South End's Newest Condos – six9one Residences

After a decade of delays and changing hands several times, the parcel at 691 Massachusetts Avenue is finally going to be developed. The first of the pre-construction condos, 10 in total, have hit the market and are ready for buyers to line up. The project is still in the early stages of construction and currently there is no model unit available. However, it should not be too long until buyers are able to walk through the property as occupancy is expected sometime during the summer of 2011.

This parcel has gone though many variations of planning stages and the site that was once an active parking lot is now going to be one of the newest condo buildings in the South End; let’s examine the history. During the 70’s-90’s this parcel was all but forgotten about and as urban decay set in it became just another neglected piece of property in the gritty South End. Then about 10 years ago, the land was put up for sale and subsequently purchased by a group of developers looking to build 4 or 5 more row houses in a continuation of the surrounding buildings along Mass Ave. After the purchase, the developers had plans drawn up and went through the city’s tenuous approval process and spent several years getting their project green lighted. After completing this process in 2002, the developers decided to sell the project with plans and permits in hand to Urbanica development, the same developers that completed the 24 unit luxury condo project known as D4 the former division 4 police station in the South End. Urbanica, however decided that the time was not right in 2002 and that the approved design was too bland. For the project to be a success, construction would have to wait until a radically different project could be drawn up and then approved. A new concept nearly doubled the number of units to a total of 40 and the design changed from a bow front brick façade building that would seamlessly blend into the neighborhood to a modern green building with a glass and masonry façade that will significantly stand out against the back drop of brick row houses.

The revised project is now being branded as “six9one residences” , consists of 40 total units with a mix of studios, one bedrooms, two bedrooms and penthouses. Pricing varies, drastically across the inventory, and of the 10 units on the market, 8 are one bedrooms with an average size of 675 square feet and an average price of $385,000 or $570 square foot. The penthouses top out at $975,000 for nearly 2,000 square feet. All of the pre-construction units include deeded parking with the option to purchase an additional space. The condo fees are a bit higher than those of the surrounding condos in a typical brownstone, but the fees at six9one residences include heat, hot water, gas, a/c, elevator maintenance and security, all items that are rarely included in the budget of a brownstone.

With the surrounding condo market in a bit of limbo, it will be interesting to see how this aggressive pricing plays out. Are buyers willing to pay top dollar for brand new trendy units on Mass Ave? Will these units sell before completion or will buyers demand a finished product before jumping in?

Boston Apartment Rental Market Breaks from Norm

I hate to say it, but summer is winding down and September 1st is just around the corner, Boston’s biggest apartment turnover day. Every year, thousands of college students and professionals move to new apartments on the 1st of September, but with the economy on edge, this year’s market is far from normal.

Typically, students start looking for their September 1st apartments beginning in January. Over the years, landlords have grown accustom to this trend and the expectation is that the majority of their apartments will be rented by June. This year, the apartment rental market has been strong, but it has been apparent that renters have really been doing their homework and taking their time. Renters have been looking at more apartments and spending more time weighing options. Early in the season, this left landlords worried, and when July hit and they still had excess inventory, some landlords were starting to worry that their apartments would be left vacant for the  next leasing year.

Thankfully (for landlords), the market has been very busy over the last month and Boston apartments are renting at a record pace. After speaking to several prominent area landlords and real estate professionals in the Back Bay, South End, and Fenway, it appears that they are all on pace to meet their historical vacancy rates of sub 5%.  Despite the break from routine, landlords are happy with the last minute rush.

For those still scrambling to find a unit for September 1, 2010, don’t worry, some (picked over) inventory still remains, and with landlords anxious to fill units, Boston renters are in a position to negotiate fees and other items.

Boston Real Estate Market Updates

I’ve put together a report that outlines the markets and housing types that I primarily deal with, Back Bay, South End and Fenway condominiums and Mission Hill multi-family investment property. The purpose of such a report is to present an unbiased market snapshot and to draw some insightful conclusions based on general knowledge of the markets as well as economic insight.

First, here are some high level data points for Back Bay condominiums gathered earlier today:

Back Bay Condo Statistics

Based on these market statistics the current absorption rate for the Back Bay is 38 weeks, average market time is roughly the same, at 35 weeks. It appears that inventory in the Back Bay is taking longer to sell then historical averages.

Next, a look at South End condominiums:

South End

Based on these market statistics, the current absorption rate for the South End is 21.9 weeks, average market time is slightly lower around 12 weeks. It appears that inventory in the South End is moving quickly compared to other Boston neighborhoods in this report.

