October 27th, 2015
When it comes to commercial lab and office space, Cambridge is still one of the hottest markets in the country. This is especially true in the life sciences industry, where recent years have brought a number of big arrivals, transactions, and expansions in that sector. The Oct. 8 announcement that Blackstone Group is acquiring Biomed Realty Trust – one of the nation’s largest life science-focused landlords – represents another significant change in the key players within the Cambridge life sciences market.
With the Biomed Acquisition and several other transactions over the last few years, 36 percent of the Cambridge lab market is now controlled by Blackstone, Jamestown Properties and Divco West – none of which had a presence in this segment of the market 24 months ago.
In December 2013, Atlanta-based Jamestown Properties purchased 245 First St. in Cambridge – a 300,000-square-foot office and lab complex – for $192 million (or $634/square foot). Jamestown’s historical niche is in retail properties, and that had been the bulk of its portfolio since entering the Boston market for the first time in 2012 with its $226 million purchase of 130,000 square feet across 28 buildings. Since that time, Jamestown has purchased a handful of office buildings in Greater Boston, but 245 First St. was their first lab building acquisition.
About a month after Jamestown’s entrance into the Cambridge lab market, West Coast-based Divco West acquired the 650,000-square-foot One Kendall Square complex from The Beal Companies for a little over $500 million (or $789/square foot). While Divco also owns office buildings in Greater Boston, One Kendall was its first large-scale lab property in the area.
Blackstone’s acquisition of Biomed earlier this month shifts the Cambridge lab ownership landscape yet again. Before Blackstone acquired it earlier this month for $8 billion, Biomed Realty Trust controlled roughly 2.3 million square feet in Cambridge, which represented 27 percent of that market, greatly enhancing Blackstone’s portfolio in the area.
There are a handful of other major players in this market on the landlord side. Alexandria Real Estate Equities controls 1.7 million square feet, or 20 percent, of the Cambridge market. Forest City oversees 1.3 million square feet, or 15 percent, of the market. And Massachusetts Institute of Technology owns 1.1 million square feet, or 13 percent, of the Cambridge market. With developments underway, each of these continue to expand their presence (and respective market share) in the market.
How are these changes impacting tenants? When big buyers enter a market and pay a high amount, they immediately start to look for ways to “add value” to the property, and tenants can expect rent increases to follow. We’ve already seen rents being pushed in this market, and we can be sure that a newly expanded Blackstone Group will continue that trend in a smoldering market for the foreseeable future.
October 5th, 2015
When we think of Boston, many things come to mind: Redcoats and Colonists, the Irish Diaspora, our rich sports heritage, the Marathon, our colleges and universities…dudes from Malden yelling at fish.
Actually, yes. Greater Boston is a national hub for some of the world’s biggest shoe brands – and it’s been that way for a while. You just didn’t know it because companies like Reebok and Clarks were treading lightly out in the suburbs. Not anymore. In the last year, several shoe companies have been making a lot of noise – and a big impression on the real estate market.
New Balance: If you’ve been on the Mass Pike near Boston in the last year, you’ve seen the hulking, shoe-like building the Massachusetts-based sneaker company has been building as its new headquarters. Well, the long-awaited Boston Landing is open now, dramatically changing the sight lines of drivers heading in and out of Boston.
Clarks: Far from being the fusty maker of leather mocs you think it is, the shoe company is Britain’s 14th largest company and has been doing booming business. Recently, Clarks America signed a lease for 120,000 square feet at 1265 Main Street in Waltham, the former Polaroid site.
Wolverine Worldwide: Maybe the biggest shoe company nobody is talking about, Wolverine – known mainly for its boots – owns huge brands such as Saucony, Merrell, Stride-Rite, and Sperry. In fact, in 2014, the parent company sold $2.76 billion worth of shoes. Last August, the company announced that it would be relocating its local operations to 180,000 square feet at 10 City Point in Waltham.
Converse: Like the New Balance project in Brighton, Converse’s build-to-suit headquarters at Lovejoy Wharf is becoming ubiquitous to commuters into Boston for the company logo in green greeting drivers on the Zakim Bridge. The Massachusetts-based maker of the legendary Chuck Taylor hi-top will occupy 187,000 square feet of the rehabbed building.
