Uncharted territory for Boston

Mabardi_Lori_Casual_blogFrom Lori Mabardi
Director, New England Research 
 

Greater Boston is in unchartered territory in economic growth and it is an exciting time to be a resident, business owner or investor.

In May, employment hit an all-time peak with more people now employed in the region than at any other point in history. Unemployment rates have hit a multi-year low.

Population growth from 2010 to 2013 was 4.6 percent in Boston, translating into almost 30,000 new residents to the city. Population growth was 2.2 percent in the state, double the U.S. average. Meanwhile, Massachusetts’ unemployment rate fell to 5.6 percent from 6.0 percent in May of 2014.

JLL Research reports that pull to the urban core is real and the development pipeline is responding in kind with a myriad of multifamily, retail and office projects underway. The tightening in the core is creating healthy spillover demand in outer core markets. Key suburban submarkets are equally tight, causing spillover in surrounding areas. Overall all boats are rising.

The outlook remains bright. It is additionally supported by the highest score in the Associated Industries of Massachusetts Business Confidence Index since August 2012, when we hit a speed bump due to all the fiscal uncertainty spilling out of Washington.

The AIM index for May hit 53, and  revealed very encouraging shifts in the mindset of business owners.  The May survey highlighted a dramatic shift in hiring, with 32 percent of firms planning to add personnel in the next six months up from 26 percent in the previous six months and 11 percent of employers planning cuts, down from 18 percent in the previous six months. This shows a dramatic push into expansionary territory.

Given how firms have been measured in their growth plans and thoughtful, this new growth territory feels sustainable and solidly grounded in healthy fundamentals.

Boston Jobs Alltime high

Developers reinvent the suburbs

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Network Drive Burlington

 

Owners and developers from across the region are reinventing the suburban office park.

The trend according to The Boston Globe is driven by two things. Property owners need to reimagine older buildings. And they must meet increasing competition from Boston, Cambridge, and nearby urban centers.

JLL Research reports that along I-495 the Class A office vacancy is approximately 18%, compared with 11.5 percent in Boston and below 6 percent in Cambridge.

Two office parks in Burlington are in the midst of big changes. National Development will soon be starting a major capital improvements program at New England Executive Park. This will include the construction of 300,000 square feet  including a new hotel, three restaurants, added retail and office space. A big retail announcement is coming this fall.

At Northwest Park, Nordblom is in full swing with the development of retail boulevard 3rd Ave, 300 apartments, a hotel, new and renovated offices. The Bancroft, a high end chef-driven steakhouse and cocktail lounge, opened last month. Wegmen’s opens this fall.

JLL is the agent for the office space at New England Executive Park, and the build to suit at 25 Network Drive.

Downtown by foot

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NAIOP’s guided tour through Downtown gave colleagues and industry professionals an up close and personal look at Boston’s newest projects.

The event began with remarks by Boston Chief of Economic Development John Barros. He encouraging the real estate community to look beyond the deals. Barros said that “it’s important to connect the dots between an active streetscape, employment, and affordable housing.”

Steve Faber of Related Beal began his presentation on Congress Square with some history. “For forty years this was Fidelity’s headquarters,” Steve said. “It was tightly secured. Our redevelopment will bring new uses and an active streetscape to one of Boston’s most visible addresses. The completely repositioned buildings will draw pedestrians and create a festive atmosphere with great public access.

“It’s all about resurgence,” he continued. “This is where Fidelity began the mutual fund industry and housed their main frames. The buildings have tremendous infrastructure. We’re bringing a new kind of innovation to the site.”

The tour continued on a steamy afternoon to One Greenway, The Kensington, Millennium Tower, and Lafayette City Center. Arnold Worldwide has leased the top three floors at Millennium Tower and part of a fourth. AOL will take a partial floor as well. Dublin-based mega retailer Primark is opening its first US store here.

