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Sales and leasing volumes in commercial real estate have turned a corner and are heading up, but because the past few years have been so difficult, the upturn barely feels like one. However, the sector is expected to strengthen more over the next couple of years, NAR Chief Economist Lawrence Yun told commercial real estate practitioners on Thursday at the 2011 REALTORS® Midyear Legislative Meetings & Trade Expo in Washington.

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Financing remains a major stumbling block, with little commercial mortgage backed security activity happening, but banks — particularly regional banks — are stepping in with portfolio loans, said Yun.

That’s a bit surprising, because the big-four national banks — Wells Fargo, Citibank, Chase, and Bank of America — are in a far better position to make loans. Not only are they sitting on piles of money, but because they’ve grown to the point where they’re too big to fail, they have a de facto implicit federal guarantee, Yun said.

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A big concern looming is inflation. It remains low, about 2.9 percent (excluding energy and other volatile components to the economy), but inflation could rise and hit 5 percent by the end of the year and 6 percent in the early part of 2012, Yun predicted. If that happens, interest rate costs would also rise. For the federal government, a 2 percent increase in rates could wipe out a lot of any deficit reduction steps the government might take between now and the end of the year, because in some analyses, that could translate into $2 trillion in increased debt service payments for the government.

In the individual commercial sectors, multifamily housing has been the standout over the last year. Vacancies hit historically normal levels last year at about 5-6 percent with solid rental rate growth. Look for 4 percent higher rents nationally by the end of this year. That figure could be considerably higher in some first-tier markets like Washington, D.C., where rental rates have been rising at almost a double-digit clip.

Those gains might ease in the next year or two, though, as residential home sales improve. The high rental rate increases could tip the scale for some renters to consider home ownership. Yun has said on other occasions that almost 40 percent of the renter population today has the financial ability to become home owners, but for now are choosing to rent.

In the office market, vacancy rates are expected to decline steadily, from 16.5 percent in the first quarter of this year to 16 percent at the end of the year. Rental rate increases could turn positive for the first time in a while, too, to maybe 5 percent from a negative 2 percent. Offices are benefiting from recent job gains in professional service-type jobs like accountants and lawyers.

Among markets tracked by NAR, New York City has the lowest vacancy rate at a little over 8 percent. Washington, D.C., with its federal government-fueled activity, also has a relatively low vacancy rate. Pittsburgh, which has been steadily transitioning from an industrial city to a high-tech and professional services city, is among the metros with relatively strong office trends.

Industrial markets are also expected to improve, with vacancy rates projected to decline from 14.2 percent to about 12.9 percent at the end of the year. Yun is predicting positive rental rate growth of about 2 percent this year. Los Angeles, with its big Asia import-export trade, has the lowest vacancies at 7.5 percent.

Retail markets continue to struggle, with consumers still retrenching in their spending. In the long run, increased savings by consumers is good, because it boosts household financial stability, Yun said, but in the short term retail properties are getting little relief. Vacancy rates are only expected to improve marginally, from about 13 percent to just slightly better by the end of the year. Even so, the sector might see some improvement in rental rate growth, moving from a negative 1 percent to 1 percent in positive territory by the end of the year. San Francisco is in the best shape among major metro areas with a vacancy rate of about 6.7 percent.

You might not “feel the impact of the recovery,” Yun said. “The hole was so deep, it might still feel like we’re in a hole.”

Read more: http://www.ibtimes.com/articles/145440/20110513/commercial-real-estate-offices-jobs-nar-accountants-lawyers.htm#ixzz1MH7E3wxU

Globe staff file photo

Just after being elected mayor in 2003, Joe Curtatone at a boarded-up building in Assembly Square.

By Danielle Dreilinger, Globe Correspondent

Confusion, tension, and frustration filled Somerville City Hall Wednesday at a nearly four-hour meeting as the aldermen’s Finance Committee debated whether to authorize a bond that could be the key – or the stopping block- for the long-planned development at Assembly Square.