And from a condo perspective, let’s finally look at Fenway condominiums:

Fenway Condo Statistics

Based on these market statistics, the current absorption rate for the Fenway is 12 weeks, average market time is lower, around 8 weeks. This leads me to conclude that Fenway inventory is moving at a rapid pace, in fact, faster than any other neighborhood covered in this report. I will expand on this in the conclusion.

And finally, a look at Boston investment property in Mission Hill (Multi-Family Units)

Mission Hill Investment Property Statistics

The absorption rate in Mission Hill is currently at 0. There has been a large amount of inventory to hit the market recently and not much of it is moving. Prices are slightly higher based on 6 month average cap rates which could be a factor; however, it is my belief that financing difficulty and a slow rental market are the key factors in the slowdown of the Mission Hill investment property market.

The market in the above mentioned neighborhoods is still moving and it appears that the lowest end of the price range, The Fenway, is moving the quickest. There are a few factors that contribute to these trends, and I think the most influential is the availability of financing to first time home buyers and financing for non jumbo loans. The greatest pool of buyers seems to be first time buyers and thus the direct correlation with the Fenway having the shortest market time. These figures overlap the expiration of the home buyer tax credit so the true indicator of the validity of this hypothesis will come next month when we see what has happened without the credit in place. If you have any questions on the above figures please feel free to contact me directly and we can discuss – my number is 440-479-0420.

Investment Property Valuation 101

Perhaps you have decided that now is the time to invest in real estate, or maybe you own a piece of income property and would like to know how much an investor would value the parcel at; this article is here to help. In this article I will explore the two most basic and commonly used income property valuation methods, first, the gross rent multiplier (GRM),  and secondly, capitalization rates (cap rates).

When looking at investment property, the most important piece of advice I can give you is to remain objective! It does not matter how “cute” the property is, or if you would live in it personally. Look at the income and expenses; if they make sense and the property is in good repair then the property makes sense; keep the emotion out of the equation, your not living there.

The first and quickest way to start valuing property is the GRM. GRM is a very simple calculation that can be done in a few minutes and will give you an indication on a property’s warrantability as an investment. To calculate the GRM, you simply take price (or market value) and divide it by the annual gross income. For example, if a property is on the market for $1,000,000 and the annual gross rent is $100,000 then the GRM is 10. To effectively use GRM as a tool for evaluation in a specific market, an investor should gather a list of recently sold properties and calculate an average GRM for that area. Once you have the area average, you can use it to find fair market value of properties on and off market based on annual gross rents. For example, if the area average GRM is 8 and you are presented with a property with an annual gross rent of $60,000 then you can easily calculate the market value by multiplying $60,000 x 8 and get the value of $480,000.

Please keep in mind that GRM does not account for differences in the actual condition of the building, so a property that has had major renovations or upgrades should sell at a higher GRM then one in need of some work. Additionally, GRM varies greatly by neighborhood, so you need to get an average for each area you intend to analyze and invest in – real estate is local, even in investment property. Lastly, as a rule of thumb, the more established and desirable an area is, the higher the GRM will be and there is typically an inverse relationship between GRM and risk.

GRM=PRICE/AGI or PRICE=AGI*GRM

A quick example using 72 Calumet Street in Mission Hill, an investment property recently listed for sale.

GRM=$1,099,000/$105,600=10.4

Once you have identified a list of properties you are interested in via the GRM, the next, and more detailed analysis is to calculate the capitalization rate (or commonly referred to as the cap rate, or simply cap). A cap rate gives you the percentage return earned on your investment, if you paid for a building in full, and also represents a mechanism by which to derive (market) value for a property. Obviously, most of you will be using some type of debt service to finance your purchase, but everyone’s debt terms are different so cap rates are used to normalize the analysis. Cap rates have a lot of similar characteristics to GRM, but unlike the GRM, account for the actual expenses associated with a property. A word of caution on expenses; keep in mind when looking at public listings there is often incomplete information on expenses, and what information there is needs to be scrutinized. You should familiarize yourself with common expenses such as water, sewer, insurance, management, and taxes so that when you are looking at quoted expenses you can plug in the most realistic numbers possible. Some of these numbers are set in stone such as taxes, however some vary greatly based on your style of ownership. Moral of the story is you need to familiarize yourself with the costs associated with your style.