Marc Goldstein of The Abbey Group spoke on the transformation of Lafayette City Center from the office and retail building’s bold new lobby. “When State Street decided to leave we seized the opportunity to make changes that appeal to new age tenants. Together with ADD Inc we made the lobby open and bright, adding space and a shared conference facility.”

Carbonite is moving here in October. JLL represented owner The Abbey Group and Carbonite on the 50,000 square foot lease. Our Project and Development Services group has begun the fit out of the online backup company’s new industrial chic headquarters.

The walking tour ended with drinks on the roof of the Sports Club LA overlooking the Boston Common. The buzz was all about the city’s sweeping transformation.

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Related Beal’s Steve Faber

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Presentation at LCC

A new paradigm for energy

 

JLL's Bob Best, Energy and Sustainability Services

From Bob Best
Executive Vice President

I recently saw a wonderful presentation on the new Joint Center for Energy Storage Research (JCESR) by its director George Crabtree.

Since the ability to efficiently store electric power opens so many doors for using alternative energies, it’s about time we pulled together our best minds and organizations to tackle the problem in a coordinated way. That is what the JCESR is all about. And, as George clearly outlined, it is a “new paradigm” with a lofty goal:

“Transform transportation and the electricity grid with next generation energy storage at five times the performance and one fifth the cost.”

While the JCESR will be located in Chicago, it is more of a virtual organization, pulling together researchers and scientists from 14 organizations throughout the country, including national laboratories, universities and companies. It’s a unique approach to a global issue.

The effort breaks into four steps: 1. Discovery science – looking at new materials and processes. 2. Battery design. 3. Prototype research. 4. Manufacturing collaboration. It is an organized effort to combine theory and practicality to bring game-changing solutions to the market.

Will it work?

Well, all the puzzle pieces seem to be on the same table, and the smartest puzzle solvers are all working together to put it all together.

I think success is inevitable.

 

 

Strong fundamentals drive local economy

Strope20140312-0024From Lisa Strope
New England Research Manager

At the end of the second quarter of 2014, strong fundamentals continue to push the Greater Boston economy.

JLL Research reports that leasing activity was strong and diversified in the second quarter across Boston and core submarkets. Sublease space made up a large portion of the absorption story with over 250,000 square feet of occupancy gains, resulting in a sublease vacancy rate below 2.0 percent. This marks the lowest sublease vacancy level in years. With this sublease burn off, direct rents are likely to continue to rise.

Across the U.S., office market recovery is gaining greater momentum and diversifying. In the first half of 2014, U.S. occupancy growth totals hit a recovery high and 86 percent of markets experienced occupancy gains. Boston accounted for 8.6 percent of these gains, behind only NYC which has been clawing its way back after two years of stagnancy.

Urban Trophy and Class A are leading rent growth nationally. But in Boston the Class B segment is also thriving. Boston Class B rents have reached peak levels, breaking the $40.00 barrier – something unseen since 2008.

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U.S. investment sales activity is robust and foreign capital continues to push pricing. Increasing competition for product has compressed cap rates below 5 percent in most major markets. U.S. office transaction volumes were up 31.0 percent in Q2 and 34.0 percent in H1.

For the first half of the year, Boston had the highest year-over-year growth of any market despite the fact that transaction volumes lagged behind other markets. Most notably, Oxford Properties signed a $2.1 billion agreement to acquire a five-building portfolio from Blackstone, making Oxford the largest Class A owner in Downtown Boston. This could have a substantial impact on the direction of future asking rents as ownerships will change and properties are repositioned.

The national economy is looking up. Corporate profits continue to eclipse record highs with companies sitting on more than $1.6 trillion in cash, which is more readily flowing into the market through M&A activity, stock repurchases and hiring growth. Consumer and business confidence levels are the highest since 2008 and provide evidence that many tenants are looking at a growth mode over the next couple of years.