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Under the new proposal, real estate developer Federal Realty Investment Trust would build three blocks of the planned 10-block, 56-acre “Assembly Row” on the Mystic River for a total of 405 housing units, with a hotel to follow. Simultaneously, the state would build the Orange Line stop. The city would fund new streets and a storm water drainage system, necessary infrastructure in the underdeveloped area, which is currently a parking lot, crumbling buildings, and scrubby field.

Certainly it would cost a lot of money – $25 million, to be paid off until 2041 at about $1.6 million a year. (Somerville’s FY 2011 budget is just under $180 million.) The financing plan uses new tax revenues from those improved blocks to pay back the loan.

But at times, the discussion raised the question of whether cautious aldermen wanted change without risk.

“We’re going to invest $25 million of taxpayer money in hopes and dreams,” Alderwoman Rebekah Gewirtz said.

Anne Thomas of the city’s legal office reviewed an agreement that would cover the worst-case scenarios. If Federal Realty and its subcontractor, Avalon Bay, don’t get the three buildings to the “core and shell” stage within three years, they have to pay the city back.

If the developers fold or back out after that, city assessments indicate the improved land already would be valuable enough to cover the yearly debt load.

And if federal funds come through – Representative Mike Capuano secured a federal earmark to cover these costs but the bill hasn’t yet been funded – the city would be reimbursed up to $12 million.

Pages of financial stats didn’t satisfy the critics, though. The shadow of NorthPoint hung over the room, exacerbated by Ikea’s delay in starting construction in Assembly Square.

Gewirtz and fellow Aldermen Bill White – typically the most vocal skeptics on the board – questioned the methodology behind the city’s assessment of the increase in property values.

Chief assessor Marc Levye said he used projections based on 22 years of past property values.

“Are these industry best practices?” asked Alderman Bruce Desmond, pointing out that no projection is a promise.

“They’re not a guarantee,” Levye said. “They are our best estimate,” using “very cautious and conservative numbers.” They didn’t factor in, for instance, the fact that the buildings will use high-end, green materials and be on the waterfront.

The definition of “core and shell” caused particular consternation. Did that mean an ugly, useless frame or a nearly complete building ready for retail tenant build-out?

Don Briggs, president of Federal Realty Boston, said the buildings would be 75 point done at the core and shell point, and that Avalon Bay in fact planned to have one floor in each building completely done.

Gewirtz insisted vacant core-and-shell buildings would be an eyesore. It’s not the same as a “bright, beautiful” building, she said.

At this, the businessmen in the audience shifted and murmured. “Yes it is, and it’ll have one floor done,” muttered Tom Bent, business owner and the city’s representative on the powerful Boston Region Metropolitan Planning Organization, which funnels state and federal dollars to municipal projects. Briggs and his two colleagues whispered to each other.

Mayor Joe Curtatone stepped in to make his case. “This is very safe,” he said. “If they don’t build they’ll hold us harmless.” As for Ikea, “There have been no broken promises,” he said. “Ikea has paid their permits in advance, nonrefundable. … they can’t build anyway until the infrastructure’s completed.”

The key point, he said, is that the state won’t proceed on the Orange Line – which is ready to go out to bid – without the city’s $25 million. “The T station will not be built if we don’t put our money down. Nobody’s going to build,” Curtatone said.

“I want to know who at the state is saying we have to put up the money,” Gewirtz persisted.

In this economy, if the city paying nothing, “It’s not going to happen,” Curtatone said. The City of Quincy recently voted to bond $227 million to revitalize Quincy Center in partnership with real estate developer Street-Works.

Briggs, of Federal Realty, stood up. “We’ve invested over $110 million so far,” he said. “We’ve reached a breaking point and we cannot afford to pick up the tab for 100 percent of it.” He sat down.

At that, Gewirtz suggested calling Federal Realty’s bluff, arguing they wouldn’t walk away from $110 million.