Now that you have done some research on expenses, you are ready to start calculating cap rates; which is actually just as simple as calculating the GRM. The first step is to get the annual gross income for a property. The annual gross income (AGI) is simply the sum of monthly rent times 12. The next step is to calculate the annual operating expenses (AOE). The typical annual operation expenses include the sum of property taxes, insurance, management, water, sewer, and maintenance and repair. Once you have AGI and AOE you can calculate your annual net income (ANI). This is done by simply subtracting AOE from AGI. Now that you have your ANI, you simply divide this by the asking price, multiply by 100 and you get your cap rate.
A quick example using 72 Calumet Street in Mission Hill:

AGI=$105,600
AOE=$22,239
ANI=AGI-AOE=$105,600-$22,239=$83,361
Cap rate= (ANI/asking price)*100= ($83,361/$1,099,000)*100=7.6

This means that if you bought this particular building, at full asking, with no debt service, you would earn 7.6% on your money.

Typically, investors buy properties with a vision for improvement. Because of this, they will often calculate two cap rates, the current cap and an expected future cap based on some planned improvement after purchase. This gives them a metric to base the cost benefit of the planned improvement.

Now that you have the basic tools to start looking at investment property, get out there, start number crunching and learn about your markets! Don’t have time? Feel free to contact me for some assistance on finding the right investment property for you or additional information on how to make these calculations.

MA Announces Energy Star Great Exchange Program

Recently, Mass Save announced details on the “Great Appliance Exchange Program”. If you recall, I first mentioned this program in an energy upgrade article in January (see Upgrade Energy Efficiency with Government Money). The program is funded by the Federal American Recovery and Reinvestment Act, but individual States are allowed to make their own rules and guidelines for administration of the allocated funds. Massachusetts has scheduled their program as an exchange, allowing for households to replace older and inefficient dishwashers, refrigerators, freezers, and clothes washers with new energy star rated models – rebates will be $250, $200, $175, and $50 respectively.

The program will only apply to approved appliances, so please consult the list below to make sure that your purchase will be eligible. To participate in the program you must:

  1. Make a reservation at www.masssave.com
  2. Purchase a qualifying appliance (see refrigerators, dishwashers, freezers, and clothes-washers)
  3. Submit your completed rebate form with a copy of a current electric bill, sales receipt, and delivery documentation confirming replacement of old appliance.

Please note that the online reservation portal will not be open until Earth Day, April 22nd, but it is a limited program so be sure to sign up as soon as possible! If you plan on purchasing more than one appliance, multiple reservations are required, but you can use the same rebate form to claim all appliances.

Unfortunately, not all manufactures and models of Energy Star appliances are covered in the exchange program, but there is still help out there. NStar, Western Mass Electric, Unitil, Caple Light and National Grid are all offering up to $50 in mail in rebates on Energy Star qualified Refrigerators and Freezers. To obtain this rebate please go to www.myenergystar.com and print the main in rebate.

With these two fantastic programs and the estimated hundreds of dollars you can save per year with Energy Star appliances over older traditional models, now is the time to step up and make the move to more efficient appliances.

Top 3 Greenest Boston Condo Developments

With the green building movement in full swing it’s no surprise that Boston’s condo developers are starting to roll out some high end energy efficient buildings. While there are many developers and construction firms taking steps to “green” their projects, only a few select buildings have gone all the way to be certified with a Leadership in Energy and Environmental Design (LEED) designation.  Put simply, to be LEED certified is to develop and operate in the highest environmentally friendly way possible, and in this article, I’ll take a closer look at the Boston condo market and discuss the area’s top 3 greenest Boston condo developments.

Boston’s Top 3 Greenest Condo Developments

The Leadership in Energy and Environmental Design (LEED) green building and rating system was developed by the US Green Building council in 1998 to standardize what constitutes a green building. The system has gone though many iterations and its current form, version 3.0, consists of a point rating system covering all areas of development and operation, including sustainability, water efficiency, energy and atmosphere, materials and resources, indoor environmental quality, innovation in design, and regional priority. The rating system is setup to encourage developers to use and embrace building techniques that will benefit the environment and community as well as enhance the marketability of their projects.

The Macallen Building – Boston’s Greenest

The Macallen Building has a very unique triangular silhouette that is very prominent on the skyline of South Boston. When it was completed in 2007, the building earned LEED Gold certification and was the first residential building in Boston to do so. The building consists of 140 luxury condos with high-end finishes and all the amenities you would expect from a luxury condo building. The development team at Papas Properties went all out using all the latest eco friendly building techniques and sustainable building materials. Much of the building was constructed with recycled and non-toxic materials and all of the fixtures, appliances, and building systems are energy star rated. The most notable and unique eco friendly feature is the Macallen’s green roof system, which consists of grass like sedum that does not store solar energy, and also provides insulation and facilitates rain water collection. This was a very innovative solution and was the first large scale implementation of such a system in the Boston area. The best part about the Macallen is that when you enter the residences you really have no idea that it was designed to be eco friendly. It appears to be just another luxury downtown condo building, but it is so much more. The Macallen set the standard a high-end consumer friendly luxury lifestyle and sustainable living. I can only hope that other developers look at this shining example of how striving to be environmentally friendly can enhance a project’s overall appeal.

