The Economics of Building in Boston

But if that list was ranking metropolitan areas, then Boston would be in the top 5.
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Unfortunately, it looks like we're no higher than 13th if you go by metro areas (behind at least Denver, Atlanta, Detroit, Minneapolis, Philly, Seattle, NYC, Houston, Dallas, Chicago, SF, and LA, in no particular order).
 
Greetings to all, welcome the new thread.

atlrvr, I welcome the dialogue ... and your raising it to a higher level. I'll confess to having simplified some of the math in my earlier posts to make them a bit more comprehensible, particularly around matters of leverage and risk adjustment. But I stand firmly behind my statement that tall, thin towers are poor investments. I'm happy to get into more detail if others think it's warranted, but I'm worried about making the thread dull and the philosophical issues are more interesting. Two quick points are that 1) to make the analysis clean you need to treat rents paid to yourself as arms-length transactions and 2) if you are diving into more cash flow detail than a simple sales-price-to-sales-price analysis you've got to look at cash outflows, too. Hancock made tens of millions in capital improvements, and paid millions in maintenance, property taxes, and so forth in the interim.

Tocoto and others make a very good point about the marquee value of the building, which is real and significant but difficult to calculate. One of my real estate professors used to rail at length about the Transamerica building in San Francisco - because of its shape it is really terrible from a cash flow perspective. Its only justification was as a really, really expensive billboard, whose value he questioned. (I'm sure others would disagree). The other interesting thing is that this value often outlives ownership, as with the Hancock, Pru, and Sears towers, where name association persists even though ownership has long since passed to other hands.

Incidentally, this same professor HATED architects, because they always wanted to mess with the "formula." A "formula" building featured a square, regular footprint on all floors with a central elevator bank and restrooms and a maximum walking distance from the corners to the elevators/restroom. The optimal height of the "formula" building was location dependent, but mathematically derived from a ratio of land cost to construction cost. In most of suburban America it worked out to 3 to 5 stories, in places like downtown Boston it would be significantly higher. What we see in the Seaport look EXACTLY like the "formula" buildings he loved. I wouldn't be surprised if their developers used the same model.

Now (attempt at grand integrative statement) it seems to me that the challenge we face from a policy standpoint is to mediate between the right and left. On the right (epitomized on this board perhaps by the Dude) there is understandable exasperation with the bureaucratic tangle that makes development in Boston so time consuming and expensive. On the left (ably represented by Ron Newman) is the nagging concern that without some degree of regulatory tangle we'll wind up with a sterile streetscape of "formula" buildings, as you see in places like Houston where the regulatory environment is less challenging. And it is certainly true that many of the historic developments we like most were an outgrowth of a either a very regulated environment (like the Back Bay - strict size, setback, height rules) or subsidies (existing development over the Pike) or ego / billboard statements (like JHT or the Apple building) which may be economically rational in a narrow sense, but which are dubious as precedents for good design in a libertarian environment (since most developers and tenants must base their decisions on cash flows that don't include a line for "advertising statement" or "marquee value").

I'm glad that we're getting beyond shouting "damned NIMBYs!" on the one hand and "Why is North Point so ugly-assed?" on the other. Most of us probably agree more than we disagree but it is very difficult to strike an optimal balance. And much of what we are wrestling with does come back to the uneasy intersection between economics and aesthetics.
 
On the right (epitomized on this board perhaps by the Dude) there is understandable exasperation with the bureaucratic tangle that makes development in Boston so time consuming and expensive. On the left (ably represented by Ron Newman) is the nagging concern that without some degree of regulatory tangle we'll wind up with a sterile streetscape of "formula" buildings, as you see in places like Houston where the regulatory environment is less challenging.[/i]

