The State of Boston Real Estate- Part I of II

The State of Boston Real Estate/Excerpted from a Speech to the Counselors of Real Estate/Part I of II

8 October 2021/By: Lawrence S. DiCara

We have been in a deep trench; now is the time to methodically plan how we will emerge.?I compare this effort to the passage of the G.I. Bill before the end of World War II.?

Governor Baker spoke of Covid-19 as being a hurricane which refused to end; I suggest Mount Vesuvius is a better example.?Not unlike Pompei, portions of Downtown Boston were frozen in time. In the lobby of 10?Post Office Square, the little takeout place has soft drinks in the freezer and chips on the shelves which have been there since March 2020, when we were told to “pause.”?Unlike 2008, many large businesses have thrived, while smaller businesses have failed.

In recent years, many of us have argued that density is good, that cities are energy efficient, that transit-oriented development is far superior than sprawl for a host of reasons, that lengthy commutes waste time and energy.?Will others now attempt to rebut our arguments in support of building multi-family housing for renters and owners of various incomes, surrounding transit nodes and in town centers?

The city should view this as an opportunity to reinvent our transportation regimen.?Walkability is essential.?Given reduced ridership, the MBTA should view this as an opportunity to eliminate bus routes which are underutilized or which are duplicative of rail and subway service.?We need to construct new bus lanes.?We need to establish new delivery times so as to not clog the streets. We need strict rules for Amazon, Federal Express and UPS drivers, for Uber and Lyft and other such entities.?The streets belong to the people, not to corporate entities, many of which deprive workers of decent wages and benefits.?

A recent Citigroup report on 400 properties in the retail and hotel sectors found an average decline in value of 27%.?Hotel occupancy has plummeted precipitously.?The Castle on Route 9 sold for less than half its assessed value, not unlike the Statler Hilton which was purchased for less than $1,000/room over forty years ago, and may become assisted living.?The Hotel Commonwealth was recently sold for far less than its purchase price not that long ago.?The Sheraton Boston is on the market.

J.C. Penney, Lord & Taylor, Brooks Brothers, Neiman Marcus and every other retailer which filed for bankruptcy has had a significant impact upon the owners of the properties for which they had been tenants. I may be one of the few men in Downtown Boston today wearing a jacket and a tie, as I have since I first walked into Boston Latin School sixty years ago.?No wonder Brooks Brothers declared bankruptcy!

According to researchers at Harvard’s Opportunity Insights Policy Team, 37% of small businesses closed their doors within the past year or so.?I attended more than my share of groundbreakings and ribbon cuttings: cameras flashing; big smiles; hard hats (many of which we could keep).?Oh, how elected officials flock to such events!?On the other hand, has any of us seen an elected official stop by a restaurant or a barber shop on its last day??Treasurer Goldberg predicted that as many as 35% of alcoholic beverages licenses would not renew for 2021.?That means the value of the remaining licenses could be de minimus.?

To some extent, the challenges downtown office buildings face in the current era are not that different from those faced by mills in the decades after World War?II.?Many American factories, many American mills – even those that had been historically important, became obsolete.?I grew up in Dorchester Lower Mills and smelled the chocolate from the Walter Baker Chocolate Factory until it closed.?Walter Baker buildings were used for various uses, mostly storage, until entrepreneurial developers (including a client of mine) decided they could be retrofitted into housing.?Older people questioned why anyone would want to live in what had been a factory, with very high ceilings, but today those buildings are a success story.

In the same sense, Downtown office buildings which may have played an important role in the city, many for 100 years or so, may soon find themselves being transformed into lab space.

Had I been speaking to you 20 years ago, some might have been amazed at my suggesting that the Seaport would soon have a significant life sciences presence.?Today, life sciences are expanding beyond the Seaport and the Longwood Medical area into Allston and Dorchester.?In a recent article, I suggested that hospitals are the new big banks.?Will those office buildings which housed those big banks and the thousands of employees when many of us were young be re-converted into a use which many of us may not even understand? Lab work is mighty difficult to do at home.

Research universities in the 21st Century have become the modern counterparts of a natural harbor, one of which gave Boston its early economic prominence.?In addition, our universities – which bring 250,000 students to the region each year – and our health care systems are not likely to go anyplace.?

Office buildings may become housing perhaps of a different sort.?I think there could be a market for Downtown housing for older people who might spend a good part of the year somewhere else but still want a residence in Boston.

The pandemic resulted in most white-collar workers sitting at home, often equaling last year’s earnings, while blue collar workers, especially in food services, were laid off, with little hope to return quickly.?I must admit, staying home when one can go for a walk on a warm day or take a quick trip to the beach in between Zoom calls can be quite enticing.

We have endured the worst type of economics. There has been no trickling down.?Most of us have saved money on dry cleaning, gasoline, meals outside the home; some of that money will be put to good use to fund 529s for our children and grandchildren – personal savings has increased from 8%-14%???but the economic trauma inflicted upon those not as lucky as we are, has been significant. One in six restaurants in America has closed permanently; 90% of the members of Local 26 of the Hotel Workers’ Union have been out of work.?

Are there winners in this crisis? Of course, there always are.?Amazon tops the list. Home Depot and Lowes have been busy.?Package store sales are up 14%!?Takeout services of all sorts have been active. I expect that weight loss programs will soon be full.?Divorce lawyers could be very busy!?I expect that many of us who spend most of the day looking at a screen will soon head to the eye doctor and then the optometrist.?