An affiliate of Ocean Road Advisors is an investor in Boston's Seaport District Redevelopment Plan
Spurring Growth on Boston’s Waterfront
November 1, 2011
By SUSAN DIESENHOUSE
BOSTON — When Vertex Pharmaceuticals agreed this year to move into an as-yet-unbuilt waterfront office complex, it made history as the city’s largest commercial lease at 1.1 million square feet, with a rent of $72.5 million a year. But more important for the city over all, the huge deal has spurred growth and eased the way for financing other projects.
The Fallon Company is developing the $900 million office and laboratory complex for Vertex on Fan Pier, across Fort Point Channel a few blocks from downtown. Vertex, which is based in Cambridge, Mass., also has leased 60,000 square feet in One Marina Park Drive, an office building completed by Fallon a year ago, and has an option on a possible 300,000-square-foot building, also on Fan Pier.
Vertex’s plan to fill the complex, now under construction, with some 1,800 highly paid workers may inject new economic vitality into the 1,000-acre waterfront. Since the 1980s, billions have been invested in public infrastructure and planning, and in other scattered commercial developments in the area.
“The momentum for economic growth has been building for some time,” said Mary A. Burke, a senior economist at the Federal Reserve Bank of Boston, “and Vertex could give it a big push.”
She said more growth could follow once Vertex occupied the two-building complex, much as has been the case with the expanding life science industry in the Kendall Square area of Cambridge, where restaurants, stores, hotels and housing have accompanied new labs and offices. For example, Fallon plans to build a 150-unit luxury high-rise condominium at Fan Pier next fall.
Developers with a financial stake in the waterfront said the Vertex deal would help with leasing retail, office and residential space, and securing financing.
“The Vertex project is an incentive for everyone to get moving,” said Stephen R. Karp, the chairman and chief executive of New England Development. After 10 years of planning and waiting, Mr. Karp and the Hanover Group last month won a financial commitment from a real estate investment trust and will start construction this spring on a 21-story, 356-unit rental apartment building on Pier 4, adjacent to Fan Pier.
Mr. Karp is considering building a hotel on the parcel, which has permits for one million square feet of mixed-use development, he said. “Finally, the waterfront is really happening,” he said.
The Vertex start is a tipping point that makes the waterfront a viable location for commercial development, said John Fowler, the managing director of HFF, a commercial mortgage brokerage that secured $355 million in financing for the life science project, which is a joint venture between Fallon and Mass Mutual Financial Group, a partnership that invested $450 million in equity.
It is also good news for John P. Buza, a managing director of Morgan Stanley, which with Boston Global Investors is developing Seaport Square, a 6.3-million-square foot, 23-block mixed-use project across the street from the Vertex site. The partnership is selling land to WS Development Associates for 1.2 million square feet of retail space and to AvalonBay Communities for some 700 rental apartments, both of which plan to start construction in the spring, he said.
“Vertex shows our retail and multifamily investors that there will be tenants down there,” Mr. Buza said.
Huge infrastructure projects have made waterfront development more viable. Since the 1990s, about $4 billion in public money went to clean Boston Harbor and $16 billion for the Big Dig, which demolished an elevated highway separating downtown from the waterfront and installed new highways, tunnels, bridges and roads downtown and through the waterfront.
Two years ago, to attract new businesses and younger residents, Mayor Thomas M. Menino branded the waterfront as the Innovation District. Previously, his administration rezoned the area to require a mix of development uses, open space and corridors with clear views of the water. The city has negotiated incentives to attract business. For Vertex, Mr. Menino helped secure $12 million in tax relief and $50 million in infrastructure financing backed by the city and state.
“Seven years ago, we could have developed the area with offices, residential towers and a little retail, but the waterfront is special,” he said. Now, these development sites call for public green space, access to the waterfront, incubator space for start-ups or affordable housing. “In the past 18 months, we’ve attracted 90 new businesses with 2,300 jobs,” Mr. Menino said.
Some of the new restaurants moved into Liberty Wharf, developed by the Cresset Group, which opened last spring and has been packed since.
“There’s terrific buzz and activity at the waterfront,” said Andrew Hoar, the president of CB Richard Ellis New England, who noted that much of the downtown leasing last quarter was around the harbor. He predicted it would be the fastest-growing downtown submarket in the next three years, drawing tenants from other downtown locations and neighboring communities like Cambridge, Watertown and Somerville.
Even so, it is unlikely that the waterfront will displace Cambridge as the area center for life sciences, said Mats Johansson, the president of Skanska USA Commercial Development, which has started construction on a $70 million lab in East Cambridge without a tenant.
With Harvard and M.I.T. there, Mr. Johansson said, “Cambridge is a brainpower market with a mix of biotech, finance and academia; sectors that will drive the U.S. economy back on track.”
Biogen Idec, a biotech company that seven months ago moved 700 of its employees to a new 356,000-square-foot campus in suburban Weston, Mass., is now having two buildings developed near Kendall Square; one by Boston Properties, the other by Alexandria Real Estate Equities.
Ground was broken last week on the buildings, which will reunite the 700 business employees with 1,300 research and production workers who stayed in Cambridge.
“We need the close collaboration to make decisions quickly,” said George A. Scangos, the chief executive of Biogen. “Vertex moving out will be a ripple for Cambridge, where there’s the world’s biggest concentration of life science companies, the universities and where big pharma like Novartis, Sanofi Aventis, Merck and Amgen continue to expand.”
Joseph F. Fallon, the chief executive and president of the Fallon Company, who has also developed two hotels and a multifamily building on the waterfront, was able to keep the Vertex deal alive after 2008 when the financing, through Lehman Brothers and Goldman Sachs, vanished. Then last spring Vertex won Food and Drug Administration approval for a hepatitis C treatment called telaprevir, and expanded its commitment to two buildings from one.
Mr. Fallon said he has a waiting list of 50 buyers for his new condominium project. It has been several years since the last waterfront luxury condominium opened, he said, and he can offer unimpeded water views, on three sides, in a newly vibrant neighborhood.
“When Vertex moves in,” he said, “we’ll have more buyers.”