MULTIFAMILY MARKET REPORT 2018 OVERVIEW & 2019 FORECAST
MULTIFAMILY MARKET REPORT2018 OVERVIEW & 2019 FORECAST
2
Boston Realty Advisors is pleased to present its findings concerning the strength and
direction of Metro Boston’s multifamily and investment sales market as we quantify
observations made in 2018 and set future expectations for 2019. With a scope of global,
national and local trends, we aim to provide a broad summary of market fundamentals related
to multifamily housing in Metro Boston. By looking at historical 10-year data, we explore micro
and macro trends that affect the marketplace.
In 2018, over $1.01 billion of middle market multifamily investment product changed hands
in the Boston area. Population and employment levels grew 0.4% in the past year. Boston
remains a booming residential market with a multitude of new developments in the pipeline.
Construction of new living facilities dots the region, with a concentration of new activity in
infill areas directly surrounding the traditional Urban Core and Cambridge. The last 12 months
saw a perpetuating trend of the elevation of the Greater Boston region in business stature,
with the arrival of Alexion Pharmaceuticals, PTC, and relocation announcement of MassMutual
into Boston’s Seaport District. Amazon eyed Boston as a potential HQ2 location despite the
city’s unwillingness to provide economic incentives (as other cities were); further indication of
Boston’s premier position on the world’s business stage.
In the near-term, middle-market asset pricing may face challenges with the prospect of rising
borrowing costs. Lending standards will remain stringent, forcing investors to scrutinize cap
rates in the context of higher amortizing debt constants. Notwithstanding, we are anticipating
strong debt and equity market liquidity due to attractive fundamentals. However, despite the
dovish tone struck by the Federal Open Markets Committee (FOMC) in January, all market
players will be vigilantly keeping tabs on the Fed’s tone.
3
TABLE OF CONTENTS
At a Glance ........................................... 4
State of the Market .............................. 5
Metro Boston ....................................... 6
Urban Core ......................................... 13
Boston City ......................................... 17
Notable Transactions ........................ 21
Debt Markets ..................................... 22
2019 Outlook ...................................... 23
4
2018 AT-A-GLANCE
MOST EXPENSIVE US RENTS
Over 7,000 apartment units delivered in 2018
Massachusetts ranks 3rd as most expensive places to
live in America
Boston’s unemployment rate at 2.4%, 130 basis points
below national average
7 Boston neighborhoods surpassed $1,000 PSF
CITY OF BOSTONDEVELOPMENT
10,848 UNITS BOARD APPROVED
10,345 UNITS UNDER CONSTRUCTION
BOSTON
5THCAMBRIDGE
33% é In transactions $1-$5M last 24 months
Middle Market Sales Volume Tops
$1B é
10-Year Treasury hits new high of
3.2% in economic cycle
Average Boston Cap Rate:
5.1%
CAPITAL MARKETS
7.7% CLASS A
4.7% CLASS B
VACANCY
KEY HIGHLIGHTS
For the first time
5
STATE OF THE MARKET
Multifamily in Boston • Urban growth driving interest in high-density developments
• Developers are embracing new technologies to promote sustainability and a stronger
connection with the environment
• Lack of affordable housing is a challenge yet to be solved
• High demand for class A product
• Land, labor and construction cost remain high
Capital Markets: Debt & Equity• There remains liquidity in both debt and equity markets
• Low cap rates continue to dominate all areas of the urban core, despite expectations of
rising interest rates
We’re still Bullish on Boston in 2019 • Boston’s knowledge-based economy and recent emergence as international investment
destination has built optimism in the city
6
METRO BOSTONMACRO TRENDS
BOSTON’S METRO GROWING POPULATION
4,900,000
4,850,000
4,800,000
4,750,000
4,700,000
4,650,000
4,600,000
4,550,000
4,500,0002008 2010 2012 2014 2016 2018
AVERAGE HOUSEHOLD INCOME
$90,000
$85,000
$80,000
$75,000
$70,000
$65,000
$60,000
$55,000
$50,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$85,691
$77,385
$60,336
6 Years of consecutive
growth
US – 9.4%Mass – 12.7%Boston – 13%
6 YEAR CHANGE:
Source: U.S. Census
City of Boston population in 2018 was estimated at 685,094
The Metro Boston market encompasses all towns within Interstate 495 (Boston’s second beltway) and therefore, does not include Central and Western Massachusetts, or Southern New Hampshire.