Unfortunately for Boston and Massachusetts in general the rules are bent way left. If you notice the population boom of the South, Southwestern, and Western states, their rules are bent to the right though California in recent years seems to have found a more comfortable middle ground. This state is in a stranglehold of zoning rules and regulations that change from town to town which prevent any sort of housing that is aimed for the middle and working class population. The burbs surrounding Atlanta, Charlotte, Orlando, Las Vegas, Dallas, Phoenix, etc. are filled with beautiful homes that people can afford. Granted, they have little or no yard....just a lovely screened-in pool that you can access from your living room by opening a sliding glass door. "But who wants to live in Atlanta or those other unspeakably crowded, ugly cities and their burbs" you ask? Obviously, millions and millions of people do want to live there. Many of those families would love to live in the Boston area but have been priced out of the market. When you have to have 5 acres to build only the well heeled can build. This area has to find a happy medium...I don't think smart growth is gonna be enough. It's a start but it isn't enough. Boston has the same problem with it's extremely complicated layers of bureaucracy in order to build. As with anything, extremes on either end are not good and a happy medium has to be found.
 
5 acres??? have you ever been to the suburbs? go to weymouth or braintree, these people have less than .5 an acre usually. lynn, quincy, malden, dedham, all waaaaay less. these are really cities but u gotta be kiddin. i lived in tampa for 4 years, and areas less dense than braintree and weymouth are considered part of the city. jacksonville and miami are the same way. go to LA, they're suburban neighborhoods, granted its real ghetto but its part of LA. that fuckin city goes on forever.
 
InTheHood

I think that was my favorite post I've seen yet....someone applying logic to demostrate the reality of development....the so-called middleground.

That said, I contend that I was accounting for a large portion of the cash out-flows, because I treated the return as a function of NOI.

I think qualitative analysis into what is a good estimateted return on "good architecture" or LEED certification is simply fascinating. Mastering the subjective components to real estate investing is really what distinguishes truly successful developers/ivestors. Unfortunately, I think a lot of people took your real estate class, and now they are hard at working transplanting Robert Moses' vision to the South Boston Waterfront.
 
"But who wants to live in Atlanta or those other unspeakably crowded, ugly cities and their burbs"

Are you saying Atlanta is dense, because it is far from it.
 
nice post, inthehood and others.

trying to pull together a couple of threads... to the idea of not having enough of a f500 footprint in boston: not interested at all. boston works more on a small scale because of its greatest asset: brainpower and creativity.

the more large companies the fewer akamai, nuance, evergreen, etc. we export small companies to the rest of america very profitably in the software, networking, bio/pharma, healthcare, law, and financial sectors (among probably others). as in exports, it isn't who owns what, its who does what well and is rewarded for it.

so, as far as formula buildings, the only thing i'd wish for in the seaport is smaller footprints and more rapid turnover of constructed space to new owners and ideas.

look at fort point. those old warehouses aren't especially daring architecturally. pretty stolid, actually (as much as i love 'em). what's interesting about the area comes from its density and creativity use of valuable space. i could be wrong but I can imagine a similar feeling could rise up in other parts of the seaport 50 to 75 years from now.

probably the best local example of what i'm imagining for the seaport is in longwood -- one of my favorite parts of town. but not because of the striking architecture (other then the elegant core HU campus), its because of the commercial and intellectual energy compressed into a tight area.

as much as i'd love to see another back bay get constructed in the seaport, what we probably need most is a no-holds barred special economic area / export zone.
 
Bobby Digital said:
5 acres??? have you ever been to the suburbs? go to weymouth or braintree, these people have less than .5 an acre usually. lynn, quincy, malden, dedham, all waaaaay less. these are really cities but u gotta be kiddin. i lived in tampa for 4 years, and areas less dense than braintree and weymouth are considered part of the city. jacksonville and miami are the same way. go to LA, they're suburban neighborhoods, granted its real ghetto but its part of LA. that fuckin city goes on forever.
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There's a big difference between established lots and permitting of new construction. Many towns require even as much as 5 acres per lot as a condition of building a new subdivision. Most towns will not let you construct a house on a new lot with less than 2 acres of land and hundreds of feet of frontage.

Places like Atlanta grow so exponentially because housing is less a commodity than it is a product to be sold. If market demand goes up, you build more - there's plenty of land to do so. Housing there is like a product on a shelf, while housing here is like oil - it's a commodity whose supply is limited.

