Last year was the busiest for multifamily construction in Massachusetts since 2006, with building permits issued for 7,601 new apartments and condos. Yet housing advocates say that pace is not enough to attract workers in key growth industries and sustain economic development, even if all of the permitted projects get the necessary financing. Gov. Deval Patrick has set a goal of building 10,000 new multifamily units every year through 2020. And a recent study by Metropolitan Area Planning Council concluded that Greater Boston needs to build 435,000 new housing units by 2040 to maintain economic growth.
But developers say the numbers don’t justify building so many conventional multifamily projects in the region.
“It really takes a huge leap of faith to enter the market,” said Rick Dickason, director of the Boston office of Wood Development, which is building 186 apartments near Route 128 in Wakefield on a former vacant industrial parcel.
While thousands of new apartments are being built in downtown Boston, most of those projects are luxury high rises with rents starting in the $3,000 range. So who’s building workforce housing for moderate-income users?
According to Larry Curtis, managing partner at Boston-based WinnCompanies, two categories of multifamily projects are most likely to be profitable for developers under the current market conditions.
In post-industrial cities such as Lowell and New Bedford, historic tax credits help developers build housing in former mill properties and other aging structures. WinnCompanies has built housing at 17 such restoration projects in the state, qualifying for state and federal tax credits for up to 20 percent of the cost of improvements.
“If we were going to take a vacant piece of land in Lowell and say, ‘Let’s go build a new apartment complex at $1,600 a month (rents), we wouldn’t be able to make the math work – which is why you don’t see any new apartment complexes in Lowell,” Curtis said.
In Boston suburbs, ground-up construction of apartment buildings is economically feasible, but only if the property can attain rents in the $2,000 and up range, Curtis said.
Millennials, Boomers Drive Demand
The multifamily sector is expected to generate nearly two-thirds of demand for housing in the next decade, according to a study released in January by the Metropolitan Area Planning Council. The reason: growing demand from Millennials and downsizing Baby Boomers.
For developers, it requires creativity to find buildable parcels, and patience to navigate the permitting hurdles. In 2007, Wood Partners acquired an eight-acre Wakefield property that once housed a Bertucci’s test kitchen for $4.5 million. The first 80-unit building will open in late spring as part of a 186-unit apartment complex called Alta Audubon Road.
“Building apartments on a property that used to be an obsolete office or manufacturing site is a good business model,” Dickason said. “A lot of the sites have environmental issues, but we’re very selective in pursuing projects of that type.”
A recent statistical analysis determined that communities with cluster zoning for multifamily projects accounted for the largest increase in multifamily inventory from 2005 to 2012.
The study, released in October by The Kitty and Michael Dukakis Center for Urban and Regional Policy at Northeastern University, also said communities that have adopted the state’s Chapter 40R program are more likely to host multifamily development. Communities that adopt the law, which encourages mixed-use or multifamily projects with an affordable housing component, can receive up to $600,000 in state aid, plus $3,000 for every housing unit permitted.
Only 31 of the state’s 351 communities have accepted Chapter 40R since it was enacted in 2004.
“We really don’t need any new legislation at this point,” said Barry Bluestone, director of the Dukakis Center. “The most important thing is getting more communities to take advantage of 40R and do local rezoning, particularly around cluster and transit-oriented developments.”
Meanwhile, In The Suburbs
North Reading had the region’s sharpest increase in multifamily inventory from 2005 to 2012, up 25 percent. After the town adopted Chapter 40R in 2006, Burlington developer Gutierrez and Co. built 406 apartments at the 45-acre former J.T. Berry Rehabilitation Center property.
In Concord, a 74-unit apartment and office complex fit into the town’s blueprint for the future of West Concord Village. Oaktree Development of Cambridge and FX Investments of Boston broke ground April 7 on Brookside Square, which will contain 74 luxury apartments and 36,000 square feet of commercial space near the West Concord commuter rail station.
Oaktree started out in 1973 rehabilitating buildings in Cambridge for condo conversions before branching out into the suburbs. With little undeveloped land inside 128, Oaktree typically buys a derelict building and converts it, said Gwen Noyes, an Oaktree partner. The company specializes in developments with 100 or fewer units, which large developers tend to shy away from because they aren’t economical, Noyes said. Oaktree uses modular construction techniques to reduce costs.
In Concord, it acquired an industrial building which housed such tenants as a blacksmith shop and yoga studio. The permitting process took four years, but town officials ultimately supported the mixed-use concept as they updated a master plan for the neighborhood.
Finding a community where residents and officials support apartments and density is key to multifamily site selection, Noyes said.
“There’s enough (predevelopment) work to be done that you don’t want to be fighting the community about it,” she said.
Email: sadams@thewarrengroup.com