BostonMassachusettsUS
8.07%
7
METRO BOSTONMACRO TRENDS
CAP RATE vs 10-YEAR TREASURY
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
2008 2010 2012 2014 2016
12 Month Rolling Cap Rate
2018 20222020
LOW UNEMPLOYMENT
10
9
8
7
6
5
4
3
2
1Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2017
Boston Massachusetts National
Q4 2016 Q4 2018
3.73.42.2
Though in 2018 Boston slipped out of the top five in terms of foreign investment, it currently has the lowest unemployment rate of the top six at 2.4%. Last year, Boston’s average household income increased 1.8%. Future increases in interest rates are anticipated to be gradual in 2019, followed by further narrowing cap rate spreads. Economists credit Boston’s growth to increasing average household income, low unemployment and strength of the city’s knowledge-based economy.Boston San Francisco Washington, D.C. New York Seattle Los Angeles
3%3.3%
3.7% National Average
3.9%
4.2%
2.5%
Source: Bureau of Labor Statistics, REIS, AFIRE
UNEMPLOYMENT RATES IN ‘LEADING FOREIGN INVESTMENT’ CITIES
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
10 Year Treasury
Less than 200 basis points
FORECAST
2.4%
8
*2018 includes data for Q1-Q3 only
2008
2009
2010
2011
2012
2013
2014
2015
2016
TOTAL TRANSACTIONS TOTAL SALES VOLUME
25 $697,290,000
44 $1,731,767,099
34 $1,087,335,982
47 $2,044,643,600
32 $785,637,647
41 $1,067,929,400
38 $1,002,344,671
22 $1,005,927,324
12 $474,621,262
9 $231,740,500
21 $452,485,162
2017
2018
SALES OVER $5M
Sales volume in 2015 was the peak for the current real estate cycle when over $2 billion worth of institutional multifamily
assets traded on the back of stable interest rates and strong market fundamentals, with over 6 deals trading for over
$100 million. Lower cap rate spreads in 2018 may have kept larger multifamily buyers on the sidelines with a limited
number of institutional trades.
Source: REIS
METRO BOSTON MULTIFAMILY SALES VOLUME
9
INVENTORY BREAKDOWN
CLASS ABC INVENTORY FORECAST
Source: REIS
Class B/C InventoryClass A Inventory
FORECAST2008 2009 2010 2011 2012 2013 2014 2015 20192017 20212016 20202018 2022
300,000
250,000
200,000
150,000
100,000
50,000
0
235,
927
239,
394
241,
104
243,
061
Uni
ts
METRO BOSTON APARTMENT INVENTORY
2008 2009 2010 2011 2012 2013 2014 2015 20172016 2018
120,000
115,000
110,000
105,000
100,000
95,000
90,000
85,000
80,000
75,000
Uni
ts
Developers were able to fill the void of apartments in Urban Boston during the current cycle. Due to demand and the required
economics of high construction costs, the majority were luxury products.
Class A inventory jumped 43% since 2008. Today, there is large variance between Class A and Class B rents, with new product
fetching as much as $1.00 more PSF. However, the unique stature of Boston’s historic, well-located brownstones are still
attractive to renters.
Class A: a property that is 10 years old or newer. These buildings are synonymously know as luxury or upscale and require numerous high-end finishes, with on-site amenities including a clubhouse, fitness center, concierge, etc. Class B: a property older than 10 years with limited on-site amenities.
10
SUPPLY AND DEMAND TRENDS
FORECAST
Over 7,000 units were completed in 2018 with the vast majority of them Class A market-rate units, representing perceived de-mand for luxury apartments and the economics of development. Boston has experienced a historically large supply rush in the last 24 months, but it seems this wave may be over; new apartment deliveries are projected to decrease to approximately 5,000 units in 2019 and 3,500 in 2020.
