BOSTON—One recurring theme from the RealShare Boston event on Wednesday was that Greater Boston is one of the hottest commercial real estate markets in the country—led by the financial services, life science, and high-tech sectors. However, early indicators of an eventual slowdown have also started to emerge.
Approximately 150 real estate professionals and guests attended RealShare Boston, a half-day program held at the Omni Parker House. The event featured some of the top real estate development and investment professionals from the Greater Boston area.
During the program's Industry Leaders Power Panel, the panel of developer and financiers spoke glowingly of the Boston commercial real estate market and the keen demand that exists in the city and outlying areas such as Cambridge for office, research and development and high-tech space. The panelists were: Harold Brown, chairman and CEO of The Hamilton Co.; Vivien Li, president, The Boston Harbor Association; Peter Merrigan, CEO, founding partner, Taurus Investment Holdings, LLC and Peter Palandjian, chairman and CEO, Intercontinental Real Estate Corp. Sally Michael, partner at Saul Ewing, LLP, was the moderator.
Merrigan said that his firm has never been busier in terms of acquisition and development-related business, but he did express caution over warning signs of “froth” in some sectors of the Boston real estate market at the moment. While he is still positive about the overall market, he is seeing some deals that are reminiscent of past down cycles.
Some warning signs he shared are asset purchases where the buyer is paying above replacement cost for certain assets, a very competitive and aggressive lending environment where lenders are offering interest-only loans without amortization during the term, and signs of a frenzy developing around condominium development.
He said the real estate market is still performing well and there are no signs of any property failures, “but we saw this in 2007, we saw it in 2000 and we saw it in the late 1980s, the same kind of activity which is a normal part of a cycle. So I think we are getting a little long in the tooth in the (recovery) cycle. I don't think it is over by any stretch, but there are definitely warning signs ahead."
Palandjian also stressed that the commercial office and multifamily markets are strong in Greater Boston, but he also said that there are signs of trouble on the horizon.
While he notes that in other sections of the country, the economic recovery is in the third or fourth inning, he said that Boston is in the sixth or seventh inning.
“There are some mature areas and there are some areas of opportunity,” he said. “Some warning signs for me are that buyers right now are valuing vacancy greater than they are valuing leased space and they were not doing that before until recently.”
He also noted that while he is not concerned over multifamily demand over the long term, he said that due to intense competition owners have and will be offering concessions and he predicted the escalation of rent wars in the future in Boston.
Veteran developer Brown also noted that the Boston real estate market is very strong, but taking a “devil's advocate” position related other warning signs such as high sales prices for certain assets and intense competition for high-tech or “innovative” firms. He said that while the valuations of these companies have skyrocketed of late, “none have them have made a profit. That should make some people nervous.”
He also said that Asian investors have paid inflated prices for some assets in Boston. “You got these crazy prices and sooner or later a day of reckoning will come," Brown cautioned.
Brown also related that in the near term there is going to be a glut of luxury apartments in Boston.
While all of the panelists shared the warning signs of potential trouble for some market sectors, Palandjian said, “I don't think there is a train wreck coming, but there is going to be a supply gut maybe and a softening. But what happened in 1991-1994 or 2008-2009 is not going to happen this time.”
He added that at the end of the recovery, Boston should experience a much softer landing.
At the RealShare program, Li confirmed reports that she will be leaving the Boston Harbor Association this October to join Riverlife in Pittsburgh as its president and CEO. Li has spent the past 24 years at the Boston Harbor Association where she has served as executive director and more recently as its president.
“Vivien Li has been an integral part of the cleanup of Boston Harbor and in fostering the revitalization of Boston's waterfront for nearly a quarter of a century,” said Richard C. Walker III, chairman of The Boston Harbor Association in a prepared statement. “Everywhere on the harbor—Deer Island, Spectacle Island, Boston's HarborWalk, Boston Harbor beaches, Boston's waterfront parks, Chelsea Creek and the Working Port, and so many more places—has been shaped by Vivien's vision, leadership, and passion. We will miss her greatly.”
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