As tenant space in Greater Boston grows increasingly scarce, communities like Chelsea, Somerville and Allston-Brighton are no longer dirty words to the ears of office developers. They now represent potential gold mines.
“What’s happening is the Boston market is a fully mature office market and, because of that, there’s a real lack of development sites available,” said Stephen J. Murphy, senior managing director at Insignia/ESG.
But there are still available sites in communities that have long been overlooked for development. Murphy pointed to the success of such projects as the Arsenal on the Charles in Watertown, and the revitalization of Davis Square in Somerville. The Arsenal project, a redevelopment of numerous former army facilities on a 30-arce parcel of land, is about 75 percent complete. With nearly all of the available space at the site already spoken for, developer O’Neill Properties recently put the complex on the sales market, with industry watchers estimating it might fetch as much as $200 million.
Part of the reason for that success? It’s all about location, according to Murphy.
“These places are very desirable because they’re near public transportation. They have the amenities of an urban setting, but they also have parking,” he said.
Because of its location, Woburn is likely to surprise many observers in the next few years with its potential for development in a red-hot market, Murphy predicted.
“It’s in a strategic location, at the corner of two interstate [highways], with access to the labor market in Southern New Hampshire, access to the T, the commuter rail. I think it will definitely take off,” Murphy said. Currently Insignia/ESG is working on an office park project in the community.
But along with the advantages of building outside of established office markets comes the challenge of sites that may need to be gutted or rebuilt, and which may not have been constructed with the needs of modern office tenants in mind.
“Adapting functionally obsolete buildings can be a real challenge,” said Murphy. “Sometimes the infrastructure isn’t really functional, and you’re dealing with obsolete structures and adapting them to what today’s tenants want. You need the ability to run lots of wiring, for example.”
Aside from physical factors, access to a labor pool is the ultimate consideration of companies looking to develop in non-traditional areas, according to Murphy.
“[Attracting talented employees] is definitely the number-one concern of developers. It’s required to be able to keep employees and attract new ones. It’s what drives real estate decisions; it’s not price, and it’s not necessarily functionality,” he said. “Look at the Maynard Mill Clocktower. It’s in an offbeat location, it’s in the middle of nowhere, yet it’s full because there’s a certain labor pool there.”
Parking, access and environmental issues can also come into play when developing in untested markets.
“We’ve since taken care of the environmental issues, which tended to scare people off,” David Brodney, general manager of BV Development, said of the Brighton Landing project, of which he is a development principal.
Despite environmental obstacles, it was the uniqueness of the site and the location that spurred the company to go forward with development of the site.
“There’s nothing like it in Allston-Brighton. We were pioneering something new,” Brodney said.
‘Perfect Fit’
Once the physical shortcomings of the site were tackled, the next big obstacle, though intangible, was no less challenging. It involved what Brodney terms “making believers” of prospective tenants.
New Balance was the first tenant to commit to the Brighton Landing project, signing on for about 25 percent of the office space. “The biggest challenge was that we had to validate [the project],” Brodney said. “We needed to get another deal under our belts.
“We had an urban site that was basically leveled, and people were concerned, especially when the developer isn’t as well known as some, and you don’t see a product at first. It’s like when a house developer shows you a plan, and nothing’s built, but they want a $50,000 deposit,” Brodney said.
But when the new structure started rising, with its high visibility from the Massachusetts Turnpike, the tenant activity and interest level “exploded,” said Brodney. The project will be complete by October.
Having already signed Cambridge-based Virtmed earlier this year, Brighton Landing continues to attract companies from across the river, as well as from downtown Boston. Most recently, Prime Response agreed to migrate from Cambridge to the project’s East Building, while Entercom Communications, currently located at 116 Huntington Ave. in the Hub’s Back Bay, will take an entire 27,000-square-foot floor. The East Building is now 95 percent committed.
“It’s a perfect fit,” Cushman & Wakefield broker Mark Winters said of Entercom, which owns four local radio stations, including WRKO and WEEI. “They are a good credit tenant, and I think the building is really going to work well for them.”
Aside from garnering faith in individual developments, such projects also generate hope for communities that have been shunned by office developers in the past.
“It’s a perception thing,” said Brodney. “Years ago … you didn’t want a Dorchester address on your letterhead. Boston is in some regards very parochial.” Now triple-decker homes in Dorchester are selling for between $450,000 to $750,000, he said.
“The difference between Brighton and Brookline is a huge perceptional thing,” he added. “We’re a stone’s throw from Cambridge, but there’s a difference in perception between Cambridge and Brighton. It’s a leap to equate them mentally for some people.”
But the success of a few creative projects today are allowing developers, communities and office tenants to make that leap of faith.
“It’s like the Watertown Arsenal. People looked past that town several years ago. But that project has certainly helped validate [overlooked] areas that might be considered for development. Projects like the Arsenal have made people believers because they’ve been successful. We’re not that far away,” Brodney said.
The local political climate can make or break a project. Tax incentives and ease of permitting are important to developers – and communities – in so-called fringe locations.
“In Taunton, with the Myles Standish Industrial park, the city and the state combined to create the infrastructure,” said Murphy. “In certain other communities, it’s very difficult to get permits,” he said, adding that Quincy has been very active in easing the regulatory process for developers.
Allston-Brighton, for example, a few years ago identified eight sub-districts as economic opportunity areas and began offering tax incentives to developers, including those of the Brighton Landing project.
Boston City Councilor Brian Honan of Allston-Brighton sees those incentives, as well as the success of the Brighton Landing project, serving as an anchor for future projects in the neighborhood.
“There are a lot of dilapidated buildings and industrial areas that have been rehabbed, and there’s a potential for more development,” especially in areas along the Turnpike and Lincoln Street, he said.
For many towns in today’s market, it’s more a case of the mountain moving to Muhammed; communities such as Watertown are finding that potential developers are assailing them with plans, rather than town officials trying to attract developers – and the economic revitalization that often accompanies office construction.
“It’s not that we’re in the process of attracting developers. It’s that we’re attempting to manage all the interest and activity in Watertown,” said Mark E. Boyle, director of planning and economic development in the town.
Why so much interest? Boyle chalks it up to location and affordability.
“The marketplace has shifted westward. Developers have clearly discovered Watertown,” Boyle said.
Boyle attributes the fact that Watertown has been overlooked in the past to the relatively small size of the town, which translates into a small amount of space available for development. Also, properties such as the Arsenal, which he said has stood there for 179 years, and large industrial sites don’t turn over very frequently.
But when they do, developers are ready to take advantage of tax and rental rates that are significantly lower than those of Cambridge and Boston.
“We’re continuing to see older industrial properties become the targets of investment and revitalization,” said Boyle.
“We’re open to high-quality investment and revitalization,” he added. “But we have to carefully manage the appropriate level of development, particularly in terms of traffic and parking.”
