Cambridge in the Lead: An Overview of Development Transforming the Ever-Dominant Cambridge Market
By Michael Hoban
Sunday, September 17th, 2017
An aerial view of Cambridge’s Kendall Square, one of the most desirable locations nationwide for technology and pharmaceutical companies.
It should come as little surprise to anyone remotely connected with the commercial real estate (CRE) industry that the Cambridge CRE market is one of the – if not the – dominant life science and technology markets in the world today. Even with very little space available for both lab and office space, and developable parcels at a premium, Cambridge – particularly Kendall Square – still remains the prime target of technology and pharmaceutical companies seeking access to the highly-educated talent pool that Cambridge offers, despite soaring rents.
“When you think about the future of Cambridge, I think the rents are going to be in the $100s [per square foot (PSF)],” predicts life science and technology specialist Steve Purpura, Executive Managing Director at Transwestern and leader of the commercial brokerage’s Cambridge team. “There is very little limitation to what people would pay if they can get in front of the right labor, and that great labor is coming out of MIT and Harvard, and is working here already. Quality space that’s available for lab is essentially zero for the next 12-18 months, and the office market has got a little more that’s available – but not much.”
Purpura was the moderator for the recent NAIOP panel discussion “Cambridge: Still in the Lead,” held last Wednesday at the Hyatt Regency Boston. The panel featured representatives from the market’s most prominent property owners and developers, including Tom Andrews, Senior Vice President with Alexandria Real Estate Equities, Bryan Koop, Executive Vice President for Boston Properties’ Boston Region, Steven Marsh, Managing Director of Real Estate for the MIT Investment Management Company (MITIMCo), and Keith Wallace, Senior Managing Director and Head of Acquisitions for DivcoWest’s eastern region operations.
Purpura began the discussion by restating the importance of the Cambridge address to the world’s leading tech and bio companies. “When Facebook came into Greater Boston (looking for space), they didn’t even look in Boston, and I think that’s pretty indicative of what’s happened in Cambridge,” he told the gathering of approximately 450.
Purpura set the stage for the discussion by reminding the audience that while Cambridge is now viewed as the “absolutely bulletproof” darling of investors, it wasn’t always the case. He pointed to the post-dot-com bubble burst, where vacancy rates for both lab and office exceeded 25 percent. He also cited the potential pitfalls that Cambridge may face when competing with markets such as New York and the San Francisco Bay Area, including cost of construction, permitting issues and a lack of incentives. “So let’s enjoys the ride – I think we’ve got some legs left in us, but let’s look over our shoulder and see what our blind spots are and how can we get better, because not that long ago, it was not that great.”
Andrews led off the presentations with an overview of Alexandria’s Cambridge activity, which has been robust for over a decade. The Pasadena, CA-based firm owns and operates 5.85 million square feet of life science, office and lab property in Massachusetts, with 4.85 million square feet of that portfolio located in Cambridge and the inner suburbs. Alexandria recently made headlines when they brought their soon-to-be-completed 431,500-square-foot 100 Binney Street property in Kendall Square to 100 percent occupancy with the signing of Facebook to a 150,000-square-foot lease, in addition to venture-backed biotech startups Foghorn Therapeutics, Sigilon Therapeutics, Tango Therapeutics and TCR2 Therapeutics to approximately 22,000-square-foot leases each. 100 Binney will be anchored by Bristol-Myers Squibb, who has leased 208,000 square feet.
Kendall Square’s 100%-leased 100 Binney Street
Alexandria acquired 303 Binney Street, the 3.63-acre former Metropolitan Pipe & Supply site in Kendall Square, for $80 million in the spring, and has broken ground ground on 399 Binney Street, a speculative 172,500-square-foot building on an undeveloped parcel at the 7.88-acre, 644,771-square-foot One Kendall Square campus. “We’re going to hold that property long term, and we’re going to make good sound investments,” says Andrews of One Kendall, envisioning the kind of success the firm had with the 1.2-million-square-foot Technology Square, acquired in 2006.