In 2019, we are seeing the continued development of new apartments outside the traditional Urban Core. Bozzuto is building 610 apartment units in Quincy slated to deliver in 2020; and Block 8 at Assembly Row is seeking approval for 500 residences, demon-strating continued appetite from developers and sponsors for transit-oriented development.
2019 20212017 2020 202220182008 2009 2010 2011 2012 2013 2014 2015 2016
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Completions Net Absorption Vacancy %
Source: REIS
Uni
ts
METRO BOSTON NEW APARTMENT DEVELOPMENT
11
CLASS A - APARTMENTS
CLASS B/C - APARTMENTS
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0
2017 20182008 2009 2010 2011 2012 2013 2014 2015 2016
Source: REIS
Ave
rage
Mon
thly
Ren
t
Ave
rage
Vac
ancy
Rat
es
Ave
rage
Mon
thly
Ren
t
Ave
rage
Vac
ancy
Rat
es
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0
After a strong run coming out of the recession, rent growth took a pause in 2016 before picking up in the last two years.
Year-over-year gains were 3.6% and 3.9% in 2018 for Class A and B/C rents, respectively. Average monthly asking rents
reached $2,825 for Class A and $1,868 for Class B/C, representing a 40.8% variance. One reason for the recent average
asking rent increases was the large influx of new luxury deliveries.
Asking Rent Vacancy Rate
Asking Rent Vacancy Rate
300 basis point differential
between Class A and Class B rates in
2018
2017 20182008 2009 2010 2011 2012 2013 2014 2015 2016
METRO BOSTON ASKING RENTS & VACANCY RATES
12
FORECAST
ASKING VS EFFECTIVE RENTS
Northeast USBoston
Asking Rent $Effective Rent $
2019 20212017 2020 202220182013 2014 2015 2016
$2,800
$2,600
$2,400
$2,200
$2,000
$1,800
$1,600
7.01%
5.91%
5.33%
Source: REIS
FORECAST
BOSTON RENTS - 3RD HIGHEST IN US
2019 20212017 2020 202220182008 2009 2010 2011 2012 2013 2014 2015 2016
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
The spread between asking and effective rents was 5.91% in 2018, but it is forecast to widen to 7.01% by 2022 as new supply comes to market. Developers have recognized we are in ‘renters-market’ and are offering enticing concessions during lease up. A ready supply of new apartments coming to market at similar times has made it increasingly difficult to reach stabilization within 12 months. One of the biggest driving factors for renters besides cost, location and concessions are amenities. The recent push to healthier living has made gyms and other wellness features de facto requirements for upscale living.
METRO BOSTON RENT ANALYSIS
$2,501
$2,230
$1,598
13Source: MLSpin
TOTAL TRANSACTIONS TOTAL SALES VOLUME
621
522
468
404
228
177
157
84
62
36
53
$1,026,150,151
$904,254,693
$775,478,493
$670,993,818
$402,810,362
$330,506,472
$270,943,692
$145,614,782
$127,947,000
$64,267,359
$101,724,00020082009201020112012201320142015201620172018
MIDDLE MARKET SALES ($1-$5M)
The Urban Core market encompasses all submarkets within Boston Proper, Brookline, Cambridge and Somerville
In 2018, Urban Core middle market sales volume crossed over $1 billion for the first time ever with 621 transactions. In
January, Boston proposed a 6% transfer tax on all property sales over $2 million, an ill-advised way to raise funds for
affordable housing. The plan also introduced a 25% “flipping tax” for owners selling assets within two years of buying,
potentially impacting liquidity and prices as seen in similar cities around the world, in particular Toronto and Vancouver.