Curtatone said, “I am asking you to take a risk … a smart, calculated risk.”

By the end of the discussion, the tide of aldermanic opinion seemed possibly to have turned. “I understand where Alderman Gewirtz is coming from but … I look at this $25 million as an investment by the city,” Desmond said. “No one’s ever made this investment in Somerville for us.” Indeed; if anyone had, that area would already have storm drains.

Bent elaborated on that outside the chambers. Near his office, 200 Inner Belt sat at the core and shell stage for several years, he said, and it didn’t hurt surrounding businesses. Now Harvard rents space there.

Getting the state to pony up for the Orange Line took “a lot of maneuvering,” Bent said. The MPO OK’d it with the understanding that “the City of Somerville was finally going to put up some money. … They’re all saying the same thing. ‘Somerville, you’ve been talking about this for 20 years.’ ” He sighed. “All these other entities believe in us … do we believe in us?”

The committee decided to continue the discussion. The record will remain open for public comments through next Friday. Federal Realty’s website has a want ad for an Assembly Square marketing chief. Responsibilities include “media invite for grand opening.”

Contact Danielle at somervillescene@gmail.com.

CONSTRUCTION EXPECTED TO COMMENCE FALL 2011 -

Download image SOMERVILLE, Mass., May 4, 2011 /PRNewswire/ — Federal Realty Investment Trust (NYSE: FRT) today announced that the Massachusetts Bay Transportation Authority (MBTA) submitted a notice to bidders for the construction of a new Orange Line T station for Assembly Row at Assembly Square. The new station at Assembly Row will be the first to be built on the Orange line since the Southwest Corridor Stations in 1987 and will be located between Sullivan Square and Wellington Station.

(Logo: http://photos.prnewswire.com/prnh/20050907/DCW070LOGO )

“We are pleased that the MBTA went to bid on construction for the new Orange Line T station in Somerville. This is the latest great step forward in the progress of this project and we look forward to seeing the bids that come back,” said Don Briggs, president Federal Realty Investment Trust –Boston. “The vision of Assembly Row at Assembly Square cannot be realized without the Orange Line T station. People from all over the Commonwealth are going to come to Assembly Row to work, shop, live and enjoy the parks and open space. A large number of them will rely on public transportation to get there.”

The station is a cornerstone of Federal Realty’s new mixed-use neighborhood in Somerville. Complete with built-to-suit office and research and development space, residential units, parks and active urban streets with sidewalk cafes, retail shops, restaurants and entertainment venues, Assembly Row will be the largest new neighborhood in the Commonwealth since the Back Bay.

Construction of the new T could begin as soon as fall of 2011, with the potential to be online in 2014. Undoubtedly Massachusetts’ largest development project, Assembly Row at Assembly Square will create more than 19,000 permanent jobs, over 21,000 construction jobs, and significant new revenue for the City of Somerville and the Commonwealth of Massachusetts.

“The opportunity to build a new neighborhood at Assembly Square is the opportunity to create good jobs, both permanent and temporary, to create new public parks and open spaces and a better place for people to work and live. The new T station is an integral part of that,” Briggs went on to say.

For more information on Assembly Row, please visit www.assemblyrow.com.

About Assembly Row at Assembly Square

Assembly Row at Assembly Square is the next great Boston neighborhood. As proposed, this mixed use development will feature 1.75 million square feet of built-to-suit office/lab space, 2,100 residential units, a 200-room hotel, 880,000 square feet of retail, including a 60,000 square foot movie complex. In the heart of this neighborhood, active urban commercial streets will be interspersed with sidewalk cafes, parks, retail shops, restaurants, bike lines and entertainment venues. Located at the very center of Greater Boston, this new development will be accessible via Interstate 93 and with the newly planned Assembly Row T station, minutes to downtown Boston. Design your own future at Boston’s next great neighborhood, Assembly Row at Assembly Square. For more information, please visit www.assemblyrow.com.