The problem here is that there are too many set-in-stone rules and not enough discretion. Zoning is a stupid idea. The BRA is a good organization in theory but in practice it is just not run correctly. They should get rid of all the zoning laws and start from scratch. The BRA should be a board of planners that a developer submits a project of any type to. The board then considers it and works with the developer to recommend improvements. They should be looking at things like whether it will oversaturate and area with retail, whether it will add to the urban fabric, how to make it add to the urban fabric. They should not be worried about shadows and blocking views and conforming to arbitrary height limits and zoning rules and such nonsense. Unless a project is in some way very detrimental to the community, the BRA should not dictate what the developer must do to obey the NIMBY complaints, they should just work with the developer to ameliorate the community's concerns if at all possible if the concerns are found to be valid.

In other words, it should be a two way dialogue (a la Westwood Station) rather than a one-way dictation.
 
Bobby Digital said:
do you even know how large a lot 5 acres is?
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Yes, I do actually. I live on a full one-acre lot, on which we have a large front yard with trees, a driveway that can fit maybe 10 cars, my house with a two+ car garage and a forty by fifteen foot deck in the back, space to put our boats, a very large tree in the backyard, a rough baseball diamond, a basketball court, a full size batting cage, a jungle gym thing, and two sheds. And let's not forget the compost pile in the corner.

Which further underscores the ridiculousness that ANY house lot would EVER need five acres and proves our point.
 
Can you guys cut dude a break...he's just making a point that an acre lot is pretty damn big...2 acres is huge...3 even more so to be required to build a house on. I started this whole thing by throwing out the 5 acre number...I was exaggerating, but many, many, towns in the greater Boston area have strict building codes for new construction...most having 1, 2, or even 3 acre requirements and many towns have those requirements for one purpose..to keep people OUT, Lincoln, Weston, and Concord being prime examples. That's a huge waste of resources and does nothing but drive up the price of housing. Dude made some excellent points in his previous posts. He mentions Westwood Station, an awesome development, but even Westwood Station, with 1000 housing units, is allowing only 1 or 2 bedrooms per unit. People just don't want lots of families with kids moving in. But at least something dense like Westwood is being built! I don't know how to post links but these are the titles of articles (among many) that address this situation.

Housing slowdown blamed on local rules - The Boston Globe
Can the starter home be saved? - The Boston Globe
 
This plan would densify the metro and reduce sprawl.


Plan envisions bustling town centers
'MetroFuture' puts focus on suburbs
By Sarah Schweitzer, Globe Staff | May 1, 2007

Planners mapping the future of Greater Boston want to encourage people to live and work in suburban town centers, and cut pollution, water usage, and traffic to improve the quality of life over the next two decades.

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Boston.com
Sign up for: Globe Headlines e-mail | Breaking News Alerts The "MetroFuture" planning recommendations by the quasi-public Metropolitan Area Planning Council were made after three years of discussions with 4,000 residents and public officials, and will be unveiled today at a Boston College citizens seminar in downtown Boston.

While short on specific means for reaching the goals, the plan urges lawmakers, private industry, and state and local governments to work together over the next two decades to shift growth from remote new suburbs to existing town centers. It calls on older suburbs to amend zoning codes to permit redevelopment and mixed-use development, such as housing above stores.

The aim is to have 80 percent of new housing and new jobs in cities and larger municipal centers such as Framingham, Peabody, Norwood, and Marlborough. That would enable more people to walk or use mass transit and thereby reduce traffic and pollution, according to the plan.

The plan also calls for a 20 percent reduction in water usage from residents and a 33 percent reduction in the projected usage from new housing; and it encourages a 25 percent increase in renewable energy as well as a 20 percent cut in carbon dioxide.

"Implementation will be hard ," said Marc Draisen , executive director of the Metropolitan Area Planning Council. "It is a bold plan with big ideas that requires change from the way we've been doing things. It's going to take time, and it's going to take effort."

Supporters say they believe that the plan will help municipalities plan for the long term and pool resources to improve the quality of life in the area.