33% 32%
172% 155%
Increase in 2 years
Increase in 2 years
Increase in 5 years
Increase in 5 years
URBAN CORE MULTIFAMILY SALES VOLUME
14
2008 2009 2010 2011 2012 2013 2014 2015 20172016 2018
350
300
250
200
150
100
50
0
MIDDLE MARKET SALES ($1-$5M)
Brookline SomervilleBoston Cambridge
Num
ber
of T
rans
acti
ons
vs
2008 Urban CoreSales Volume Breakdown
2018 Urban Core Sales Volume Breakdown Somerville’s proximity to Boston and
Cambridge, coupled with recent re-
zoning provisions and the Green Line
Extension, has driven this market to
act as cost-alterative relief-valve. In the
last 10 years, Somerville’s multifamily
middle market sales volume increased
by 21%. Assembly Row has attracted
the relocation of Partners Healthcare
and Puma North America and will
deliver another 500 residential units by
2021. In addition, US2, a 2.3 million SF
mixed-use development will add 950
units upon its completion.Boston Brookline Cambridge Somerville
51%
20%57%
34%
1%
8%
21%
8%
Source: MLSpin
URBAN CORETRANSACTION ANALYSIS
UPDATE
15
STATE ST
DAVIS
ANDREW
COPLEY
RUGGLES
CENTRAL
AIRPORT
KENMORE
HARVARD
BOYLSTON
LONGWOOD
RIVERWAY
SYMPHONY
BACK BAY
BROADWAY
MAVERICK
AQUARIUM
RESERVOIR
DEAN RD
HAYMARKET
CHINATOWN
ARLINGTON
PRUDENTIAL
WELLINGTON
COURT HOUSE
PARK ST
FENWAYKENT ST
CHARLES/MGH
WOOD ISLAND
KENDALL/MIT
LENOX STBEACONSFIELD
HAWES ST
SAINT MARY’S
BRANDON HALLSOUTH ST
MISSION PARK
NORTHEASTERN
SCIENCEPARK
HERALD ST
NEWTON ST
CHESTNUT HILL
TAPPAN ST
CHISWICK RD
WARREN ST GRIGGS ST
ALLSTON ST
HARVARD AVE
BABCOCKSTREET
BRIGHAM CIRCLE
ORIENT HEIGHTS
SILVER LINE WAY
BROOKLINE HILLS
COOLIDGE CORNERSUTHERLAND RD
PACKARDSCORNER
SULLIVAN SQUARE
WORCESTER SQ
MELNEA CASSBOULEVARD
ROXBURYCROSSING
FAIRBANKS ST
ENGLEWOOD AVE
BLANDFORD ST
BACK OF THE HILL
MASS AVE
MASS AVE
DOWNTOWNCROSSING
E.BERKELEY ST
UNIONPARK ST
BROOKLINEVILLAGE
SAINT PAUL ST
WASHINGTONSQUARE
WASHINGTON ST
SAINT PAUL ST
COMMUNITY COLLEGE
WORLDTRADE CENTER
TERMINAL E
TERMINAL D
TERMINAL C
TERMINAL B
TERMINAL A
NORTHERN AVE& HARBOR ST.
MUSEUM OF FINE ARTS
WENTWORTH
TUFTSMEDICAL CENTER
CHESTNUTHILL AVE
LONGWOODMEDICAL AREA
BU WESTBU EAST
SUMMIT AVE/WINCHESTER ST
HYNES CONVENTION
BU CENTRAL
BLACK FALCON CRUISE TERMINAL
HEATH ST
BOSTON COLLEGE
ALEWIFE
PORTER SQUARE
LECHMERE
PLEASANT ST
YAWKEY
CHELSEA
UPHAMSCORNER
GOVERNMENTCENTER
BOWDOIN
CLEVELANDCIRCLE
DUDLEYSQUARE
SOUTH STATION
NORTH STATION
ASSEMBLY
Boston Commons
Public Garden
Back BayFens
Rose K
enne
dy G
reen
way
Danehy Park
SUMNER
TUNNEL
CALLAHAN TU
NNEL
TED
WILL
IAM
S TU
NN
EL
LONGELLOW BRIDGE
TOBI
N B
RIDG
E
MA
SS AVE BRIDG
E
NORTHERN AVE BRIDGE
EVELYN MOAKLEY BRIDGE
Massachusetts Ave
Harvard St
North Beacon St
Cambridge St
Washington St
Wash
i ng ton St
MALCOLM X BOULEVARD
M e l n ea Cass
Bouleva
rd
RIVER W AY
Chestnu
t Hi l l Ave
R I VE
RW
AY
Beacon St
D St
Tremont St
Lake St