Lenders bullish on Boston

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From Heather Brown
Senior Vice President

The debt markets continued to thrive in the first half of 2014, with new lenders entering the space and existing lenders looking for opportunities to distinguish themselves from the pack. This is providing an attractive lending environment for investors, driving rates downward as spreads tighten and the indices remain relatively flat year over year.

Lenders are particularly bullish on Boston, attracted to the strong fundamentals, diversified industry base, growth in the heath and medical sector and supply constraints. The relatively small number of trophy asset trades here compared to other major metropolitan areas is leading to especially tight competition on core assets in the CBD where life insurance companies and banks continue to dominate. However it is the non-core transactions that may be the biggest beneficiary, as lenders look to provide higher leverage and move to secondary markets in order to deploy their capital.

Bull

The biggest move in spreads over the past 12 months has been in the mezzanine debt market. In that arena there are well over 50 players actively seeking to put out money. Whereas 12 months ago rates were in the high single-to-low double digit range, today mezzanine debt is regularly pricing in the 6-8% range in core markets like Boston.

In addition to spread, these lenders are competing on process, often taking down the entire debt stack and selling the senior position post-close. This approach is particularly attractive to borrowers allowing them to avoid taking on any syndication or intercreditor risk.

This whole loan approach has put pressure on the high-yield and finance company lenders that have historically played in the space between traditional bank/life company lenders and the high leverage debt funds. In response, these lenders have to stretch further in leverage and lower their spreads to compete with the compressed pricing and ease of execution now available with the mezz lenders. This has resulted in a significant decrease in the marginal cost of capital between a 65% LTV and 85% LTV deal over the past year.

While the fiercest competition and best pricing continues to be for downtown transactions, lenders are also looking to the suburbs to find yield and win deals. The biggest changes can be seen the further you move from the city and out toward the 495 loop. Previously lenders had been reluctant to jump into these markets, taking a wait and see approach on the market recovery. Now, as the rent recovery is in full swing in the close-in suburbs, lenders are ready to make their bets on deals further out.

The lender profile here will be significantly different. Life insurance companies who can often provide the most attractive financing in CBD assets won’t play here. On the other hand, CMBS lenders thrive in these markets providing up to 75% LTV for stabilized assets.

Some banks and finance companies will also play in these markets, providing a lender pool for limited value-add transactions in these markets as well. As expected, the financing terms in these markets will be more conservative with lenders looking for slightly lower leverage and higher in-place metrics as well as a rate premium over transactions closer to the city.

Whether stretching for leverage or geography, the one constant is that sponsorship is critical to these lenders. Eager to deploy capital in the Boston market, lenders are willing to take some risks but only with high-quality clients. As competition for core deals continues to heat up, look for more lenders to try to win deals by following experienced sponsors out of the city and up the leverage curve.

In this environment, having the most timely information on the quickly moving lender landscape and driving competition are critical to achieving the best financing terms.

This story also appeared in Banker & Tradesman.

 

45 Milk gets a makeover

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As exclusive leasing agent, property manager and construction manager for 45 Milk Street, a year-long capital improvements program has just been completed. The dramatic nine-story Beaux Arts style mid-rise is located in the heart of downtown Boston and the project, by JLL Construction, included a renovation of the two-story lobby and select interior spaces.

Built in 1893 for the International Trust Company, 45 Milk Street was modernized in 2005 and 1990. It features historical architecture, high ceilings, large windows with an abundance of natural light, and street level retail.

Architect Dyer Brown designed the lobby renovation to enhance the beauty of the existing historical features while giving the space a modern, clean look. A custom reception desk paired with a large statement light fixture highlights the double height dome space, while new general lighting brightens the space and enhances the existing historic plasterwork throughout. Elegant furniture and built in seating speak to both history and innovation through classic silhouettes upholstered in modern textiles.

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Entegris’ i2M Center for Advanced Materials Science facility complete

JLL Construction has completed a new 80,000 square foot R&D and manufacturing center for Entegris, a Billerica-based supplier to the microelectronics industry, in Bedford, MA.

