They're Not Making It Anymore - State and Boston Have Real Estate For Sale

February 14, 2016 : Banker & Tradesman, by Steve Adams

Boston and state officials last week announced plans to sell a 5.5-acre parcel on Kneeland Street near South Station for up to 2 million square feet of development.

More than 400 real estate developers crowded into an open house sponsored by state officials in October for the kickoff of the new “Open For Business” initiative, eager to get details about 42 public properties from the Berkshires to Cape Cod that will be sold to the private sector.

State agencies own 20,000 properties and Gov. Charlie Baker has set a goal of unlocking the value of underutilized real estate assets, both to support mixed-income housing in pricey Greater Boston and encourage job creation in the commonwealth’s economically-lagging Gateway Cities. Real estate officials from state agencies have been meeting regularly to narrow down the inventory of parcels that will be put on the block.

In Boston, Mayor Martin Walsh’s administration is conducting an inventory of hundreds of neglected municipal parcels, viewing them as potential solutions to Walsh’s ambitious housing goal of 52,000 new residences by 2030.

Boston officials have identified 258 city-owned parcels that could be made available for up to 750 units of future residential development, said Sheila Dillon, the city’s director of neighborhood development. Many are smaller parcels located in residential neighborhoods, Dillon said.

The department is working with the Boston Redevelopment Authority (BRA) on neighborhood planning, which precedes the issuance of an RFP for individual parcels. The sale price will be determined partly by the proposed future use.

“We will allow for lower prices, even below appraised value, if we feel the city is getting another benefit,” Dillon said. “And absolutely mixed-income (housing) is a benefit.”

The strategies address one major barrier to housing production in the region – a shortage of developable parcels. But developers still require substantial government incentives and creative financing strategies to build mixed-income housing, as illustrated by two major projects at opposite ends of downtown Boston.

One Building, Two Markets

At the southern end of downtown, the 363-unit One Greenway development shows the disparity in demand between two segments of the housing market. The project was built on a MassDOT parcel created by the burying of I-93, through a long-term ground lease by development partners New Boston Fund and Asian Community Development Corp. Another 51 affordable condominiums will break ground this year.

The Boston-based Asian Community Development Corp. oversaw the selection of tenants for the 95 income-restricted apartments. Prospective tenants lined up before daybreak on the first day that applications were available, and the agency received more than 4,400 applications, Acting Executive Director Angie Liou said.

“That was definitely overwhelming,” she said. “And it was a little sad, because there were only 95 apartments.”

The remainder of the complex contains 217 market-rate luxury apartments. Rents range from approximately $2,950 for a 687-square-foot, one-bedroom unit to $8,340 for three-bedroom units with dens. Move-ins began Aug. 1, and the building is currently 36 percent occupied and 46 percent leased. The complex is offering two months’ free rent with signed leases.

Projects Need Multiple Incentives

Related Beal’s parcel 1B project on Causeway Street received multiple public incentives, enabling groundbreaking this month of the city’s first 100 percent income-restricted housing development in 25 years. The MassDOT-owned parcel will include a 240-room Courtyard by Marriott hotel that will subsidize the lower rent structure for its 239 income-restricted units.

Favorable land costs are part of the equation, with Related Beal paying a $12.3 million lease to MassDOT over 99 years. By comparison, Miami developer Crescent Heights paid $36 million in January for a small parcel in the Seaport which is approved for 388 residential units.

But developers say low-income tax credits and tax-free bond financing through MassDevelopment are equally critical, if not more so, to making projects feasible. MassDevelopment provided nearly $86 million in bonds toward the Related Beal project, $52 million of which are tax-exempt. The project also qualified for $7.4 million in federal low-income tax credits, which apply to housing units restricted  to households making no more than 60 percent of the area median.

“The keys were the bond financing and that allowed us to qualify for the 4 percent federal tax credits, and the state tax credits were essential,” said Ted Lubitz, a Related Beal vice president who heads the company’s affordable housing projects.

Boston Properties and Delaware North, which are building the North Station redevelopment across the street, paid $10.7 million to Related Beal to satisfy their affordable housing obligations under the city’s inclusionary development policy. The so-called “cash-out” payment is required of developers who do not include affordable units in their own project, to support affordable housing in the surrounding neighborhoods.

Related Beal also negotiated a 23-year 121A tax agreement with the city of Boston, in which it agreed to pay a percentage of revenues from portions of the project in lieu of property taxes.

Given the scarcity of such projects, even the medley of existing incentives are not sufficient, Dillon said. The Walsh administration is backing legislation filed by state Rep. Russell Holmes, D-Mattapan, that would grant property tax breaks to mixed-income developments during their construction and the initial five-year rent-up period.

“When you’re creating middle-income housing and the subsidies are not deep, it’s the incentives that make your project,” Dillon said. “Our assessor is on board with this and we really want to be able to offer it to developers.”

State agencies are expected to release properties for proposals on a rolling basis every few months. The state Division of Capital Asset Management (DCAM) also has hired a consultant to do a “deep dive” analysis of development parcels in three communities – Lynn, Malden and Worcester – encompassing not only public properties but also those owned by institutions and nonprofits.

Red tape also inhibits the disposition of many state-owned parcels. State law requires legislative approval for the sale of any properties controlled by DCAM.

“A lot of these parcels are in some cases blighted and others are just a big missed opportunity to do something in our urban communities where they could be real assets,” Baker said.

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