Special Edition – New Development
“The 600” – Ready or Not, Here They Come!
In our mid-year review (see here), we highlighted three high-profile new developments that will be ready for delivery in late this year and early 2023. The St. Regis (Seaport – 114 units), Winthrop Center (Downtown – 314 units), and Raffles (Back Bay – 146 units). Collectively, there are about 574 brand spanking new units hitting the market all at once – or what we refer to as “The 600” (yes, we’re rounding up).
It’s unusual to have three large scale luxury developments coming to market at the same time, particularly in the context of all the new developments in the last decade. Despite the fact that these properties are in three distinct downtown neighborhoods, these developers are targeting the exact same pool of “luxury buyers.”
We’ll be doing more in-depth reviews of the individual projects in the coming months, but our preliminary thinking is as follows.
St. Regis – South Boston Waterfront (Seaport), 114 units
The architecture in the Seaport has been justifiably criticized as just a bunch of glass boxes. When we first saw the renderings of the St. Regis, we had high expectations that this property would break up the architectural monotony. Maybe it’s just us, but the actual building seems far less dramatic than the renderings. To us it looks just like all the other glass boxes.
We’re fans of hotel/condominium combinations where the residents can take advantage of the hotel services – things like housekeeping and food service. But since this is just a branding deal (there isn’t an actual St. Regis hotel in Boston), it seems to us that you’re paying a hefty premium for the brand name without the benefit of leveraging actual hotel services.
It’s probably obvious to everyone, but we’ll come out and say it – in our opinion the building is located at the wrong end of the wharf. If we’re paying upwards $2,000 -$3,000+/sf for waterfront property in the Seaport, we’d prefer to be on the other end of the wharf with more open views of the harbor, not stuffed in the bowels of the wharf. Making matters worse is that the building is right on the edge of one of the busiest roads in the Seaport.
On the topic of water, one of the selling points of the St. Regis is that there’s a 4-6 foot deployable flood wall around perimeter openings and saltwater resistant materials were used in the below grade-level parking garage. We’re not climate change experts, but these “features” would have us thinking twice.
Many people claim that the Seaport is quickly becoming a vibrant residential community (mainly realtors looking to sell apartments). We continue to view the Seaport as largely a transitory market aimed at the pied-a-terre set, something we don’t see changing in the near future. We continue to be cautious relative to valuation in the Seaport.
Raffles – Back Bay, 146 units
Raffles Hotel and Resorts is planting their first North American flag in Boston’s Back Bay on Trinity Place directly behind the John Hancock Tower. While Raffles may not be widely recognized here, their properties in Asia and the Middle East have earned them very high marks in the international luxury hospitality marketplace.
The Boston development will include 147 hotel rooms and 146 condominium units on the upper half of the 35-story building. We’ve previously noted that the project originally provided for onsite parking (see “Raffles – The New Kid on the Block,” and “Includes Parking” – Sort of) but those plans were scrapped in favor of leasing parking down the street. We struggle with paying what promises to be some of the highest real estate prices in the City and not getting deeded parking.
Regarding the location, we have a love hate thing going on. On one hand, being right in Copley Square is pretty ideal. On the other hand, being sandwiched between the John Hancock tower and the Back Bay train station/Mass Pike is less than ideal. We’re concerned about potential noise from all of the transportation infrastructure, on top of the notorious wind conditions in that area (see our previous note).
Our biggest concern relates to neighboring major new development projects that may impact life at Raffles. The approved Copley Place tower will be over the existing Neiman Marcus store, a half a block away. This 805,000 square foot tower will have 542 residential units. According to Boston Planning and Development, this project is under construction, although the project has been mothballed at this point.
More concerning to us is the 1.26 million square foot Back Bay South End Gateway development. As approved, the Gateway project, which abuts Raffles, will include two 26 story apartment buildings, a 28 story office building, new retail space and the redevelopment of the Back Bay train station.
In our view, these other developments will change the character of the area and there could be years of heavy construction to live through. It remains to be seen when and if these projects will get off the drawing board. It’s not uncommon for approved projects to sit dormant for years before construction commences. Note that the project just breaking ground on the corner of Arlington and Boylston Streets was initially approved back in 2009.
