with the parcel. If they have no intentions of doing anything with the parcel, then it makes no sense for them not to try to earn at least some return (or stop loss) on that investment by putting it on the market. Maybe I'm missing something (if so, please enlighten).
 

stoweker

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All this being said, Simon is sitting on a BPDA-approved project with (what was) a 10-year approval shelf life and has to have been worth something. Getting an air-rights project of that magnitude approved is highly non-trivial. You would think they would at least try to sell the rights to someone else. Even if whomever that purchasing entity is doesn't develop the same building, a project change request goes through a lot more smoothly than a brand new proposal to the BPDA. We've seen a bunch of BPDA-approved projects get resubmitted for design changes and re-approved lately (e.g., GE's approved designs at Fort Point that got sold/redesigned/reapproved). It makes no sense for Simon to just sit on this massive investment and let it expire unless they still plan to do something with the parcel. If they have no intentions of doing anything with the parcel, then it makes no sense for them not to try to earn at least some return (or stop loss) on that investment by putting it on the market. Maybe I'm missing something (if so, please enlighten).
i agree, it optimizes for them to find a buyer of the air rights, condo it, and let someone else build above them if the project is approved. I would guess it's a challenging environment to get someone to landbank air rights right now for an approved project, but maybe could get it u/c with option payments until someone does something with it. All that being said, my gut is that the debt market for condos is pretty soft right now. Someone tried to shop debt for one of the big luxury projects earlier this year and the look through on sales wasn't particularly compelling. To my knowledge the debt ended up not trading. Even if they pivot to apartments it's still a tough sell right now for urban apartment projects, suburbs are on fire but urban projects are still COVID soft on rate (but occupancy is back.... except in the Bay Area).

other consideration for SPG is that doing the project would have to occur in conjunction with something happening for Neiman - they sit under the base of the tower and if i recall the project plan was super disruptive to the tenant. If Neiman goes BK thru COVID and they have an empty box it probably gets more interesting for SPG. Otherwise feels like they missed the window to sell it back in 2017 or whenever it was that they pulled the pug. Long term demand is going to be there but might take a few years to justify construction there, but who knows my crystal ball is as good as anyone elses.

Also FWIW the staging of the deal could have been so complicated that SPG dropped it - might have been less market risk and more construction risk / challenge of execution.
 

curcuas

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smaller units rent more expensive on a PSF basis, but don't necessarily line up with what renter demand would likely be if you did a highrise at copley. would think your renter base would tend to be older, wealthier residents checking out the city for the first time before commiting to a condo somewhere; that would favor 2-3 BRs, with lighter studio demand. unit mix is probably densest in the 1x1, 1x1(den) and 2x2 floor plans to make it work.
I get that, but it's also neighboring the South End, which has plenty of younger people and is next to lots of offices. Could imagine lots of small, nice apts for young professionals (and maybe split amongst them)....
 

jl326

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agree way too much aggregate luxury condo supply hitting the market right now. if you have the money you have a lot of options in Boston right now. I mean MLS has 144 options for condos above $3.5MM right now, and the excludes all of the unsold inventory at 1D, sudbury, echelon, st regis, raffles, that thing on lagrange, winthrop square....
Might be a positive silver lining then, that the Harbor garage building isn't forward anytime soon. I suppose we've reached saturation in the high end condo market.
 

stoweker

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I get that, but it's also neighboring the South End, which has plenty of younger people and is next to lots of offices. Could imagine lots of small, nice apts for young professionals (and maybe split amongst them)....
for sure. but tough to keep small expensive units leased. you hit a certain point on nominal dollars (especially on upper floors) where the pricing doesn't make sense any more and people evaluate options for larger units on lower floors (or look to other buildings). also at high price point renters expect larger units / condo quality build out. you're probably not targeting young renters (unless they work for like bain cap), you're targeting wealthier people from like wellesley who sold the house moved to the city and are trying it out before they buy, and other more transient older renters (part time boston residents for work, corporate relocations, stuff like that)
 

Czervik.Construction

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Stoweker - if you dumped all of your knowledge into an online course, I would be first in line to register!

for sure. but tough to keep small expensive units leased. you hit a certain point on nominal dollars (especially on upper floors) where the pricing doesn't make sense any more and people evaluate options for larger units on lower floors (or look to other buildings). also at high price point renters expect larger units / condo quality build out. you're probably not targeting young renters (unless they work for like bain cap), you're targeting wealthier people from like wellesley who sold the house moved to the city and are trying it out before they buy, and other more transient older renters (part time boston residents for work, corporate relocations, stuff like that)
 

curcuas

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for sure. but tough to keep small expensive units leased. you hit a certain point on nominal dollars (especially on upper floors) where the pricing doesn't make sense any more and people evaluate options for larger units on lower floors (or look to other buildings). also at high price point renters expect larger units / condo quality build out. you're probably not targeting young renters (unless they work for like bain cap), you're targeting wealthier people from like wellesley who sold the house moved to the city and are trying it out before they buy, and other more transient older renters (part time boston residents for work, corporate relocations, stuff like that)
These are good points. I was thinking of what you see in NYC where relatively new luxury ish towers get chopped up for apartments split by young bankers and lawyers in Murray Hill and Downtown. Very different market (and really not a sign of success by any means), but makes you think nontetheless.
 

shmessy

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Just wait until the blue glass goes up on this one, just across the street from the Hancock - - it'll never be referred to as "Raffles" by Bostonians, rather as "Mini Me".
 

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