Scott Van Voorhis
Greater Boston’s surging real estate market, from new skyscrapers to multimillion-dollar penthouse sales, seems likely to dodge the China bullet.
If nothing else, it is not 2008 all over again.
Yet the growing concern about a slowdown in China’s overheated economy and the global stock market turmoil it has triggered offers a timely reminder that no boom lasts forever.
It is a lesson that every developer and investor in the Boston area with ambitious plans should take to heart. Sure, we’ll dodge this one, but we may not be so lucky next time. And if past history is any indication, next time is far more likely to be two or three years from now rather than a decade.
And it’s a reminder how quickly things can turn; when the boom finally goes bust, if your tower is not already halfway up, you may find yourself waiting for the next cycle.
“I think we all need a reminder every now and then that trees don’t grow to the sky,” said Frank Petz, head of JLL’s New England capital markets group. “Every now and then we need a dose of reality.”
So what’s the immediate fallout we can expect from the Chinese economic/stock market crisis?
Chinese buyers have been active in the luxury condo market downtown, but empty-nesters from some of the wealthier suburbs around Boston are driving the downtown condo boom far more than wealthy Chinese buyers. And while Chinese investors have begun to poke around the commercial real estate market, they are still relatively minor players.
“Any ‘turmoil’ would have to be more sustained over a longer period of time to factor into any CRE downturn,” argued Mary Kelly, director of market strategy and research at Colliers International. “Boston is still well diversified and a ‘safe haven,’ so no need to sound the warning bells at this time.”
In fact, there is an argument that we may get more investment from the other side of the world as wealthy Chinese seek a safe haven for their money, noted David Begelfer, chief executive of NAIOP Massachusetts, which represents developers across the state.
“It’s probably great for the real estate market, as far as the foreign money that has been flooding into Boston,” he said.
My guess is that it will be a wash, with any new money coming in balanced by capital that will never make it over here because it was sucked into the vortex formally known as China’s stock market.
Of course, all bets are off if China’s economy goes into slowdown mode and takes the rest of the world with it. We will get a better idea on that over the next few months, though the U.S. recovery, for now anyway, looks OK, if rather plodding.
Get Your Shovels Ready
If we’re lucky, the China mess will turn out to be an unsettling crisis that falls short of a full-blown economic typhoon, like the freak 1987 stock crash or the 1998 Asian financial crisis. It’s worth noting that both those tempests came towards the end of economic expansions that wound up ending with a bang a couple years later.
In fact, we are probably fairly well along in our current economic expansion – as frustrating and bumpy as it has been for the most part, excepting real estate and a few other bright spots – given the length of past booms.
It’s been six years since the Great Recession officially ended. If this were the 2000s, that would put us in 2007, the start of the mild contraction that, by 2008, had morphed into the worst downturn since the 1930s.
The comparable ’90s year, 1997, is a little more uplifting. That would give us three or four more years before we have to pay the piper once again.
So we may not be looking at the return of bad times, at least not yet. But like the Chinese stock and economic crisis, whatever triggers the next downturn is likely to be upon us before we fully understand the implications.
One needs look no further than John Hynes’ disastrous attempt to build a tower next to the old Filene’s store in Downtown Crossing to see how even a veteran developer can wind up with a big mess on his hands when the cycle suddenly ends.
(For all of you with short memories, Hynes wound up demolishing part of the Filene’s complex and digging a giant hole in the ground before global financial markets went into meltdown mode in September 2008.)
And if we are truly in the final years of the current expansion, then it’s worth looking at what projects are real and what may turn out to be that long-time staple of Boston development – the multibillion-dollar pipedream.
The new Four Seasons and Millennium skyscrapers are looking pretty good, with work well underway. But then there are all the ambitious plans still slogging through the city approval process – Don Chiofaro’s proposal for a pair of harbor-front mega-towers comes to mind.
The best that can be said is that there is still time, but the clock is now ticking.