And these are just the big moves by sneaker companies in the last few years. Let’s not forget about Canton-based Reebok (which is booming again) or PUMA, which has an office at 1 Congress Street. Clearly, there’s something about the state’s business and real estate environment that’s piquing the interest of some of the world’s biggest shoe companies.
Here’s a suggestion: Let’s scrap “Beantown” and go with something a little more fitting. “Sole Town” has a nice ring to it, don’t you think?
September 30th, 2015
By now you’ve no doubt heard about the merger of Cushman Wakefield and DTZ, forming one of the world’s largest commercial real estate companies. The press release announcement boasted the two companies have a combined “$5 billion in revenue, 43,000 employees, more than 4.3 billion square feet under management, and $191 billion in transaction value.” The new Cushman Wakefield goes on to call the merger “game-changing” and “historic.”
Indeed, this merger is a big deal in Boston commercial real estate, and those numbers are nothing to be scoffed at. But does bigger always mean better? Many would argue that the combining of two industry whales to form a mega-company may not equal better service for their clients.
Here’s why: mega-companies run the risk of losing their identities because they’re too large to focus on what they do best. While mega-companies attempt to offer a full-service model, offering everything to everyone, corporate tenants need solutions that match their varying needs – which differ from context to context. Simply giving a client a menu of offerings and hoping that they will benefit from one of them just doesn’t work.
I know this first-hand. I worked for a larger company that, via acquisition and adding service lines, attempted to scale up. This strategy didn’t work for my former company, didn’t work for our clients, and ultimately diverted focus from our core identity and strengths. As a result, that company is no longer in business.
Even as big-city commercial real estate is controlled by fewer, but much larger firms, Cresa’s brand and model are all the more valuable. We remain focused solely on representing tenants, aligning their interest with ours. We know what our mission is, are clear in our strategy, and are seeing happy clients as a result: a 2015 Watkins Research Group study ranked Cresa the top firm in terms of client advocacy.
So we’ll gladly let the big firms keep getting bigger. Our tenant-focused, integrated service platform is growing, our vision is clear, and Cresa is stronger than ever. Our clients know that, industry experts know that, and many prospects are realizing that.
September 10th, 2015
Security deposits. They’re an important, albeit boilerplate, part of most lease agreements. You may not know what they’re for, however, or that they can be negotiable. Good news: we’re here to help.
What is a security deposit?
A security deposit is in place to protect the entire out-of-pocket expense a landlord must incur when signing and moving in a new tenant. It also protects the landlord against lease default or damages to the property by the tenant and the responsible parties.
How is the deposit amount determined?
Landlords will commonly factor the security deposit by calculating expenses such as the amount of capital awarded in tenant improvement, any commissions paid to brokers, or the cost of professional services like an architect, engineer, or lawyer.
But landlords will also take into consideration various factors about the tenant company in calculating a deposit amount. What does the company DO, and will they exist through the duration of the lease? Is the company fiscally solvent? What does the prospective tenant currently pay in rent, and could the increase in rent in the new space create a problem that could result in default? Finally, everything in real estate negotiations – including the security deposit – is cast in the light of current market conditions. In a market like the one we’re seeing now – a “landlord’s market” – deposits will be higher. In times of higher vacancy, the opposite is true.
It’s important to understand that there are different types of landlords, each of which will weight these factors differently when determining the security deposit. Private owners or real estate families are known for being concerned with credit of the tenant and the upfront cash because they do not want to go back to their investor for a cash call. They are often the most concerned about the security deposit. An institutional owner is highly concerned about credit of the tenant and the rent achieved over the term because of their need for a consistent cash flow over a long term for fund. Real estate investment trusts are primarily concerned with the credit of the tenant, rent and term because it affects stock prices; therefore, they are more likely to require a larger security deposit. Private equity owners are most concerned about achieving better rent rolls to create the most attractive product as they intend to sell the building in a short time. They tend to require (relatively) less security deposit.
Can security deposits be lowered? Yes! Here are a few ways to do it:
As you can see, when it comes to security deposits, there is more than meets the eye. With a little know-how, though, tenants can boost their financial security in negotiating deposit amounts.
