Bulfinch Crossing's Apartment-To-Condo Conversion Signals New Multifamily Era

A leading Boston developer says a limited supply of high-end condos in the market is behind his firm’s push for condo conversions at its latest residential development.

“We certainly still see the high-end rental market as being solid, but it’s also certainly true the condo supply is fairly low,” HYM Investment Group founding partner and managing director Thomas O’Brien said. “We see there’s room to grow in Boston.”

HYM Investment Group’s decision to convert 118 apartments into 55 condominiums at its Bulfinch Crossing residential tower comes as thousands of market rate rentals are poised to hit the market and several developers shift to offer for-sale units. 

The 45-story residential tower under construction in Government Center is the first phase in the greater Bulfinch Crossing development. At full build-out, the 2.9M SF mixed-use complex will include more than 800 residential units, 200 hotel rooms, more than 1M SF of office and over 82K SF of retail. Because the project includes significant demolition and repurposing of the Government Center parking garage, the residential tower will not open until 2020, which O’Brien said inspired the condo conversion. 

“The hard part of condo projects is it takes so long to deliver, and you don’t know at the end of a two- or three-year project where the market is going to be,” O’Brien said. “The long lead time is going to allow us to deliver this building after the new [apartment] supply pales off.”

About 12,000 market-rate residential units are expected to hit the greater Boston market in 2017, according to the Q1 2017 NAI Hunneman Metro Boston Multifamily report. The current 2.5% vacancy rate is still below the market's average over the last five years, and the number is only expected to moderately increase with all the new supply. The ongoing positive economic cycle still raises the question of whether the city is post-peak pricing and heading for a crash.

“If you asked us in 2010 where we would be in terms of peak rents, nobody would anticipate we’d be where we are today,” O’Brien said. 

Boston continues to be one of the most expensive housing markets in the country, and the wave of multifamily projects under construction has not provided the price relief valve many hoped would come. Prices were 2% higher in the first quarter of this year than where they were in 2016, with areas like Back Bay and the South End commanding average rental prices near $4K/month. 

"There is no crystal ball on the future of the market, but fundamentals continue to be strong in terms of housing demand and strength of the labor market here in the region," Nickerson Real Estate Partners founder and principal Lisa Nickerson said.

The arrival of several rental developments from Fenway to the Seaport has given developers reason to pause and change their strategy. Rather than compete for the same pool of potential renters, several multifamily projects have pivoted to condos.

Related Beal’s Lovejoy Wharf ended up as a condo building instead of apartments. The Siena at National Development’s Ink Block development in the South End was originally approved as an apartment building, but the developer decided to convert it to condos after an earlier phase of for-sale units quickly sold out. 

"This is a natural evolution of a market that has seen a strong amount of rental development over the past number of years," Nickerson said. "While rental demand continues to see strength, there is a segment of the market that has the ability to make an investment in real estate, driving demand for condos."

Boston’s diverse economic portfolio and attractiveness to foreign investment are constantly cited as to why the city is in a great position, but, with eight years since the last recession, it seems logical the city is overdue for a crash even if Boston’s condo market is a new revenue stream. 

“I’m a developer, so we see nothing but blue skies and sun,” O’Brien joked. “There is a cycle of things, and we’re in a part of the cycle where we have to be mindful of a recession looming.”

Rather than view any downturn as a negative, he said he would go into one prepared after having gone through several over the span of his career. They vary in terms of length and cause, but they also present business opportunities. As for how Bulfinch Crossing would fare, O’Brien said it was a long-term investment because of its location at a premier site in one of the country’s top markets. 

“Generally, if you believe in Boston and the U.S. and that the city is going to end up in a good place in a long economic story, you should believe in this project,” he said. 

To hear O'Brien, Nickerson and other expert panelists give their take on Boston's multifamily environment, join us at Bisnow's Boston Multifamily Growth & Expansion event Aug. 2. Sign up here.