Macallen Building

Clarendon Back Bay – Silver LEED Certification

The next, and newest, green condo project in Boston is the Clarendon. Built by Related, a nationwide developer, the Clarendon seamlessly melds top-end luxury city living with a holistic approach to healthy living. The development team encourages making green a way of life and went to great lengths to provide a “healthy” building for not only the environment, but its residents.

The construction of the building used at least 10% recycled content and over 50% of the waste created during the construction was recycled. Over 20% of the materials used in the building were sourced within 500 miles of its Back Bay construction site, thus reducing transportation impacts and supporting the local economy. Included in the choice of construction materials was a myriad of green products and solutions, most notably; low voc paint, energy star appliances, high efficiency HVAC units, and use of a landscaped roof top to minimize heat gain and absorb storm water. Additionally, the Clarendon strives to encourage a healthy lifestyle by adding several features such as exclusive use of green cleaning products in common areas, offering a 24-hour fitness room, open roof top terrace, lots of natural light and easy access to the area’s recreational facilities.

Related is hoping to achieve LEED silver certification on the building and things are shaping up very well in their favor. Related had a third party consultant oversee the construction of the building systems to be sure that it would meet LEED standards and sources report that the Clarendon is right on track to meet the silver standards. I am confident that they will meet their goal.

Clarendon Back Bay

Bostonians Green Their Own Condos

The third, and perhaps most shocking green development, is your condo. There are hundreds of condo associations and complexes all over the city striving to “greenify” their residences and I challenge you to make your complex among the leaders! In a previous article of mine (see Top 3 Condo Energy Upgrades), I outlined a plan that will get you started on becoming a greener condo owner. If you are truly passionate about the environment and being a better neighbor, I challenge you to spearhead a movement in your complex, get some changes made, and let me know about it so we can feature the change in a future article of mine. Remember, it all starts with an energy audit!

These examples of Boston eco friendly developments are just the tip of the iceberg. More and more developers and Bostonians are realizing that to go green does not mean you have to make sacrifices in your quality of life. As more and more people become aware of this, green features will start to have a greater impact on the decision process of home buying. Keep an eye out for future projects and keep in mind, small changes can have huge impacts!

Rental Agent Education Sorely Lacking

Over the past several years I have been very closely in tune with the Boston apartment rental market. In this time, I have had the pleasure of dealing with some spectacular rental agents, and also, some horrible rental agents. It is this dichotomy that has led me to analyze the situation and come to some very logical conclusions regarding rental agents.

For those of you who have not gone through the licensing process, I would like to comment that Massachusetts is one of the easiest states in which to get licensed as a real estate salesperson. To obtain your license, one must take 24 hours of pre-licensing education from an authorized real estate school, which can be done in a single weekend, and then pass a state licensing exam. The required hours of education is relatively low compared to most states, and during my education, little to no discussion of apartment rentals took place. Some states, such as Ohio, require over 100 hours of pre-licensing education, which is over 4 times the requirement in Massachusetts.

My guess is that when the requirements for licensing were first created, the one-month “broker fee” that is oftentimes common in Boston rental apartments was not standard, and most agents had the goal of becoming an agent to sell property, not rent it. Coupled with the lack of salesperson rental education, this creates a potentially growing issue as we see increases in the number of real estate brokerage offices in the Boston area that rely heavily, and almost exclusively, on business models centered on apartment rentals.

I’m not here to knock real estate brokerage offices that focus on rentals, it’s the type of office in which I started my career, and it can be very profitable considering the average rental fee per transaction is in the neighborhood of $2,000, however, I do think that the pre-licensing education and state requirements to become a real estate salesperson should be beefed up. In effect, agents are taught about legal issues and sales transactions in a 24 hour course, then go to work for a rental company and are forced to learn on the go; hence the large quantity of part-time agents who aren’t quite sure how to handle the rental process as a trained professional. This leads to big problems for all salespersons and their brokers in the city, as well as renters, as every agent is a reflection of the entire profession – in sales, one bad impression can ruin years of hard work.