 

The $30 million i2M Center for Advanced Materials Science is one of New England’s leading R&D and manufacturing center’s for filtration media, electrostatic clamps (E-Chucks), and proprietary advanced, low-temperature coatings. These technologies are needed to develop critical components used in the world’s most demanding and stringent semiconductor manufacturing environments.

The complex 17-month project included business, factory, hazard class 1 and 2, clean rooms, storage and assembly uses. The space houses approximately 100 employees.

Read more at citybizlist boston

Jim Tierney on Boston’s future

Tierney_Jim_Color_Casual_HiRes_2New England Market Director Jim Tierney shared his thoughts on experience and urbanization.

Q: How did your experience as Chief of Staff at the BRA, and as a practicing attorney, prepare you for this challenge?

A: My career before JLL involved balancing many competing demands for time and attention. I’ve also juggled multiple priorities related to clients as well as business operations. Whether it was in City Hall where your day changes from the moment you open the newspaper in the morning, to juggling a caseload while striving to provide exceptional service to every client, things have always moved quickly. In these jobs, the relationships I built with clients and colleagues were also essential to any success I enjoyed. In those ways these experiences were great training grounds for me.

At JLL, whether it is servicing new clients, existing ones, or furthering internal programs and initiatives, there’s incredible variety day to day. It’s all about prioritizing and building relationships with my colleagues and clients so we can all be successful.

Q: Will the urbanization trend persist?

A: It will because there are significant demographic forces behind it. Both the Boomer Generation and the Echo Boomers are engaged and invested in the urbanization we are experiencing. This isn’t a fad. Millennials aren’t getting drivers’ licenses or buying cars at the same pace as previous generations. They love the mixed-use environment the city has to offer, not only as single people but also for their young families. Of course there will be some ebbs and flows, but the urbanization trend seen here in Boston is real and sustainable.

Q: How does the city’s future look to you?

A: It is incredibly bright. Boston continues to be a place where investors want to put their money. Few cities, if any, have economies more prepared to endure the inevitable macro-level downturns. When things are good, as we are seeing right now, we lead the way in job growth. In the short time that the Walsh administration has been in place, the approved developments have been significant. I believe we will continue to see ambitious projects started throughout the city and metro region.

In Boston and elsewhere, we are also seeing a lot of attention given to the creation and preservation of affordable housing. Tackling that issue is another component in Boston’s continuing growth and success.

Q: What role does JLL play in the future of Boston?

A: It is vital that we be involved in the business and civic life of the city. We must be highly engaged in chartitable efforts, be a leader in the real estate market, and assume a prominent place in the civic dialogue. For JLL, corporate citizenship means being thought leaders and advocates in our community. We realize that the brighter we help make the future for Boston, the better it will be for JLL and our clients as well.

The green office is no office at all

JLL's Bob Best, Energy and Sustainability Services

From Bob Best
Executive Vice President

I finally took the plunge into the wilderness of virtual officing. It’s one of the smartest and greenest things I’ve ever done.

Once you clean out your personal space at the office, you quickly realize that you can work anywhere. You are liberated. It’s a mindset change with immense implications.

First, dump the paper. It’s an anchor. The more you have, the less mobile you are. Go electronic. Organize your files.

Second, get the right technology to support mobility. I like a combination of ear phones and microphone so I can block out exterior noise, listen to music, and make phone calls. All with the same piece of technology.

Third, get a good backpack. It’ll be your new office. Organize it and make sure you carry all the technology you need with you.

Why is all this green? Now I don’t have to commute to go to work. My work is wherever I am. There is no gasoline being combusted to get somewhere just to sit. I don’t need an infrastructure of lights, conditioned air, etc. that goes unused most of the time.

I am now a man of the world.  It’s not that I don’t have an office. The entire world is my office.

I can’t think of a better place to work.