August 20th, 2015
Remember the hole in the ground at One Franklin Street that blotted Downtown Crossing for more than two years following the financial crisis? Of course you do. We all do. The crater was a visual reminder of an economy and real estate market gone haywire – how a project can build so much momentum and then stall out unexpectedly. With the ire of former Mayor Thomas Menino at its back, the property finally changed hands last year and the project became known as Millennium Tower – which, at its completion in 2016, will be Boston’s largest all-residential structure at 685 feet.
You may not remember, though, that in its previous iteration, the development was slated to include a huge commercial component, with Fish & Richardson as the anchor tenant. When the market went south, those plans went with it.
For all its fanfare, Millennium Tower is also a cautionary tale for commercial real estate developers regarding cycles and the sometimes narrow windows in which to build profitably.
Traditionally a supply-constrained office market with limited new construction, developers would almost always hesitate to break ground without an anchor tenant in place. In 2011, Wellington Management agreed to occupy 18 floors of Boston Properties’ new construction at Atlantic Wharf, while Vertex Pharmaceutical’s commitment to anchor 50 Northern Avenue made that build-to-suit possible in 2013. More recently, 101 Seaport Boulevard (PwC), 2 Harbor Shore Drive (Goodwin Procter), and 888 Boylston Street (Natixis) are all examples of projects where the developer had commitments from major tenants before shovels went in the ground.
And now, some developers — encouraged by robust leasing, limited large blocks of contiguous office space, and a string of successful projects — are putting shovel to ground without a tenant commitment. Speculative development is underway at two major sites in the Seaport: Tishman Speyer’s Pier 4 project (370,000 SF) and Skanska USA’s 121 Seaport Blvd. (400,000 SF). As these developers incur a certain level of risk, tenants will benefit from the addition of new inventory amid the perfect storm of dwindling options and consistently strong demand.
But developers and tenants should beware: the willingness of such developers to incur development risk, mitigated only by their perception of the market’s strength, may be a signal that we’re approaching the peak of the current cycle. In fact, Cresa believes we’re just 24-36 months from market peak.
Whatever the case, expect the ghosts of One Franklin – arguably one of the city’s most visible development mistakes in recent history – to be on everyone’s mind, and Cresa to have its ear to the ground for the trends and predictions in the Downtown market.
August 20th, 2015
Tenants are nervous. Rightly so, some say. Landlords appear to have much more of the upper-hand than they would have had a few years ago, able to lease available space with fewer concessions.
In a bullish Boston real estate market like the one we’re experiencing, it may be tempting for commercial tenants to throw their hands up in lease negotiations and take what they can get.
I’m here to tell you that tenants have more power than they think. No matter the strength or weakness of the market, there is always an opportunity for the tenant – a silver lining, if you will. Representing only the tenant, Cresa – with our methodical and time-tested process – utilizes several points of leverage to get the best deal possible.
Timing is everything – especially in real estate. In a landlord-oriented market, tenants with 12 months left on their lease may have an upper-hand on tenants with, say, 18-24 months left remaining. Here’s why: many landlords will view a potential tenant with less time remaining on their lease – we view 9-12 months as the sweet spot – as more motivated to make a deal than those who have more time to look around.
And for obvious reasons, landlords always want to start collecting rent checks sooner rather than later, again benefitting the potential tenant with a shorter timeline. (not that we won’t work with a tenant if their timeline for occupancy is on the longer end; a shorter timeline just gives us one more leverage point to exploit)
From a landlord’s perspective, the longer the lease term, typically the better. A tenant willing to sign a seven or 10-year lease on a space to which to relocate is in a better bargaining position with a landlord than one looking for a shorter lease term. This is because of the guaranteed rental income a tenant provides a landlord over that period, but also because stable, long-term tenants increase overall property values.
A third leverage point in any lease negotiation is a tenant’s credit-worthiness. An established firm with a strong track record and credit history can tout that in a negotiation with a landlord. Even a newer company can use its exciting story (funding, experienced management team, buzz, etc.) to its advantage.
As a tenant, it’s easy to agonize when you read a news story about the sizzling market, see cranes in the sky everywhere you look, or begin your hunt for a new space. Tenants can always be opportunistic, leveraging the best aspects of their situation into a great lease extension or relocation. Many times, identifying those leverage points and using them in negotiations requires the help of an experienced broker. In this market that may seem cloudy for a tenant, let Cresa be the silver lining.