399 Binney Street.
DivcoWest’s Wallace believes One Kendall, which Alexandria purchased from DivcoWest for $725 million in November 2016, has a huge upside. At the time of purchase, the building was fetching $50 PSF net rents for lab and $50 PSF gross office rents, according to Wallace. “We grew those rents to $60 PSF and $60 PSF – net and gross respectively, and when we sold the building to (Alexandria), we had just done an office deal at $75 PSF, and a 10,000-square-foot lab deal at $70 PSF net. People are going to think I’m crazy, but I don’t see why that real estate – in such close proximity to MIT – is not going to be worth $2,000 a foot.”
One Kendall Square.
Koop discussed two of Boston Properties’ current projects in Kendall Square: 145 Broadway, a 19-story, 453,768 square foot office tower dubbed the “Akamile” by Akamai Technologies, Inc., who has leased 100% of the building, and Proto, a 274-unit apartment complex located at 88 Ames Street featuring 16,000 square feet of retail. Koop describes the Akamile as “the most sophisticated building that our company has ever worked on – in terms of what’s going on, how it operates and the thoughtfulness of how the human beings inside these buildings work together. The client said to us, ‘We want to have the most connected building – ever – so that our people can connect with each other.” The “mile” refers to the passages throughout the building that connect their people, that when tallied up, total close to one mile.
145 Broadway/The Akamile.
Proto is a 22-story tower that will contain a mix of micro units and one and two-bedroom configurations, with 36 apartments designated as affordable. It is expected to help meet the needs of knowledge-based workers in the Kendall Square area, while creating a more active pedestrian friendly streetscape between Main Street and Broadway. What is also significant about the project is that it was not an actual buildable site. “We worked with the city to take a piece of the road to come up with a site because residential was that important to the Cambridge Redevelopment Authority,” explained Koop.
MITIMCo’s Marsh began his segment by discussing the three principal trends in the market: Innovation and Collaboration, where information is moving so fast that it is paramount for organizations to be near the source of the knowledge; Urbanization; and what he described as the “notion of convergence”, where multiple disciplines such as engineering, data and life sciences are integrating to solve complex problems.
MITIMCo is finishing up the permitting process for the 1.9-million-square-foot MIT Kendall Square Initiative project, which will be comprised of office, residential, retail, research/development, and graduate student housing space. MITIMCo is also in the process of permitting and rezoning the massive, 14-acre Volpe Center site, located in the heart of Kendall Square. “We’re trying to create the right environment in Cambridge, because it is about people,” says Marsh. “It’s about creating a place where people want to be, and we’re trying to integrate what we do into the fabric of the city, creating new innovation capacity, amenities, housing and a variety of other things that we think make really good communities.”
Aerial view of the MIT Kendall Square Initiative development.
Wallace brought the gathering up to speed on NorthPoint, the fully permitted, 45-acre development site in East Cambridge that has changed hands multiple times since Spaulding and Slye first broke ground on the project in 2005. It has remained a source of puzzlement and frustration for previous developers, which Wallace acknowledges. “Obviously, it’s had some fits and starts over the last 20 years, so it’s an ambitious play, but I think we were attracted to what was going on in Cambridge with close to zero vacancy in the office market.”
NorthPoint is permitted and planned for 2 million square feet of science and tech space, 2.4 million square feet of residential and also 100,000 square feet of retail, which Wallace believes is the key to the project’s success. And while there has been no commercial tenant that has “taken the leap of faith,” DivcoWest, in partnership with The HYM Investment Group, is constructing a 430,000-square-foot speculative science and technology building at 250 North Street in NorthPoint, which should be delivered by the second quarter of 2019. A second 400,000-square-foot building at NorthPoint is in pre-schematic design. “Our idea was always to be prepared for a large-use – a la Amazon,” Wallace joked. “We’re not ambitious enough to go spec on lab…but we’ll feel the market out.”
DivcoWest’s upcoming speculative office building at NorthPoint.