An indoor swimming pool at Portside East Pier/File photo
Greater Boston’s increasingly crowded luxury apartment market is poised to go bust in what has been the ultimate, slow-motion train wreck.
A bewildering number of deluxe towers in Boston, Somerville, Medford and other construction hot spots are flooding the market with free rent deals and other goodies in a bid to find enough live bodies to fill their high-priced apartments.
Now rents are starting to fall in some key neighborhoods, even as developers get ready to roll out thousands of additional posh new units over the next few years.
Yet it’s not like this is all a big surprise. The red flags were there from the start, when developers, post the Great Recession, began unveiling plans at Boston City Hall for a bewildering array of luxury apartment towers, as if they were all copying from the same playbook.
“Yes, there well may be a glut of apartments,” developer Merrill Diamond told me back in 2011. “There are going to be a lot of apartment communities over the next year or two.”
The Beginnings Of A Bust So how bad is it getting?
Market tracker Rental Beast recently tallied up more than a dozen free-rent deals at deluxe new apartment buildings and high-rises, including three months free living in a fancy new address on the East Boston waterfront. Building owners are offering to cover broker’s fees and waive security deposits.
My favorite is the $500 gift card offered by a Somerville apartment developer to renters who sign a lease within 24 hours of touring the building. Who knows, soon we might be seeing free cruises to Bermuda and Patriots tickets being offered up as well.
Rents are also starting to fall after years of untrammeled growth, having shot up by roughly 20 percent in the Boston area since the last boom. South Boston, Jamaica Plain, the South End, Allston and Brighton all saw declines in October, with a 8 percent drop in Southie leading the way, Rental Beast reports.
Yet if the competition seems fierce now, we really haven’t seen anything yet. By year-end, another 1,250 luxury apartments will have opened up just in Boston high-rises alone. Another 7,000 deluxe apartments in a bewildering array of new rental towers will flood the market next year and in 2016, doubling the size of the luxury market in Boston, according to a JLL report.
There is such a thing as too much luxury, and we are seeing it now.
Yet the worst part of this is not the coming bust – it’s the fact that everyone knew this was going to happen, but kept on building all those gilded apartments anyway.
As noted above, Diamond, who has a residential marketing firm called Ignition Residential, has been warning for years of the coming glut of luxury apartments.
Octogenarian Harold Brown, the legendary Boston apartment developer and owner, has been saying the same thing as well. Brown has carefully avoided the high end of the market, sticking to the middle and low rungs.
Enough Blame To Go Around
The rush to build luxury apartments, despite the clear warnings, can be partly ascribed to the herd mentality among developers. Once guy starts building and has success, everyone else jumps on the bandwagon. The classic example is the telecom hotel boom of the early 2000s, which led to such disasters as Boston Internet City, that big glass and steel complex that has loomed empty over the Pike for years in Brighton.
But developers can’t shoulder all the blame here.
Bankers have been notoriously skittish to finance condos, looking upon apartments as the safest bet in the aftermath of the recession and the real estate downturn that saw home and condo prices take a tumble. Until last year, financial institutions had all but blacklisted new condo developments. Ironically, in their zeal to avoid getting burned by another condo bubble, lenders have simply created another one in luxury apartments.
And Boston’s notoriously difficult permitting process, which new Mayor Marty Walsh is laboring to reform, is also a major culprit.
Given that it has historically taken years to get the permits to build new apartment towers, developers need the maximum possible payback in order to make a project work.
Of course, there could be a silver lining here. Some of these new luxury projects will go bust over the next few years, helping bring down rents.
Still, that’s a mighty painful way to achieve that result.
