Ride Share & Co-Working Play Major Disruptors As REFA Examined Boston Then, Now and BeyondOctober 03, 2018 - By Mike Hoban
BOSTON–You won’t often hear a quote attributed to Dolly Parton at a CRE event, but it certainly felt appropriate for the theme of last week’s Real Estate Finance Association (REFA) Fall Conference, dubbed “Commercial Real Estate Disruptors, The Greatest Current Influencers, and What Lies Ahead.”
“We cannot direct the wind, but we can adjust the sails,” imparted REFA board president Paul Ayoub of Nutter McClennen & Fish to the crowd of nearly 200 CRE professionals who gathered at the Boston Harbor Hotel. And given how strongly the winds of change are blowing through the industry, those who successfully make the necessary adjustments are the ones who will thrive.
The event featured a pair of panels, with the first providing a timeline of the significant shift in the Greater Boston market over the past 50 years; and a second conversation explored how technology-fueled disruptions are fundamentally altering the ways that people live and work - and how CRE professionals are responding.
The opening discussion, moderated by Griffith Properties’ managing principal Marci Griffith Loeber, featured a trio of Boston icons with a combined 150 years of CRE experience: Bill McCall, president and founder of tenant rep firm McCall & Almy; HFF executive managing director John Fowler, and Ronald Druker, president of the The Druker Company.
McCall, who began his career in 1961, conveyed that there had been no office construction in the City of Boston from 1929 to 1962 due to the city’s restrictive tax policy, which he recalled was equivalent to “60 to 70 percent of the rent, so no-one would finance a new building.” That changed when the Prudential Insurance Company (which built the Prudential tower) persuaded lawmakers to reduce the taxes on office buildings to “20-25 percent,” he said. “And there’s now 30 million square feet of towers in the Financial District and 10 million in the Back Bay…so I would say that was one of the most significant changes in Boston, concluded McCall.”
Fowler said that during the 1970’s, Boston was hampered by excessive regulation and rent control, which discouraged investors, but now, “Boston is probably the hottest city for capital today – and it’s foreign, it’s domestic, it’s debt, it’s equity, it’s everything imaginable.” Druker opined that the most significant change in today’s market may be ride-sharing and its impact on parking requirements, particularly in the development of the multifamily product in the city. Parking ratios have been more than halved from the old standard of 1:1 (per unit) in recent years, and “given the economics and the costs of construction today, eliminating (some of the parking requirements) is making a real difference,” he said.
Looking ahead, McCall responded that while there are no classic signs for an economic slowdown on the horizon, (barring a “black swan” event) but cautioned that “one of the threats out there is that the companies who are the biggest growers of space in Boston like WeWork and Wayfair, don’t make any money. You’ve got to have earnings… you just don’t continue to buy growth. So we’ll see. But I have never seen Boston as hot as it is right now.”
The second discussion, moderated by Steve Weikal, head of industry & alumni relations at the MIT Center for Real Estate, focused on the disruptions created by technology in recent years. Panelists included Kyle Corkum, CEO and managing director of LSTAR Ventures, which is building Union Point, the “smart city” being constructed on the South Shore; Sarah Travers, CEO of Workbar, Greater Boston’s original co-working enterprise; Linda MacLeod Fannon, VP at Elkus Manfredi Architects, one of the most prolific firms in the city; and Katie Sullivan, director of communications at HqO, a tenant engagement platform designed to help landlords optimize their properties by improving the employee experience.
Weikal opened the discussion with a quote of his own, from Chris Kelly of Convene, a firm that provides highly-amenitized, flexible-term meeting and workspaces. “What talent wants, landlords need, and developers must build,” he said – and which represents a dramatic shift in how owners are thinking about development as companies are now engaged in an ever-escalating war for talent. HqO exemplifies that shift, providing an app that improves the tenant experience by connecting their employees to the transportation, amenities, building access and community activities within the building and neighborhood, which in turn increases employee satisfaction with their workspace and serves as a way to attract and retain tenants to a property.
The increased focus on the tenant experience is also driving design change. In order to bridge the gap between what real estate management wants to build and what will best allow their tenants to draw and retain talent, “We have to go to the users, and engage in a co-creation process by bringing the user in really early into the design process…to create something together,” said Elkus Manfredi’s Fannon, whose firm lists the 100,000 sf interior fit-out for WeWork at South Station among its recent high-profile projects.
Co-working is no longer strictly the domain of freelancers and small firms, as large corporate tenants now make up a growing portion of those using WeWork and other co-working space providers. Flexibility and the personalization of the user experience are driving tenants to co-working, according to Workbar’s Travers, who relayed, “We need to encourage environments where people really want to go to work, and where they can feel a sense of community,” adding that co-working doesn’t necessarily mean working in the city. In addition to their Boston locations, Workbar continues to expand into suburban locations and will open a 20,000 sf location in Burlington in December.
Union Point is a mixed-use development zoned for 10 million sf of commercial space, nearly 4,000 housing units (including 1,000 for 55-Plus), nearly a half million sf of retail, as well as a 25-acre athletic complex. Promoted as a smart city, the development promises to create a new technology hub using sustainable design (including a solar farm that will be constructed adjacent to the development) and employing various experimental technologies, including autonomous vehicles. But as is the case with all emerging technologies, Kyle Corkum emphasized the importance of anticipating how those technologies impact real estate development in the long run.
Original plans for Union Point called for a parking ratio of two spaces of covered parking per 1,000 sf of development at the apartment complexes. But anticipating how the increased use of ride-sharing services such as Uber and Lyft and the practical development of autonomous vehicles will reduce the need for parking at the complex, hence, LStar negotiated the ratio down to 1.2 per thousand in the buildings and built outdoor community parking that can more easily be converted for future uses. “We know that 10 years from now, half those spaces might not be used,” said Corkum. “Sometimes we have to anticipate where those dominoes are going to fall … and be prepared for change.” A prognosis not so easy, in a time when unforeseen technology will continue to shift the habits of developers, occupiers and owners.WeWork South Station, Boston MA Convene, Boston MA Union Point, Weymouth Rendering