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The Swami Answers Your Boston Apartment Development Questions

THE SWAMI Answers Your Boston Apartment Development Questions

Famous Seer Predicts Future of Boston Real Estate

The Swami answers Boston apartment development questionsMove over, Carl Case, The Warren Group, Michael DiMella and other prognosticators whose solicited offerings on the future of the Boston real estate market and Boston apartment development have now been rendered irrelevant.  Yes, the Boston real estate scene has a new visionary, one whose previous success rate in forecasting market trends is unparalleled.  Hailed as the next best thing to The Magic Eight Ball, THE SWAMI is poised to answer any and all questions related to the near and long-term future of real estate trends in and around the Hub.  Accordingly, this will be the first of his blogs on the local scene.

Selma from Revere asks,

Swami, will there be a glut of apartments in Boston?”

That’s a great question, Selma, and I find myself to be in the minority regarding this issue.  As everyone who hasn’t been out of town for the past two years well knows, there are about to be lots of cranes on the horizon and each of them will be marking the site of a new Boston apartment development project.  In fact, within just a few years, there will be thousands of new apartment units on the market in downtown Boston and on the waterfront, all developed by folks who think that there is a bottomless pit of demand.  There could be, but with some buildings better designed and better located than others, there are going to be apartment buildings that are going to have a tough go of it – especially if inventory continues to grow.

In my opinion, this is a party to which you don’t want to come late…but real estate being what it is, somebody is going to be left without a chair when the music stops.  Lots of somebodies, in fact, as Peter Meade, the Executive Director of the BRA, acknowledged recently that nary a day goes by without somebody coming in to discuss a new Boston apartment development project.  Like I said, I tend to be in the minority on this question with the likes of such real estate pros such as Harold Brown absolutely convinced that an apartment glut is not likely.  As much as it pains THE SWAMI to disagree with a luminary the likes of Harold Brown…the answer is YES, THERE WILL BE A GLUT OF APARTMENTS IN BOSTON.

Irv from Brookline inquires,

“SWAMI, if there’s a glut, what will happen to all those apartments?”

Good question, Irv, and as you would expect, THE SWAMI knows the answer.  The coming glut discussed above will also be caused by the projected rents of these new apartment buildings.  Many are located on expensive sites, they will be constructed by union labor, and the consequent construction costs will require very high rents in most cases.  Currently, numbers such as $ 60 +/- per foot for a 600 square foot, one-bedroom apartment and $ 55-60 +/- per foot for a 1,000 square foot, two-bedroom apartment seem to typify many of the cost projections that The Swami has heard from prospective apartment developers, especially on the waterfront.  For those of you not well versed in the math of rental real estate, that’s $3000 per month for a one-bedroom and $5000 per month for a two-bedroom!  Even with an enormous demand for apartments, are there enough people who can afford to pay these kinds of rents?  Or will some of these developers, as demand dries up and the number of wealthy renters is absorbed into the marketplace, seek other strategies to maintain the financial viability of their buildings?

One of these strategies, simply lowering the rents to levels where larger numbers of people can or are willing to pay, is likely not possible.  As noted above, these are expensive buildings and unless a large number of units in a particular building have already been rented at the originally projected rent levels, the lower rents will not keep the building financially viable without a further infusion of equity.   In that circumstance, with lenders skeptical about providing more cash to prop up what once seemed like a sure bet, THE SWAMI predicts that…THEY WILL BECOME CONDOMINIUMS.

Rodney from Back Bay wonders,

“SWAMI, if you’re correct, and why wouldn’t you be…what next?

Rodney, as the demand for expensive apartments falls and the necessity for some of these apartment buildings to become condominiums in order to survive becomes a reality, you will see the revival of the condominium market in the greater Boston area.  In fact, some of these apartment buildings are being planned to transition to condominium buildings once this occurs!   Survey after survey finds that the American Dream of homeownership is alive and well despite current tight credit and the lack of available cash for a down payment.  The situation noted above is at least three to four years away and, by then, THE SWAMI predicts that the economy of the United States will have begun to recover in earnest.  Unemployment will be down and people will begin to make money, spend money and have money for down payments.  Just as it has in at least several cycles since the birth of the condominium movement in the early 1970’s, condominiums will once again become the housing of choice in urban areas such as Boston.  And by then, just as before, condominium prices will begin to surge in concert with increased demand.

Therefore, after much deliberation, THE SWAMI feels comfortable in saying that the current glut of multifamily apartment buildings, once demand stabilizes or even drops and as the economy improves, will herald…THE NEXT SURGE IN THE GREATER BOSTON CONDOMINIUM MARKET.

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There are those who suggest that THE SWAMI might have a hidden agenda, one aimed at subtly influencing the real estate market for his own ends.  Well, in the interest of full disclosure, THE SWAMI is part of the development and marketing team for CHARING CROSS, a new 55 unit condominium development to be located in the Brighton section of Boston.  And yes, it should be coming on line right in concert with the aforementioned prediction for the return of the condominium market.  Coincidence…or simply a great opportunity for anyone interested in owning — instead of renting — a new home in one of Boston’s first new, major condominium buildings in years?


Have a question for THE SWAMI?  Think you can stump the SWAMI?  Ask your toughest questions here.

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About Merrill Diamond

Merrill H. Diamond is a trained architect and a founding principal of IGNITION Residential, an interdisciplinary multi-family marketing firm. He is also a founding partner of Diamond/Sinacori, a Boston-based real estate development company founded in 1978. Mr. Diamond has been the recipient of numerous local and national awards for both development and marketing. He has served as both a gubernatorial appointee to the Massachusetts Historical Commission and to the Senate Special Commission on Historic Preservation. In addition, Mr. Diamond has been named “Entrepreneur of the Year” by Arthur Young / “Venture Magazine;” “Merchant Builder of the Year” by the National Association of Homebuilders (NAHB), and one of “America’s Most Valuable People” by “USA Today".

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