A St
Shawmut Ave
Second St
Highland Ave
Highland Ave
Somervi l le Ave
Fenway
Elm St
Wil l iam Day Boulevard
Western Ave
Western Ave
Brookl
ine
Ave
Vassar St
Washington St
East Broadway
Marine Street
East 6th Street
Putnam Ave
Merid
ian St
Belmont St
Cambridge St
River St
East First St
Beacham St
Thir
d St
Newbury St
Everett Ave
Longwood Ave
Sain
t Pa
ul S
t
Heath St
Mar
ket
St
Sidne
y St
Bunker Hi l l St
Albany St
Hampshire St
West Broadway
Berkeley St
Cyp
ress
St
Brighton St
Marginal St
EAST
ERN
AVE
NU
E
Washington Ave
BROADWAY
Concord Ave
Col
umbi
a St
Harvard St
Dorchester St
Pond
Ave
Columbia Rd
Wil l iam
s St
Southampton St
Holland St
North H
arvard
St
Terminal St
Jam
aica
way
Seaport Blvd
College A
ve
Kirkland St
Austin St
John
F K
enne
dy S
t
Saint James Ave
Arsenal St
College A
ve
Beacon St
Main St
Main St
Cambridge St
Broadway
Cambridge St
Concord Ave
Medford St
Cambridge St
Storrow Dr
Main St
Broadway
Beacon St
Summer St
Summ
er St
Broadway
Park
St
Harr iso
n Ave
Chelsea S
t
Old C
olony Ave
Concord Ave
Powder House Blvd
Mem
orial Dr
Broa
dway
Mystic Ave
Mount Auburn St
Mount Auburn St
Huron Avenue
Stuart St
Clarendon St
Beacon St
Concord Ave
Revere Beach Pkwy
Fel ls
way
Commonwealth Ave
Massachusetts Ave
Mcgrath Highway
Bennington St
Mcc
lel la
n Hig
hway
Land
Bou
leva
rd
New Rutherford Ave
Memorial Dr
Main St
Memorial Dr
Boylston St
Columbus A
ve
Fel ls
way
Mcg
rath
Hig
hway
Mcc
lel la
n Hig
hway
Massachusetts Turnpike
Concord Turnpike
Mcgrath H
ighway
Main St
Boston Ave
Oxf
ord
St
Pearl StCen
tral
St
Rindge Ave
Sherman St
Clinton Rd
Faneui l StArl ington St
Frontage Rd
Firs
t St
Huntington Ave
Western Ave
Ale
wi f
e B
rook
Pkw
y
Summer St
Soldie
r s F
i el d
Rd
Soldiers Field Rd
Commercial Street
Char les Street
MYSTIC VAL L E Y PA R K W AY
3
20
20
9
9
99
3
22A
3
2
2A
2A
3
2
1A
1A
1
1
1
16
16
16
28
28
28
28
38
90 90
90
90
93
93
93
93
93
16
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
PRUDENTIALCENTER
LOGANAIRPORT
HYNESCONVENTION
CENTERBOSTON
CONVENTION & EXPOCENTER
LANDMARKCENTER
FENWAYPARK
BOSTONCOLLEGE
HARVARDBUSINESS SCHOOL
HARVARDUNIVERSITY
TUFTSUNIVERSITY
BOSTON UNIVERSITY
$7288%
MID/WEST CAMBRIDGE
WEST END
BEACON HILL
FENWAY
FINANCIAL DISTRICT
SOUTH END
NORTH END
LEAT
HER
DIST
RICT
ALLSTON
BRIGHTON
BROOKLINE
MISSION HILL
ROXBURY
SOUTH BOSTON
CHARLESTOWN
EAST BOSTON
Source: MLSPin
The Urban Core market encompasses all submarkets within Boston Proper, Brookline, Cambridge and Somerville
In 2018, Boston was ranked the 3rd most expensive city in the nation with over seven of its neighborhoods surpassing
$1,000 for average condominium Price Per Square Foot (PSF). Boston’s Back Bay, famous for its historic Victorian
brownstones, remains the city’s most exclusive neighborhood, with an average PSF of $1,250, followed by the booming
Seaport at $1,230 PSF.