About Federal Realty

Federal Realty Investment Trust is an equity real estate investment trust specializing in the ownership, management, development, and redevelopment of high quality retail assets. Federal Realty’s portfolio (excluding joint venture properties) contains approximately 18.3 million square feet located primarily in strategically selected metropolitan markets in the Northeast, Mid-Atlantic, and California. In addition, the Trust has an ownership interest in approximately 1.0 million square feet of retail space through a joint venture in which the Trust has a 30% interest. Our operating portfolio (excluding joint venture properties) was 93.9% leased to national, regional, and local retailers as of December 31, 2010, with no single tenant accounting for more than approximately 2.6% of annualized base rent. Federal Realty has paid quarterly dividends to its shareholders continuously since its founding in 1962, and has increased its dividend rate for 43 consecutive years, the longest record in the REIT industry. Federal Realty is an S&P MidCap 400 company and its shares are traded on the NYSE under the symbol FRT.

Somerville —
With a $25 million investment from the city, the stage has been set for a shiny new Assembly Square with a planned Orange Line station, at least three new buildings – both residential and commercial – and the infrastructure to support about a dozen more.

By a 9 – 1 vote Monday night, the Board of Aldermen cleared the way for the city to borrow approximately $25.8 million to fund new roadways and a stormwater outflow into the Mystic River. That commitment will trigger investments from the state and federal governments as well as private developer Federal Realty Investment Trust to pay for a $38 million MBTA stop.

The site of a former Ford Motor factory on old marshland and landfill, Assembly Square was home to a movie theater and the raucous Good Times Emporium most recently.

Its redevelopment has been the golden ring that city officials have tried to grasp for at least 14 years.

Mayor Joe Curtatone first proposed the creation of a District Improvement Financing scheme last November to jumpstart the development. Since then, the aldermen’s Finance Committee has met late into the night, going over the specifics of a tri-party agreement between the city, the state and the developer, and quizzing the mayor and the developer about guarantees that would limit the city’s risk.

New property taxes from the first three buildings, which will include a new cinema, will pay the debt service for that $25 million borrowing over the next 30 years. Any further development in the square will go directly into the city’s coffers.

Aldermen President Rebekah Gewirtz remained skeptical until the very end, casting the lone vote against authorizing the borrowing. Ward 7 Alderman Bob Trane has taken himself out of the decision-making process because his brother has business interests in the development.

“My instinct is that we do not have enough assurances to go forward,” said Gewirtz. “There’s no promise that after we do this they won’t come back looking for more money.”

However, the other aldermen – many of whom had been skeptical during Finance Committee meetings – said the risks were worth it, and there was a greater risk of allowing the project to lie fallow.

“Perhaps she’s looking for a sure investment,” said Ward 3 Alderman Tom Taylor, about Gewirtz’s opposition. “I don’t think that there is such a thing.”

After the vote, developer Don Briggs, had a quiet word with Curtatone and then shook all the aldermen’s hands. Briggs waited for Gewirtz to step down from the president’s podium before greeting her with a handshake and a quick word.

“I’m tired,” said Curtatone, who said he has talked about how to redevelop Assembly Square every day since taking office in 2004. “I’m exhilarated. I’m happy for the people of Somerville.”

Though Curtatone and Briggs had both pushed for this outcome, there were no wild celebrations following the vote. Briggs said he was going to “go home and have dinner with my wife at 10 o’clock,” and Curtatone said he caught the rest of the Bruins 3-2 overtime win in the second round of the playoffs.

By Andy Metzger Somerville Journal

Photo courtesy of CNN Money

Somerville —

The proposed $25.8 million municipal bond is the central supporting element or keystone of the more than $1 billion redevelopment of Assembly Square.  The bond will fund basic public infrastructure (road, water, stormwater, sewer, utility, traffic, lighting, and sidewalk improvements) that will:

• unlock funding for the new Orange Line transit station construction; and,
• be the groundwork for the first phase waterfront, mixed use development of the Assembly Square plan.

