The 99 High St. office building, left, sold in April for almost 40 percent less than its city-assessed value. iStock photo
Boston Mayor Michelle Wu and challenger Josh Kraft sparred over the latest report predicting a steep decline in office valuations and the implications for the city’s fiscal health.
The Boston Policy Institute claims that the outlook for the city’s tax coffers is gloomier than previously anticipated, based upon office building sales that have taken place over the past 12 months.
The nonprofit policy institute and Tufts University’s Center for State Policy Analysis released a report this week predicting an additional 35 to 45 percent decline in office valuations from fiscal 2024, compared with a 20- to 30-percent drop in the organization’s previous report.
Wu questioned the motives of the Boston Policy Institute, noting that the nonprofit group has not disclosed its funding sources. The BPI has scrutinized the city’s revenue structure and Wu’s attempts to temporarily shift a larger portion of the property tax levy to the commercial property sector.
“It’s unclear where the facts are coming from,” Wu told reporters following a public appearance Thursday. “So we are continuing to celebrate and highlight the progress we have made, while continuing to double down on believing in Boston and working alongside those who are making decisions to invest in our downtown neighborhoods and in our city.”
Wu’s challenger, Josh Kraft, issued a statement that he would “take a hard look at the city’s budget for areas to find savings” while seeking to accelerate development, particularly housing. The Kraft campaign did not respond to messages seeking specifics, but Kraft has previously proposed reducing income-restricted requirements for multifamily projects that are approved but unable to obtain financing.
A steep decline in office valuations would slash a major source of revenue for the city’s $4.6 billion budget, approximately one-third of which is paid by commercial properties. The report’s scenario anticipates a $1.7 billion decline in tax collections over five years.
“What’s needed is a city budget based on consistent and affordable property tax rates for homeowners and businesses, even if it means collecting less revenue than allowed under Massachusetts law,” the report states.
Mark Fallon, director of research and strategy at Boston-based brokerage Hunneman, said the projected 45-percent decline in valuations is questionable. Some properties have traded above their current assessed value, such as 855 Boylston St., which is assessed at $67.6 million and sold in late 2023 for nearly $100 million.
“No one is denying that office valuations are hurting,” Fallon said. “No one is denying that Boston has a problem with overreliance on the property tax. But 45 percent seems like too broad a brush.”
Distressed properties such as One Lincoln have sold for steep discounts. A lender bought back the 1 million square-foot tower for $400 million, three years after the property was refinanced for $1 billion.
“Not all of the transactions in Boston are necessarily distressed, but we definitely have seen it with the deals that have been transacting recently and deals that are out there in the market,” Cushman & Wakefield Vice Chair Rob Borden said at a forum sponsored by commercial developers group NAIOP MA this week. “That has been a challenge, and everybody needs to get the office market to clear and get back to business.”
Currently, the vacancy rate in the Boston central business district is 21.9 percent, according to Newmark data.
At the NAIOP MA forum, Newmark Senior Managing Director Matt Malatesta said office vacancies are unlikely to rise further, as current tenant requirements reflect a pause in companies’ downsizing plans.
“I believe we’re entering a stabilization period when we’re looking at vacancy, and the worst is behind us,” he said.
Editor’s note: This report has been updated to reflect that the Boston Policy Institute has not stated its opposition to the proposed property tax shift.