With an influx of new mixed-use development, Fenway has emerged as one of Boston’s premier neighborhoods, with its
average PSF reaching $1,044. However, as the appetite for affordability continues to grow, the Urban Core will expand into
new territories, pushing north into Lynn and south into Quincy. Markets such as Allston / Brighton, Somerville, and East
Boston have already benefited from transit-oriented developments, where low-rise stick-frame construction provides a
reduced cost per square foot unlike the traditional mid-to-high rise in downtown.
HIGHEST PSFLOWEST PSF
28%
$690
23%
$663
6%
$718
12%
$784
21%
$1,044
16%
$529
8%
$1,045
2%
$627
21%
$1,094
8%
$728
11%
$552
9%
$970
16%
$758
SEAPORT
35%
$1,230
10%
$626
SOMERVILLE
4%
$1,250BACK BAY
7%$822
EAST CAMBRIDGE
* Map represent 12-month increases
* Data excludes shadow inventory
URBAN COREAVERAGE CONDOMINIUM PSF
16Source: MLSPin
Condo pricing has increased every year since 2012 in Boston’s primary submarkets. However, 2018 saw the expansion of upscale
condominium market outside the core. Neighborhoods such as Allston/Brighton and parts of Dorchester have experienced
rapid growth attributed by the economic growth of the city, and the positive ripple effect it has had on its surrounding area.
Highly anticipated condominium projects include the redevelopment of 105 units at St. Gabriel’s Monastery in Brighton, and The
Mark, a 107-unit development in East Boston built by elite developer The Davis Companies.
Based on the upward trend of high-density luxury product downtown, Boston’s skyline will continue to evolve. High prices in
the Urban Core have expanded the locations where upscale condominiums can succeed. We expect continued growth in non-
traditional submarkets from Boston’s growing workforce seeking more affordable transit housing options.
PSF % GROWTH IN THE LAST 5 YEARS
120%
100%
80%
60%
40%
20%
0
Seaport
East Boston
Allston
Fenway
Brighton
Financial District
Dorchester
Hyde Park
South Boston
Mission H
ill
Roslindale
Jamaica Plain
West Roxbury
South End
Beacon H
ill
North End
Brookline
Somerville
East Cam
bridge
Charlestow
n
Back B
ay
Mid/W
est Cam
bridge
Midtow
n
West End
URBAN CORECONDOMINIUM PRICING
HIGHEST % GROWTHLOWEST % GROWTH
17
YEAR-OVER-YEAR TRANSACTIONS
2017 20182008 2009 2010 2011 2012 2013 2014 2015 2016
2100
1800
1500
1200
900
600
300
0
2,176
1,285
724
275
450k-799k 800k-1.9M 2+M250k-449
29% 2018
49%
16%6%
450k-799k 800k-1.9M 2+M250k-449
As Boston continues to enhance its profile as a world class city with the influx of new research and venture capital, it is giving way to new ultra-luxury residences. Strong market fundamentals, coupled with foreign investment and increased accessibility, in part due to recent expansion of international flight routes, have helped Boston to gain global attention as a thriving real estate market. There has been an explosion of luxury condominiums resulting in more $2+ million home sales; in a 10-year period sales increased 262%. Today, less than 16% of the housing is between $250,000 and $449,000, down from 54% a decade ago. Notable developments include Pier 4 by world-class developer Tishman Speyer, The Archer Residences, 50 Liberty and One Dalton.
