DivcoWest acquired the 45-acre NorthPoint property from Canyon-Johnson Urban Funds in August with the goal of getting the long-delayed commercial component of the project off the ground in 2016.
San Francisco-based DivcoWest is known in Boston as a big-name player in investment sales, aggressively acquiring downtown properties in the rising market and quickly selling them for hefty windfalls.
For its next trick, DivcoWest will attempt to perform CPR on the long-delayed NorthPoint development site on the Cambridge-Somerville border. DivcoWest is expected to pursue biotech and life science companies looking for world headquarters as it tries to jumpstart up to 2 million square feet of commercial development on the 45-acre property.
With dog-eared permits dating back to 2003 already in hand, the new owners would like to break ground next year and deliver buildings in early 2018. NorthPoint appears well-positioned to become the next major new construction in East Cambridge, where office and lab vacancies are under 4 percent and demand remains strong even with the 10th-highest asking rents of all U.S. submarkets.
Previous attempts to develop the property – a former Boston & Maine rail yard which spans 39 acres in Cambridge, 5 acres in Somerville and 1 in Boston – were delayed by lawsuits between previous investors and the collapse of the commercial real estate market in 2008. Only residential projects have been built so far – the Twenty|20 apartment tower that opened last spring, and a pair of condominium buildings.
“Everyone can be a Monday morning quarterback, but the previous ownership probably would have been well-served to go speculative on at least one (commercial) building,” said Paul Delaney, a vice president at Cresa Boston. “If that was the case, I’d be surprised if the building wasn’t occupied today or in the not-too-distant future.”
Commercial users are in the market for more than 3 million square feet of office and lab space in Cambridge, according to brokers.
Three other sites could significantly add to the Kendall Square office and lab inventory in coming years, but are still in local permitting: MIT’s mixed-use redevelopment on Main Street, which would include 940,000 square feet of office and lab space; Boston Properties’ Kendall Square rezoning proposal for 600,000 square feet of commercial development; and the sale and redevelopment of the federal government’s Volpe National Transportation Systems Center, which spans 14 acres.
But NorthPoint is positioned to break ground in 2016 and deliver its first buildings by early 2018, giving it a potential head-start on rivals.
In addition to life science users, NorthPoint’s development timeline could fit the needs of Internet giant Akamai, which has 400,000 square feet of leases in Kendall Square expiring in 2019. Akamai began scouting new locations in Boston last spring, according to a Boston Globe report.
“Capital desires to invest in urban, in-fill areas with access to the best minds, amenities and housing stock and, Divco is one of the savviest investors in today’s marketplace,” said Ben Sayles, a director at HFF Inc. in Boston. “My money is on NorthPoint being a huge success.”
If Not Now, When?
If there ever was a time for NorthPoint to emerge as the relief valve for Kendall Square office and lab space, it would appear to be now.
Cambridge has absorbed 2 million square feet of commercial space in 2015, more than that of Boston and the suburban markets combined. And yet there are still 3 million square feet of tenant requirements in Cambridge, said Curtis Cole, a partner with CBRE/New England. In-migration to Cambridge space totaled 485,000 square feet, exceeding 310,000 square feet of Cambridge companies moving to Boston or the suburbs.
In July, Cambridge officials agreed to modify NorthPoint’s special permit to allow more retail development to be built in the first phase. The intent was to embrace the popular live-work-play model driving mixed-use developments, said Iram Farooq, Cambridge’s assistant city manager of community development.
The changes allow NorthPoint to build up to 50,000 square feet of retail including a supermarket right off the bat, generating more of a neighborhood atmosphere, Farooq said. It also gives the developer more flexibility in the mix of uses that can be built first, including a combination of office, retail and residential.
One wild card is the prospect for major delays in the MBTA’s Green Line Extension. NorthPoint is required to obtain a land swap with the MBTA as part of the relocation of the Lechmere station across O’Brien Highway. The estimated cost of the Green Line Extension has increased from $2 billion to $3 billion, prompting state transportation officials to consider new sources of funding and potential cuts to the project. But the land swap is not required until the second phase of NorthPoint, which would include the final 575,000 square feet of commercial space and 1.2 million square feet of residential development.
DivcoWest’s Bicoastal Strategy
DivcoWest was founded in 1993 by Stuart Shiff, a UCal-Berkeley grad and board member of Harvard University’s real estate academic initiative. As CEO, Shiff has pursued a bicoastal investing strategy, acquiring 30 million square feet of commercial properties in tech hubs such as Silicon Valley, San Francisco and increasingly, in recent years, metro Boston.
DivcoWest anticipated the growing tech clusters in downtown Boston and the Seaport District, acquiring 4.6 million square feet of office space including portfolios in Cambridge, Fort Point and the Financial District.
At a forum sponsored by NAIOP-Massachusetts earlier this year, Shiff said tech companies have no choice but to locate in regions with well-educated workforces to survive in the current market conditions.
“They’re one algorithm away from being disrupted and losing their business. They need to get the best brains out there,” he said. “They will pay incredible prices when the market’s doing well to attract that talent.”
DivcoWest’s new billion-dollar fund, DivcoWest Fund IV, expands the investment strategy to new development. When Canyon-Johnson Urban Funds was liquidating the fund that held NorthPoint last summer, DivcoWest agreed to pay $291 million.
Since then, DivcoWest has hired a trio of experienced real estate executives to lead its NorthPoint team: Tom Sullivan, founder of San Francisco-based developer Wilson Meany Sullivan; Mark Johnson, former vice president of Harvard’s Capital Planning and Project Management division; and Mark Roopenian, a former principal with Normandy Real Estate Advisors’ Boston office. It’s retained Thomas O’Brien, a former Boston Redevelopment Authority director and CEO of Boston-based HYM Investments, as a development adviser.
DivcoWest executives declined to be interviewed for this story. A source familiar with Divco’s strategy said the company is expected to take the next few weeks to study the Greater Boston market and determine a program of uses before going public with its latest plans in early 2016. In addition to life science, DivcoWest is looking at other industries in an attempt to build a “critical mass” at the property, the source said, and leverage its Silicon Valley connections to recruit West Coast companies seeking to establish a Boston-area beachhead.
“NorthPoint is a great transit-oriented site, and there’s the opportunity to build both residential and office and some other uses,” said John Wolff, market executive in Boston for commercial real estate at Bank of America. “Given how constrained the market is in Cambridge right now, development would probably happen pretty quickly there.”