July 9th, 2015
When evaluating a real estate decision, many tenants naturally gravitate toward focusing on the rental rate. The lease rate is important but it’s not everything. Tenants contemplating a move should consider the many build-out costs – and even potential financial pitfalls – associated with relocating.
While some commercial tenants lease new space as-is, the vast majority of spaces will require at least some improvements or build-out. But before setting up shop in a new space, it’s important for the tenant to review their current lease to understand what, if any, obligations they have to their current landlord. Upon vacating, installed systems furniture, flooring and IT cabling might have to be removed from the space. This is called decommissioning, and it costs money.
Then there are the costs associated with improvements in the new facility: there are hard construction costs (materials, labor, etc.), soft costs (architectural and, project management fees, etc.) and miscellaneous costs that landlords typically won’t touch, such as cabling and security.
The landlord may provide the tenant funds to make some of these improvements in the form of a Tenant Improvement Allowance (TIA). Agreement over the TIA should be a part of any preliminary negotiations between a landlord and a tenant, but to know how much of an allowance is required (or desired) requires an understanding of roughly how much the proposed improvements will cost. Tenants can get this estimate by engaging an architect and a contractor early in the process, all of which can be facilitated by a dedicated project manager. The landlord will sometimes make this connection, but having your own objective resources is preferred.
There may be limits, however, on how a tenant can spend its Tenant Improvement Allowance. A landlord may allow a small portion of the TIA to go toward soft costs, but will want most of those funds spent on hard improvements.
Finally, tenants should also consider furniture, which can be an expensive line item, into their relocation budget.
In summary, relocating tenants need to understand (1) the full scope of the project (hard costs, soft costs, furniture, relocation costs, etc.), as well as (2) how much TIA the landlord will provide (and how it can be spent). An independent advocate can help tenants navigate these sometimes tricky waters. As part of its pure tenant rep platform, Cresa helps tenants in planning their real estate and build-out needs, while negotiating with the landlord to achieve the most favorable agreement. We’re here to help keep the tenants’ moving costs as low as possible!
June 26th, 2015
Real estate brokerage isn’t what it used to be.
In the past, possessing a good knowledge of the market (what’s available and where) and avoiding conflicts of interest could make someone a pretty good commercial broker. This is no longer the case. Increased client expectations and technological changes are raising the bar for what it takes to be a trusted advisor. First off: technology. Mobile and the Internet make it much easier for anyone to locate properties that meet a client’s requirements. Information is increasingly ubiquitous and accessible, which inherently makes it less valuable. Today’s clients pay their broker for conscientious counsel, the ability to create competition for their tenancy and ensure as seamless a process as possible.
Second: client expectations have evolved. Mobile and the Internet have made all business-to-business relationships – not just between brokers and clients – more 24/7 in nature. Clients expect brokers to be available and responsive at all times, including nights and weekends. The days of having 24 hours to get back to a senior executive with a real estate question are over. Availability, quick response and speedy turnaround on deliverables are must-haves in today’s marketplace. Having multiple people involved with the client is essential in order to provide the level of service required to meet the client’s expectations.
Third: working with a strong team that understands the pressures and demands that a corporate real estate executive is under is crucial to a successful partnership. Brokers who have been (or can imagine being) in their client’s shoes, and can anticipate what they will need to be successful, separate themselves from the rest of the pack. A broker should view himself or herself as a member of the client’s company, and their advice and service should reflect that. Working with a team is essential—gone are the days of the “lone wolf,” as successful brokers recognize their own strengths and surround themselves with others who provide complementary value.
Finally: experience remains vital to success in real estate brokerage. Today’s corporate client expects that the real estate firm they hire has enough experience to understand what’s most important to the client and how to achieve that result. As such, recruiting and retaining talent is as important as it has ever been in this competitive environment. This is the kind of experience Cresa brings to the marketplace. In its tireless advocacy for commercial tenants, Cresa’s brokers stay current on the ever-changing landscape and will not only match a company with the ideal building and location, but will achieve the best possible outcome – every time.