"In the municipal world, we are reactive and deal with problems when it's too late," said Michelle Ciccolo , assistant administrator and community development director in Hudson. "This plan enables communities to look at plans and see what would happen if we don't change business as usual."

But some who laud the plan nonetheless question whether it can be implemented.

"The plan is fighting against both economic and political factors that will make this difficult," said Ed Glaeser , economics professor at Harvard University and director of the Rappaport Institute for Greater Boston.

Glaeser said that a growing number of people want to live close to transit and downtown centers, but others are interested in the new large-lot homes that populate new suburbs. Many of these people, he said, are the sort of workers Massachusetts is trying to keep and attract: young families.

Mark Leff , president-elect of the Home Builders Association of Massachusetts, agreed, saying, "Smart growth is part of the solution to the housing problem in the state, but not the entire solution. What we really need to do is take a look at providing starter homes for young families, and those are not going up around those urban cores."

In suburban areas, Leff added, the type of development called for in the plan is difficult because many town centers are already built out, and zoning laws can restrict housing units in the area.

Draisen said that communities need to work together and implement better zoning and planning tools. Then, as called for under the plan, 65 percent of suburban growth could be located in town centers and 45 percent of suburban housing could be created through redevelopment, such as converting shuttered factories into lofts.

"Wouldn't it be better to protect green space and steer development of small homes to near the town centers and transit centers?" he said.

The plan is similar to another proposed in 1989 by the group that failed to gain traction and eventually fizzled. Draisen said the difference between the two is that this time, he created the plan with input from 4,000 residents and public figures before publicly floating it.

He said he has not assessed a dollar figure for the plan yet, nor does he have a list of public officials who have offered formal support. He said that will come in the fall when an implementation plan is ready.

Mayor Thomas Ambrosino of Revere said he likes the plan's outline, so far.

"When you're planning for such a long-term vision, you have to be bold," he said. "You'd be crazy to be timid. If we come up a little short, what's the harm?"

http://www.boston.com/news/local/articles/2007/05/01/plan_envisions_bustling_town_centers/
 
atlantaden said:
many, many, towns in the greater Boston area have strict building codes for new construction...most having 1, 2, or even 3 acre requirements and many towns have those requirements for one purpose..to keep people OUT, Lincoln, Weston, and Concord being prime examples. That's a huge waste of resources and does nothing but drive up the price of housing...
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...which of course suits the residents just fine.


(I agree, it's an outrage.)
 
ablarc said:
atlantaden said:
many, many, towns in the greater Boston area have strict building codes for new construction...most having 1, 2, or even 3 acre requirements and many towns have those requirements for one purpose..to keep people OUT, Lincoln, Weston, and Concord being prime examples. That's a huge waste of resources and does nothing but drive up the price of housing...
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...which of course suits the residents just fine.


(I agree, it's an outrage.)
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One again ablarc, you forgotten function!

Where will the suburbanites park their 4 SUVs (one each for Mom, Dad, Jr and Missy)? Where will the put their in-ground pool? How can they fit in 3+ bathrooms, a gourmet kitchen, two home offices, and the home theater in house on a lot less than 3 arces?!?! What the hell are you smoking? The houses would end up right next to each other! It would leave hardly any room for a showcase lawn. Get with the program!
 
statler said:
One again ablarc, you forgotten function!

Where will the suburbanites park their 4 SUVs (one each for Mom, Dad, Jr and Missy)? Where will the put their in-ground pool? How can they fit in 3+ bathrooms, a gourmet kitchen, two home offices, and the home theater in house on a lot less than 3 arces?!?! What the hell are you smoking? The houses would end up right next to each other! It would leave hardly any room for a showcase lawn. Get with the program!
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Where I live this kind of program is migrating to what folks delusionally refer to as the "inner city." It's fun to squeeze all that you enumerate onto a lot that's 50' by 150'.

Far from impossible, the result gives you a really usable outdoor "room" in back --and even a bit of front lawn to landscape and mow (required by zoning setbacks).

.
 
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