Source: MLSPin
Num
ber
of F
or-S
ale
Uni
ts S
old
BOSTON CITY CONDOMINIUM TRANSACTIONS
18
5000
4500
4000
3500
3000
2500
2000
1500
1000
2018200820042000 201020062002 2012 2014 2016
UNIT SALE VOLUME
MEDIAN CONDO PRICE
Tota
l Uni
ts S
old
$1,000,000
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,0002018200820042000 201020062002 2012 2014 2016
Median Price Average Price
$877,347
$660,000
In the past 18 years, the average condominium price in Boston has increased 251%, growing at a rate of 8% year-over-year. The financial crisis of 2007-2008 impacted Boston’s condominium market heavily in 2009 (the only suppression in pricing in the last 18 years) with an average price decrease of 10%, but it rebounded the following year. 2005 was considered the peak cycle of Boston’s transactions, totaling 4,687. In 2018, Boston saw 4,544 transactions, the 3rd highest since 2000 and 2nd highest since 2013, at 4,650 transactions. A ready supply of board-approved / under-construction mixed-use developments such as Fenway Center (Air Rights), Washington Village, and Seaport Square will continue to release luxury units into the market within the next three years.
Source: MLSPin
BOSTON CITY CONDOMINIUM ANALYTICS
19
UNDER REVIEW
16,675
BOARD APPROVED
10,848
UNDER CONSTRUCTION
10,345
DEVELOPMENTS BY NEIGHBORHOOD
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
Brig
hton
Beac
on H
ill
Allst
on
Broo
kline
Back
Bay
Char
lest
own
Cam
brid
ge
Bay V
illage
Dorc
hest
erDo
wnto
wnEa
st B
osto
nFe
nway
Hyde
Par
kJa
maic
a Plai
nM
atta
pan
Miss
ion
Hill
North
End
Rosli
ndale
Roxb
ury
Sout
h Bo
ston
Seap
ort
Sout
h En
dW
est E
ndW
est R
oxbu
ry
# U
nits
Since Housing a Changing City: Boston 2030 was released in 2014, 17,993 units of housing have been completed
in the City of Boston. According to the report, Boston must build 69,000 new housing units by 2030 to keep up with
anticipated demand. The Seaport currently accounts for 13% of all units under construction, followed by the South
End at 11% and Downtown at 9%. South Boston’s ‘Washington Village’ will add 656-units into the market, the biggest
multifamily project currently under construction.
Board ApprovedUnder Review Under Construction \\\\\\\\\\\\\\\\\\\\\\\\\\\\Master Plans
Source: BPDA
BOSTON CITYDEVELOPMENT PIPELINE
++
20
NUMBER OF PROJECTS
UnderConstruction
BoardApproved
UnderReview
0
Projects
NUMBER OF UNITS
0
Units
Apartment Development Status (Units) Condo Development Status (Units)
2000 30001000 4000 5000 6000 700020 1040 3060 507080
There is a disproportionate ratio between apartments and condos in Boston’s development pipeline, with 7,366 apartment
units approved compared to 1,934 condo units. Nevertheless, as condo prices dramatically rise at a rapid pace, certain
apartment development proposals could potentially convert to for-sale condos.
Rental Condo
Under Review Board Approved Under Construction
37%26%
37%29%
38%
Source: BPDA
33%
BOSTON CITYAPARTMENT VS CONDOMINIUM
21
Market Cambridge
Sale Price $127,500,000
Price Per Unit $522,541
Number of Units 244
Buyer Wafra Investment Advisory Group, Inc.
