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Building spree

Developers see opportunities and profits as rising rents, low interest rates fuel residential construction rush in Boston

By Casey Ross
Globe Staff / November 17, 2011
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The region’s economy may remain a bit sluggish, but you would never know it from talking to housing developers in Boston: Five of them will go before city officials tonight for approval to build residential towers that combined would add more than 1,400 units.

The projects are the latest wave of luxury residential development to sweep through Boston, with 5,000 units of housing proposed or starting construction since the beginning of the year.

Investors in multifamily housing developments are taking advantage of a fortuitous turn of events: rising rents, low vacancy rates, and interest rates below 4 percent - a combination that translates to unusually hefty profits.

“There has never been a better time in the last 40 years to develop a multifamily project in Boston,’’ said George Fantini, chairman of the mortgage banking firm Fantini & Gorga. “The capital markets are awash in interest for this type of development.’’

Fantini said investor returns on rental housing projects in Boston are now promising about 5.5 percent, compared with between 3 and 4.5 percent over the past several decades.

The five proposed projects on deck tonight before Boston officials include: a 404-unit apartment tower on Stuart Street; a 318-unit high-rise at Copley Place in the Back Bay; 240 units along the Rose Fitzgerald Kennedy Greenway in Chinatown; a 236-unit tower in the Seaport District; and another 210 apartments on Boylston Street in the Fenway. The Copley project, by Simon Property Group of Indianapolis, is the only one that is exclusively condominiums, although the developer has previously suggested it could become apartments.

Mayor Thomas M. Menino and other city officials said they are receiving proposals for new housing projects every day. “I have investors coming to me and saying, ‘What opportunities do you have? How can we be involved?’ ’’ Menino said. “I haven’t seen that in a while.’’

Many of the projects will result in new and updated public spaces, and several stores and restaurants, adding vibrancy to Boston streets. Some face a degree of neighborhood opposition - the Copley project, for example, has drawn concerns about traffic and shadows cast on nearby Copley Square, among other issues.

But what they all illustrate is that their developers - and the lenders and equity investors behind them - see an unusual opportunity for profit in an otherwise dour commercial real estate market.

An executive with the real estate research firm Reis Inc. said apartment projects are drawing far more investment than developments in the retail and office sectors, where rent growth remains sluggish. “Given the strength of apartment fundamentals, we believe construction will begin to accelerate in the near future,’’ Brad Doremus, an analyst with Reis, wrote in an e-mail. Nationally, the firm predicts apartment builders in major cities will churn out 89,000 new units next year, more than double the 38,000 units anticipated in the current year.

The firm said Boston has one of the lowest apartment vacancy rates in the nation, at 4.2 percent, while rents here have continued to rise, jumping 5.5 percent since the first quarter of 2010.

In addition to the projects up for approval tonight, developers are already building large apartment complexes in several neighborhoods. AvalonBay Communities Inc., which is seeking approval for the 404-unit Stuart Street project, is under construction on a 187-unit apartment building on Exeter Street; Simpson Housing is building 286 apartments across from the TD Garden; and a pair of developers are combining to build more than 550 units in Downtown Crossing.

David Kirk, founder of the real estate consulting firm Kirk & Co., said it is hard to gauge whether the rush of apartment building could lead to an oversupply. Inevitably, he said, some of the projects under consideration right now will fail to get built due to delays, political snags, or other issues.

He said Boston is a particularly attractive market for apartments because of its bustling neighborhoods and high concentration of skilled workers who want to live in the city. “Boston is better poised for this activity than just about any other city you can think of,’’ Kirk said.

Casey Ross can be reached at cross@globe.com.

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