Boston Seaport : Seeks Capital Partners
Morgan Stanley Real Estate Fund (MSREF) and Gale International, Inc. a New York-based developer and investor of office and mixed-use properties, are planning a massive sustainable project in South Boston's emerging Seaport District. The $3 billion mixed-use project, which is located along Seaport Boulevard and is a 5 minutes walk over Fort Point Channel to the Central Business District, occupies 20 square blocks currently being used as surface parking by commuters who work downtown. The joint venture will look to bring in outside equity partners and lenders to finance development of individual parcels over the project's four-to-seven- year build out, according to Gale Senior Vice President Jonathan Thorpe.
The 23-acre master plan, known as Seaport Square, includes 2.5 million square feet of residential units (1,250 rentals and 1,250 condominiums), 1.5 million square feet of office and life science research space, 1.3 million square feet of retail and entertainment in six shopping districts, 500,000 square feet of hospitality with 700 rooms in three hotels, and 750,000 square feet of educational, institutional and cultural space.
The site is zoned for 4.4 million square feet of mixed-use development. Gale is working with the city of Boston to modify the existing zoning. The proposed re-zoning, which utilizes a compact urban design, would permit 6.5 million square feet of space. Factoring in the 2.1 million square feet of additional space, the master plan includes 36% open space and 25% green space, including two new parks. The development is adjacent to the Courthouse Station, which is part of the Massachusetts Bay Transit Authority (MBTA).
Gale and Morgan Stanley, under the entity MS Seaport Holdings LLC, bought the land from News Corporation in September 2006 for $200 million, which Thorpe said was "market price." The land and entitlements process were capitalized with Morgan Stanley taking a 95% stake, and Gale a 5% stake. The entitlement process for the master plan is about 60-70% complete, said
Thorpe. Approvals of the master plan are expected in 12 months.
W/S Development, a Boston-area retail developer is developing the retail portion of the development, which will include both small and large format stores, including a grocery anchor, which "this area desperately needs," said Thorpe. "Downtown and central Boston are relatively under-served from a retail perspective. The beauty of this site is that you are able to capture the downtown population, but also the folks that might be coming in and out of the suburbs right off the I-90 off-ramp. There have been no leases signed, but there has been an incredible level of interest among retailers looking to locate down here."
A macro-trend driving the project is the backlash against commuting. "We think there is a lot of demand for work-live housing. If you have to commute in from the suburbs, it is difficult. This is going to give people the opportunity to walk to their workplace-whether they work in downtown Boston or in the Seaport area-and live right where they work. We view that as a growing trend in Boston and in other cities," said Thorpe. The residential piece will range from 4 to 20 stories, be offered at a variety of price points and include workforce housing. Tight office and hotel supply fundamentals are also driving the project. "The vacancy rate for office is very low. Boston typically has net absorbed about 1.5 million square feet of space per year. Right now the market is very tight, there is not that big of a pipeline of space under construction, and there are not many development sites available. We are bullish on the office market here," said Thorpe.
Asked about opportunities for equity investors to participate in development of individual parcels, Thorpe said: "The office, hotel and residential is a wide-open palette right now. However, we don't anticipate raising any additional equity capital or modifying the ownership structure on the project's retail component. That is pretty well set right now."
As for the partners' exit strategy, Thorpe said: "The original plan when we bought the land in 2006 was to get the master plan approvals and then wait and see.
We think we are creating a lot of value through the improvement and entitlement process. So a year from now we may sell off some of the parcels or, as we have done with the retail portion, we may enter into equity joint ventures. We are following a returns maximization strategy and that could involve an outright sale. But we think it probably is going to mean staying involved on some basis with the future development. That would be our strong preference."
Richards Barry Joyce & Partners, LLC has been appointed as the exclusive marketing agent for the Seaport Square's office component. The project will be registered with the U.S. Green Building Council's LEED for Neighborhood Development (LEED-ND) rating program, which focuses on certifying entire neighborhoods for sustainability. Individual buildings will also be LEED certified to a silver level. Two thermal-based co-generation plants with up 9 megawatts of capacity are being considered. The plants would power the entire development's heating and air-conditioning loads and 35% of its electrical needs. The plants would be the largest co-gen installation in a private development in Boston. Cogen is typically 40-50% more energy efficient than electricity powered via the grid. The partners expect to begin development of three small parcels within the site in mid-to-late 2009 prior to the master plan approvals. For more information, call Jonathan Thorpe at 617-717-7979.