The 7 Biggest Stories Of 2024 In Boston Commercial Real Estate
There have been many close calls this year in Boston. From Mayor Michelle Wu’s controversial property tax proposal being killed in the state senate to the downfall of a hospital system that put several local facilities at risk, the industry was holding its breath at times.
But not all of the news was scary this year for Boston commercial real estate. The city's office market saw notable leases that have reminded the industry that tenants are still attracted to Boston. Major renewals from Bain Capital and PwC kept buildings filled, and new tenants in the market like Hasbro have landlords and brokers wearing their Sunday best in an effort to impress.
The state's MBTA Communities Law has continued to keep investors and developers interested as they scope which communities are fully embracing the law and which aren't. Lexington, one of the first towns to fully embrace new zoning, has already seen several proposals that could bring on almost 1,000 new units.
Here are seven stories from this year that have kept the commercial real estate community's heads spinning.
Wu’s Property Tax Hike Rejected
The fate of Boston's property tax rates became a contentious race against the clock for Wu and the business community to determine if a greater tax burden would be placed on the already struggling commercial sector.
Wu announced the home rule petition in March after projections found the city could lose roughly $1.5B in tax revenue in the next five years due to declining commercial property values, especially in the office sector. In an effort to avoid cutting the city's budget and raising residential taxes, she proposed a tax shift for industrial and commercial properties from a maximum of 175% of residential taxes to 200%.
The proposal raised alarm bells in the business community that had already been frustrated by other Wu policies. For months, state officials and Wu pushed to get it approved. It failed in the Senate during its summer session, leaving many to believe that it was dead, but Wu persisted, finally negotiating with major business groups to lower the shift from 200% to 181.5% in October.
But the bill again stalled in the Senate. In the days leading up to a deadline for the hearing, updated building assessment figures showed that the residential tax bump wouldn’t be as high as previously anticipated. The numbers led business leaders and senators to ask for more time to understand the real impacts this could have on taxpayers.
On Dec. 9, senators declared the bill "dead," and two days later the city council set the tax rates for next year without the proposed commercial increase.
Steward's Downfall Reveals Issues In Hospital Real Estate Leasing
In what came as a shock to many across the city and the country, Steward Health Care crumbled in 2024.
At the beginning of the year, the healthcare system, which at the time owned 10 hospitals in Massachusetts, hired a specialist to restructure and dig itself out of its deep financial woes.
In May, Steward filed for Chapter 11 bankruptcy, further shedding light on just how deep rooted its financial issues were, and the risk of hospital closures took center stage with state officials and the hospital's landlord, Medical Properties Trust, scrambling to find solutions.
In July, two of Steward’s hospitals closed, and by September there were deals in place for the other hospitals in its portfolio to trade hands and Steward to vacate Massachusetts entirely.
For MPT, the loss of this tenant created further financial hardship for the REIT and also led to questions about the stability of its sale-leaseback business model. In November, the REIT reported $800M in losses after facilitating the sale of another struggling tenant, Prospect Medical Holdings, which owed MPT millions in unpaid rent. The financial issues have had negative effects on hospital operations, mainly in poorer neighborhoods.
Office Leases Spark Cautious Optimism
This year also proved that office tenants still want to have a presence in Beantown. Several high-profile leases and extensions were signed this year, from major accounting firms in downtown Boston and the Seaport to the first lease at Hines' South Station Tower.
Leasing volume hit a two-year high in the third quarter at 3.4M SF, up from 2.6M SF in the same quarter last year. In the third quarter, a major lease renewal and expansion was secured by BXP with tenant Bain Capital. The investment company renewed its lease at 200 Clarendon St. in the Back Bay and expanded its lease to 378K SF.
Earlier this month, Jones Day signed a 41K SF lease at Hines' 51-story South Station Tower, marking the first tenant to sign at the building. The building has 680K SF of office space set to deliver in 2025. Last week, accounting firm PwC renewed its 335K SF lease at 101 Seaport Blvd. in the Seaport District, where it has called home since 2015.
On Thursday afternoon, BXP announced it signed a 413K SF renewal with the city's largest law firm, Ropes & Gray, at Prudential Tower.