The keystone public infrastructure, which would be funded by the municipal bond, is the city’s component in the public-private partnership – and a prerequisite of the District Improvement Financing (DIF) program which has been approved by the Commonwealth of Massachusetts.

The $50 million Orange Line transit station construction funding, from the Commonwealth, Federal Realty Investment Trust and IKEA, is already in place. The Massachusetts Bay Transportation Authority Board has approved agreements that will enable advertisement for construction bids this spring for completion within 36 months.  But, the City must act on the infrastructure bond.

The more than $1 billion redevelopment plan is already in place:  2,100 residential units, a 200-room hotel, more than 500,000 square feet of retail, restaurants and entertainment (including a 56,000 square foot movie complex), and 1.75 million square feet of office, R&D and manufacturing space make up whole plan.

The developer is well suited to deliver.  Federal Realty is a $4B equity real estate investment trust and has already invested $130M in its Assembly Row plan.

Assembly Row is the next great Boston neighborhood of the 21st century. “Bigger than The North End, more river frontage than Beacon Hill, more green space than South Boston. Assembly Square is arguably the largest new neighborhood since the Back Bay was created.”

To carry the bond, the City would rely on tax revenues generated by a “DIF district” (which is less than 1.5 percent of the city’s acreage and less than 1% of the current tax base) consisting of approximately 400 housing units; approximately 255,800 square feet of retail, and a cinema complex.  The DIF district represents 11 percent of the taxable value of Assembly Row.

Reports and testimony of city consultants and department heads and Federal Realty representatives have been vetted in public meetings and hearings before the Board of Aldermen.  These reports and testimony have demonstrated that, after calculating increased municipal services required for the DIF District, property values and expected city tax revenues will be more than sufficient to service the debt and that surplus revenue will flow to the general fund.  In the event of failure to complete the DIF buildings, Federal Realty “absolutely, unconditionally, and irrevocably guarantees the obligation” pursuant to the terms and conditions of the agreement up to $15M.  The Tri-Party Agreement between the City, the Commonwealth and Federal Realty will be binding upon successors and assigns.

If the bond does not prevail, the largest job-generating project in Somerville’s history — Assembly Row’s 18,000 construction jobs and 21,000 new permanent jobs — will not be realized.  More than a decade of work will fall to the ground and redevelopment will take many, many more years.

After nearly fifteen years of participating in the redevelopment process and upon review of the most recent reports and evidence, the Somerville Chamber of Commerce believes that bond approval is the most prudent course for all the inhabitants of Somerville and so hopes that “190988 the Appropriation and authorization to borrow $25,750,000 in a bond for the cost of implementing the Assembly Row DIF District and Development Program” prevails.

Read more: Close to approval, Google-ITA merger would make Cambridge an R&D hub | Boston Business Journal

Infinity Pharmaceuticals Inc., a Cambridge drug discovery and development company, said that Joshua D. Hamermesh has been appointed its vice president of business and corporate development.

Before joining Infinity, Hamermesh held the position of senior vice president, strategy and corporate development at Pervasis Therapeutics Inc.,Infinity Pharmaceuticals said.

In order to build a new Orange Line stop at Assembly Square, Mayor Joe Curtatone has asked the Board of Aldermen to borrow $25 million.

The idea is that tax revenue from the first stage of the commercial and residential development would go towards paying off the debt and jump-start the redevelopment of Assembly Square.

On Thursday, March 31, the Finance Committee will talk about the mayor’s request for borrowing. The aldermen have already established the District Improvement Financing plan that would enable the debt financing to work. The public hearing starts at 6 p.m. at City Hall.

The aldermen have been working with developers on the Assembly Square site since at least April 1998 when Alderman at Large Bill White made an order urging then-developer Samuels & Associates to “consider the long-term interests of the city.” In 2005, Federal Realty Investment Trust became the principal developer.