May 27th, 2015
Looking around the room at a gathering of my colleagues recently, I was struck by the fact that, 25 years ago, many of our positions wouldn’t exist. We’re project managers, representing small and large firms that specialize in specific client types and those covering a broad range. The small group of highly functioning professionals has built strong reputations among tenants, architects and contractors over decades of combined experience. We had come together to discuss the opportunities and challenges facing a profession that was rare just a quarter-century ago.
Today, a project manager (PM) can define success for the tenant, the project team and the project itself. But as we discussed the current state of our profession, one thing became clear: from project manager to project manager; performance quality can vary wildly. There are a number of reasons for this. There are no established criteria for what it takes to become a PM and no minimum educational or professional standards. There’s no standard of professional care or code of ethics to guide PMs. Essentially, the profession is untamed country where anyone can hang out a shingle and call themselves a PM— and many do.
Firms, the success of whose real estate projects hangs in the balance, are often putting these projects in the hands of managers who are not ready. We have seen this turn out very badly for owners, tenants and project partners.
What’s the solution? We’re looking into forming a professional association that caters to PMs or tapping into resources available with other existing associations serving designers and builders. Ultimately, what is needed are standards – such as baseline training and education; proper certification; and the adoption of baseline ethical standards – that will govern admittance to the project management profession. Standards should also include skills such as project management, understanding of processes and procedures, and consensus-building and conflict resolution, as well as a strong understanding of business topics like liability insurance, contracts, staff training, marketing, compensation, and managing growth.
What’s next? We’ll be tackling these issues one by one, while bringing more PMs into a conversation that will include project partners like owners, designers and builders. Additionally, several of us are finalizing a white paper on PMs that will delve into the challenges and opportunities more thoroughly. Stay tuned, and please be in touch with any thoughts or experiences!
Principal, Project Management
May 12th, 2015
If Cambridge, the Route 128 corridor and Seaport District are the beautiful and upwardly mobile stepsisters of Greater Boston commercial real estate, the South Shore is Cinderella – perpetually scorned and left out of the party.
It has many of the required amenities to be a thriving commercial office region: parking, public transportation, an educated workforce, the Logan Express, vibrant residential communities and beautiful shorelines – in addition to plenty of land and older buildings available for development or redevelopment. Oh, and the commute is much more bearable, traffic-wise, for both those living in the city and south of it.
Again, I ask, why not the South Shore?
Well, it may be Cinderella’s time to shine. Prior to 2000, the South Shore had not had nearly as well developed a suburb and retail boom as parts north. But this has changed significantly over the past decade. From the Comcast Center (formerly the Tweeter Center and Great Woods) to the Wrentham outlets, to an influx of big box retail, this area has some of the greatest growth potential in Greater Boston.
Biotech giant Haemonetics recognized this. After management considered taking the company out of Braintree, they have recently decided to stay put, purchase another building adjacent to its current facility and investing $10 million to officially make Braintree its global headquarters.
Other signs point to a commercial real estate renaissance on the South Shore. While 35 percent of Braintree’s population is over 65, the age demographics are poised to shift as communities plan residential units catering specifically to the aging population – making room for younger families to find homes. For example, Braintree Landing will offer 136 apartment units, while the Southfield project in South Weymouth seems to have be reenergized with the report of a new developer – LStar Management, LLC – stepping in. This new group is planning a mixed-use commercial and residential development that will further enhance the appeal of the South Shore.
Educational opportunities are expanding as well, which should appeal to a younger workforce. The Kindred School, a Newton-based British preparatory school for international students, is preparing to open a new campus on the grounds of the former Norfolk County Hospital in the Braintree Highlands. The school plans to invest $20 million to $25 million building new dormitories, sports fields and a gymnasium next to now-vacant hospital buildings on nearly 20 acres off Washington Street and expects welcome “a couple hundred students” onto its new Braintree campus by the fall of 2015.
And lastly, let’s not forget the new trend in Boston: empty nesters selling their home in the ’burbs and moving into the city. Now you’re looking at a reverse commute on I-93 and no traffic. You can even take the MBTA Red Line south, which is not an option going north.
For all these reasons and more, it’s the South Shore’s time. Let’s make it happen.
Also See: 5 Reasons You Should Relocate to Quincy