The city is also seeking new demand from outside Massachusetts: Pawtucket-based toymaker Hasbro has reportedly been eyeing roughly 250K SF in Boston at sites like Beacon Capital Partner's Southline development in Dorchester and office space near South Station.
Life Sciences Slowdown Risks Distress In Suburbs
The once-booming life sciences sector has been slow for the last couple of years, but as more available inventory continues to deliver, the threat to the Boston real estate market has increased.
Time is ticking on vacant assets, especially those in the suburbs that were built or converted to meet the needs of life sciences firms when demand was soaring. Now, these projects are running out of time to attract tenants and satisfy their lenders and investors, which are getting impatient. In the second quarter, 37 life sciences buildings — about 9% of the total inventory in the Greater Boston market — were completely vacant.
Other properties fully halted development. At least two developers filed notices indefinitely to pause construction on new life sciences projects in Somerville. Leggat McCall Properties and DLJ Real Estate Capital Partners halted their 262K SF 15 McGrath Highway project in July, and Federal Realty Investment Trust filed an extension on its special permit for its 381K SF lab project at 350 Assembly Row, citing an "oversaturation" in the market.
MetLife's 109K SF office-to-lab development that had traded for $103M in 2022 was set to sell around roughly $30M to $35M, with the sale being driven by the property's lender, Northwestern Mutual Life Insurance Co., the Boston Business Journal reported last month. The markdown comes after the building lost two tenants.
Some landlords of soon-to-be distressed assets are also thinking of converting their properties back to office space in an effort to attract other tenants.
Healey Signs Historic Housing, Economic Development Bills Boosting Housing
One of Gov. Maura Healey's first major initiatives when taking office last year, the Affordable Housing Bond bill, was passed by the Senate this summer at the end of its legislative session.
The largest-ever housing bond bill in the state at $5.2B, it has wide sweeping policies, grants, funds and other provisions set to help jumpstart housing production. Those include a momentum fund used to attract private developers to build more mixed-income housing, by-right accessory dwelling units across the Commonwealth and $2B toward renovating the state's 40,000-unit public housing portfolio.
Not only that, but Healey was also able to get her $4B Economic Development bill passed during the Senate's session in August. The bill aims to bring more investment into the life sciences and clean tech spaces that have and will continue to be big drivers of real estate in the state. It also unlocked land on Everett's waterfront for a new soccer stadium.
The provision for the stadium is a win for The Kraft Group, which has been eyeing sites closer to Boston to host the New England Revolution soccer team, something Kraft has been trying to do for years now.
Office-To-Residential Conversions Accelerate
Though it isn't a complete solution to the crisis facing Boston's downtown, office-to-residential conversions have seen a boost this year.
After Mayor Wu filed an extension in June on the city's Downtown Residential Conversion Incentive Program that would allow it to run until the end of 2025, the city has seen several new projects spring up and get approved.
The extension, which added $15M in state funding, is expected to see an additional 300 to 500 new units of housing created. At the time of the extension, there had been only nine projects creating 412 units of housing proposed. Now there are plans to convert at least 18 office buildings into 690 apartments, The Boston Globe reported.
The most recent plan came from Newton-based Dinosaur Capital Partners, which proposed a 110-unit apartment conversion project at 31 Milk St. The project is estimated to cost $52.5M and would convert the top 10 floors of the 11-story building, the Globe reported.
MBTA Communities Law Further Divides Communities
The state's ambitious housing law's second major deadline is just around the corner, and it has further widened the gap between the cities and towns that are embracing the law and those that are pushing back on it.
Throughout the state, towns and cities with MBTA commuter stops or those adjacent to them have been putting together zoning plans that increase the number of residential units allowed by right in the half-mile radius of these stops. Some towns, like Lexington, put together their plans after fully embracing the zoning law and have already begun to see a wave of development plans that would add roughly 1,000 new units to the town.
As of Nov. 22, more than 100 communities have created new multifamily zoning districts under the housing law. However, other towns, including Milton and, more recently, Needham, have pushed back on the law and are under legal fire by the state's Attorney General Andrea Campbell. The Milton case had a hearing before the state's highest court in October and has already influenced other communities to push back on the law.