Seller Hines
FUSE CAMBRIDGE | 165 CAMBRIDGEPARK DRIVE
Market Mattapan
Sale Price $65,000,000
Price Per Units $187,320
Number of Units 347
Buyer The DSF Group
Seller Ares Management
SOMA APARTMENTS | 15 BISMARCK STREET
Market Revere
Sale Price $89,250,000
Price Per Unit $388,043
Number of Units 230
Buyer Greystar Real Estate Partners
Seller TA Realty
OCEAN 650 APARTMENTS | 650 OCEAN AVENUE
Market Allston
Sale Price $42,500,000
Price Per Unit $531,250
Number of Units 80
Buyer G&Z Real Estate Investment LLC
Seller The Grossman Companies
TRAC 75 | 75 BRAINTREE STREET
Market Seaport
Sale Price $238,750,000
Price Per Unit $690,029
Number of Units 346
Buyer Clarion Partners
Seller Skanska
WATERMARK | 85 SEAPORT BOULEVARD
Market South End
Sale Price $216,125,000
Price Per Unit $597,030
Number of Units 378
Buyer Equity Residential
Seller Gerding Edlen
TROY BOSTON | 55 TRAVELER STREET
Market Longwood Medical Area
Sale Price $123,200,000
Price Per Unit $631,794
Number of Units 195
Buyer Oxford Properties Group
Seller Longwood Group
SERENITY APARTMENTS | LONGWOOD MEDICAL AREA
Market Cambridge
Sale Price $15,000,000
Price Per Unit $600,000
Number of Units 25
Buyer Rafi Properties
Seller Read Realty Trust
9 DANA STREET
Market Quincy
Sale Price $64,250,000
Price Per Unit $286,830
Number of Units 224
Buyer Pantzer Properties
Seller AvalonBay Communities
THE POINT AT NORTH QUINCY | 95 W SQUANTUM STREET
2018 NOTABLE TRANSACTIONS
Market Fenway
Sale Price $180,000,000
Price Per Unit $849,056
Number of Units 212
Buyer Prudential REI
Seller Skanska
THE HARLOW | 1350 BOYLSTON STREET *JANUARY 2019
22Source: Federal Reserve Economic Data
YIELD SPREAD BETWEEN 2- AND 10-YEAR BONDS
2018200820042000 201020062002 2012 2014 2016
3.5
3
2.5
2
1.5
1
0.5
0
-0.5
-1
DEBT MARKETS
As we have noted in prior reports, the spread between the 2- and 10-year Treasury bonds is widely considered
a bellwether of changing market conditions. Widening spreads typically lead to a historically normal yield curve,
indicating an expanding economy. Conversely, contracting spreads may indicate worsening conditions in the future,
resulting in a flattening of the yield curve.
On November 8, 2018 the yield on the 10-year Treasury reached 3.24%, which was the high point for the year. At that
time, the spread between the 2- and 10-year Treasuries was 58 basis points. For some perspective, a year ago that
same spread was 67 basis points. Since November, investors have expressed concerns over the monetary actions of
the Federal Open Markets Committee (FOMC). Specifically, they have focused the systematic increasing of the Federal
Funds Rate as well as the consolidation of the Fed’s balance sheet in an effort to reduce the amount of liquidity in the
market. As a result, yields on both bonds fell steadily, ending 2018 with a differential of only 21 basis points.
23Source: Federal Reserve Economic Data
FED FUNDS RATE PROJECTIONSTHE “DOT PLOT”
Source: Federal Open Market Committee. Each dot
represents a member’s opinion of where Fed funds
rate should be at the end of each year.
At the September 2018 FOMC meeting, 88% of participants projected a Federal Funds rate in 2019 that is above 2.5%
but below 3.25%. This range is driven by the economic data analyzed by the FOMC and not the fluctuations of equity
and bond markets. As a result, we anticipate this tension continuing through 2019, which we anticipate leading to
increased volatility across asset classes.
Moving into 2019, the Fed softened its outlook on rate hikes by indicating it only expects two rate increases this year,
rather than the three it previously projected. The messaging from the Fed regarding the need for additional rate hikes
has moderated as it continues to monitor global economic and financial conditions. We believe the Fed may pause
interest rate hikes in 2019 until the U.S. and global outlook becomes clearer. Commercial real estate is expected to
benefit from a more dovish Fed, as well as the market volatility that disrupts equities and bonds.
2019 OUTLOOK
DEBT MARKETS
745 Boylston Street | Boston, MA 02116 | (T) 617.375.7900 | (F) 617.536.9566 | BRAdvisors.com
NICHOLAS M. HERZManaging Director & Partner
TYLER CAPECCIAnalyst
JASON S. WEISSMANFounder & Senior Partner
KEVIN BENZINGERAssociate Director
617.850.9647 [email protected]
DOMINIQUE DUBOISAnalyst
CAPITAL MARKETS