Raffles will definitely give the incumbent luxury hotels a run for their money. We’d want to have a very good understanding of the future of the neighborhood, particularly how views may be impacted (see “Vanishing Views“) before we plunked down big money on a unit.
Winthrop Center – Financial District, 314 units
Sandwiched between Federal and Devonshire Streets on the site of the old Winthrop Square parking garage, Winthrop Center will be the second tallest residential building in Boston. This mixed use development will consist of office and retail with the residential units on the upper floors.
Work on this project came to a screeching halt when the pandemic first hit in 2020 because the developer, Millennium Partners, didn’t have their construction financing finalized. To secure financing, the residential portion of the project was scaled back from 387 units to 314.
The lenders also dictated that the residential portion of the development would initially be a rental program with the idea that if market conditions improved, the developer would move forward with condominium sales. Market conditions did improve, at least they did before the Federal Reserve got into the act. Millennium is now looking to unload these condominium units into a sharply higher interest rate environment.
Winthrop Center is located just four blocks away from Millennium Partners’s 2016 development, Millennium Tower (442 units), which is smack dab in the center of Downtown Crossing. If we were going to live in one of these downtown properties, we’d prefer Winthrop Center as in our view Downtown Crossing has become a bit seedy in recent years.
Occupying floors 35-62, we’d rate the views from very good to outstanding. Importantly, we don’t see any future developments in the area that would impair the views down the road. We also really like the idea of being close to the Seaport without actually living there – Winthrop Center’s location fits that bill.
Naturally the downside to living in the heart of the financial district is that outside of business hours the place is a ghost town. In the post-pandemic world (can we say that yet?) “outside of business hours” has taken on an entirely new meaning.
In her pivotal book on urban planning, “The Death and Life of Great American Cities,” Jane Jacobs made the observation that “A well-used city street is apt to be a safe street. A deserted city street is apt to be unsafe.” We see downtown as a safe place to live (yours truly lives downtown), but situational awareness is key in any urban environment, particularly in areas that may be desolate at times.
We expect that the finishes at Winthrop Center will be on par with other Millennium Partners properties in the City – nice but nothing to get too excited about. You can expect to pay around $2.5–$4.8 million for a two bedroom unit while an upper level three bedroom will run you north of $6.0 million.
The Batterymarch View
Brand new construction is very appealing; everyone loves the new car smell and all of the amenities can be tempting. We look more favorably on mixed use properties like Raffles and Winthrop Center as they have a active vibe, and can offset the long term cost of operating the buildings.
Overall, we’re cautious on new construction for several reasons. Our chief concern relates to valuation. Readers of our work know that we periodically highlight how values in many recent developments have declined. Our market is pretty well saturated with new construction, and you can bank on the fact that developers will create too much of a good thing.
New construction buildings can be plagued with serious problems. One of the biggest issues in new construction that we hear about relates to cracking and or leaking windows. Some of the highest profile new buildings in the city have some of the most frustrated occupants. We’re in the camp that we would rather let someone else deal with getting the kinks worked out of a new building. Who knows, maybe you’ll buy a unit at a discount in a couple of years.
Finally, if this is going to be a primary residence, or lived in six months or more a year, we continue to prefer well established traditional locations. As buyers get lured into these blinged out new buildings, it’s creating buying opportunities in properties that just a few years ago were considered the most desirable (we think that they still are).
If you’re in the market for a downtown property, give us a call – we’re always happy to share our market views and valuation analysis.
About Batterymarch Group LLC – Batterymarch Group is an independent full service real estate brokerage and advisory firm focused on the downtown Boston high-end residential market. We represent both sellers and buyers with a sharp focus on valuation. We also offer sub-advisory and owner’s representation services to financial institutions, family offices, and trustees.
About Andrew Haigney – A 25 year Wall Street veteran, Andrew held senior positions at leading global investment banking institutions where he routinely valued and negotiated complex securities transactions on behalf of institutional clients. Andrew has been an outspoken advocate of a universal fiduciary standard. In founding Batterymarch Group, Andrew brings that same discipline and passion to real estate brokerage.