The $25 million would combine with $23 million in state funding for the Orange Line station and $69 million from FRIT to build infrastructure on the land next to the Mystic River. Underground utilities have been laid, and a strip mall was built a few years ago. In the next stage, FRIT is planning to add 400 housing units, a 500-seat movie theater, a hotel and retail space.

Alderman at Large Bill White, who previously criticized the mayor for rushing the Board of Aldermen to create the DIF plan said it will be important to talk about what would happen if the city did not borrow the money for the station.

“You’ve got to look at the alternative,” said White in a phone interview. White said he also wanted guarantees that development would happen in the other areas of Assembly Square.
Copyright 2011 Somerville Journal. Some rights reserved

Toys “R” Us Inc.’s improved financial prospects should bode well for its dozens of local stores operating on a seasonal basis.

Less than a week after reports that the toy retailer’s private equity owners are mulling an $800 million IPO, Toys “R” Us said its 1,600 stores generated $6 billion in revenue and a net profit of $330 million in the fourth quarter. While both figures were relatively flat from the year-earlier span ($5.9 billion in revenue, $387 million profit in 2009), the quarter’s performance did cap the company’s second consecutive year of revenue growth and profitability after a dismal run that saw it shutter hundreds of stores nationally.

Jerry Storch, the company’s chairman and CEO, said heavy investments in store formats – the company is pursuing a duel toy and so-called juvenile-product offering – appear to be paying off in the form of positive customer-satisfaction surveys and wider gross margins (up 0.2 percent). The company invested $325 million in new stores and renovations last year, versus $192 million the year before.

As previously reported by The Round Up last year, the company opened 21 so-called pop-up stores in Massachusetts after significantly reorganizing its real estate holdings in the United States. The company, which boasted 24 total stores in the commonwealth and Southern New Hampshire as of this week, has repeatedly said it will monitor those operations to determine whether a longer-term operating strategy at those locations is warranted.

In 2004, Toys “R” Us was acquired and taken private in a $6 billion deal involving private equity giants Kohlberg Kravis Roberts of New York, Boston’s Bain Capital and Vornado Realty Trust of New York.

Read more: Toys ‘R’ Us may have staying power in Bay State | Boston Business Journal

The Boston Redevelopment Authority said Friday that Director John Palmieri has submitted his resignation. He will continue to lead the organization until May 1.

The BRA did not detail a reason for Palmieri’s departure. Susan Elsbree, a BRA spokeswoman, said Palmieri formally informed Mayor Thomas Menino and the BRA board of his intention to step down Friday. She said the mayor and board already have commenced a search for Palmieri’s successor.

In a phone interview Friday, Palmieri, 60, said he had been mulling the move for several months and that Menino was aware of his intentions leading up to Friday’s announcement. He said he has no immediate plans, from a professional standpoint.

“I’ve really just begun to think about taking a break, to think about what I’m going to do next,” he said. He said his tenure was marked by plenty of accomplishments and challenges, adding that the real estate market and economy turned south shortly after his arrival at the BRA. “That created enormous pressures.”

Palmieri was tapped to lead the BRA in 2007. During his tenure the city experienced one of its more dramatic real estate and development downturns, a situation that was highlighted by numerous projects that either stalled or were scuttled before completion. Palmieri has been particularly outspoken in his criticism of the development at the former Filene’s building in Downtown Crossing.

In November, Palmieri issued a letter to the project’s developers, Steven Roth of Vornado Realty Trust and John B. Hynes of Boston Global Investors, notifying them that their stalled status “significantly increased the impacts” of the project and that development cannot resume until the agency approves a new project application.

Palmieri is the agency’s 15th director.

Before joining the BRA, Palmieri was the director of the Department of Development Services in Hartford, Conn.

Read more: BRA Director Palmieri stepping down | Boston Business Journal