My solution? I think that the education requirement for a Massachusetts real estate salesperson should be increased, and that the additional hours should focus solely on apartment rentals.

Top 3 Condo Energy Upgrades

The US currently uses about a third of the planet’s annual energy production, and only contains 6% of the world’s population. It is time to make a change. As stated in my previous article (see Upgrade Energy Efficiency with Government Money), there are plenty of tax credits and incentives out there right now to make improving the energy efficiency of your home a worthwhile investment, but where should the downtown condo owner start? With no giant roof to replace or huge attics to insulate, often condo owners have a difficult time deciding where to start on the path of energy efficiency upgrades; I can help.

As with a home energy upgrade, a condo energy upgrade should still begin with an energy audit. A qualified home energy auditor will use high output blowers, thermal imaging cameras and a variety of other specialized tools to determine where and when heat and energy loss is occurring in your condo. The best advice I can give you is to go with a company that strictly focuses on energy audits, not a company that also does energy improvements, as they may be tempted to sell you upgrades based on their profit incentive.

From my experience and research, the top three areas of energy loss for condominium owners, and thus, the focus for environmentally friendly upgrades, should be:

  1. Building envelope
  2. Water heating
  3. Heating and cooling system

When most people think of building envelope, the first thing that pops into their head is windows. They are the most visible and most frequently talked about energy upgrade. Additionally, they are a very sellable upgrade and are profitable for contractors to replace, but they don’t always need to be replaced! Take a look around your condo and estimate what percentage of the wall surface area is windows; I’m guessing it’s less than 20%. The other 80% of the area is where I recommend starting your energy upgrades. With today’s blown-in insulation technology, entire wall cavities can be insulated with cellulose though very small holes drilled in the wall. A better-insulated exterior wall can work wonders on the comfort of your condo. Better air quality, lower noise levels and less room for unwanted critters to sneak in are all great side effects. Keep in mind that new windows can and do increase energy savings, they just don’t always give you the best return on investment.

The next area of upgrade is your water heating system. If you live in a condo complex where hot water is included in your HOA fee you may need to petition other homeowners to have the system upgraded, if not, the process is pretty straightforward. Water heating bills typically account for 15%-25% of your monthly energy costs. The options available for hot water heating today are much more efficient and affordable than systems available even a few years ago. I recommend going with an on demand or tankless hot water system. These systems only fire up when hot water is needed and avoid the unnecessary expense of storing hot water. A great side benefit is the extra storage space you will gain when you rid yourself of that huge hot water tank!

Lastly, and typically the most daunting area of energy upgrades, is the heating and cooling system. Your heating and cooling expense typically accounts for the largest part of your energy bills, however they are also typically the most expensive to upgrade. As with the hot water system, if this is a building wide system you will have to get the association involved to make any changes. Most heating and cooling systems over 10 years old are inefficient and worth replacing. Today there are many options to choose from, both gas and electric and many different configurations based on the type of heat delivery mechanisms present in your condo. If you have a boiler configuration, the most impressive systems I have seen are the gas hydronic condensing systems. These boiler systems are extremely efficient, in the neighborhood of 95%, and can even be used as your source for hot water, killing two birds with one stone is always a plus. There are even hydronic systems such as the Honda FreeWatt that can also produce useable electricity for your condo, while providing heat and hot water; that’s about as eco-friendly as you can get. HVAC systems have also come a long way and today’s energy star rated units are highly efficient. If you do have an HVAC system, be sure that before you replace the unit, you have your ducts cleaned and inspected for leaks, as this can often be a major part of energy loss. The least you can do for your heating and cooling system is to invest in a programmable thermostat. This upgrade alone can save you hundreds of dollars per year in energy costs.

After undergoing upgrades in these sections of your condo, I wouldn’t be surprised to see your monthly energy bills cut in half!

Upgrade Energy Efficiency with Government Money

The combination of rising fuel costs, increased environmental awareness, and the greater availability of affordable eco-friendly upgrades present homeowners with a great opportunity to upgrade their residence. Both state and federal governments are offering fantastic programs to help offset the cost of such energy upgrades.

Homeowners interested in improving energy efficiency should start with an energy audit. An energy auditor will come to your residence and perform a service very similar to a home inspection; however, focused solely on the efficiency of your heating system, windows, insulation, and appliances. The net result will be a detailed report giving your home an energy efficiency rating on the Home Energy Rating System (HERS) scale – be sure to ask for an explanation as there is one scale for pre-2006 and one scale for post. The energy audit will give you a clear picture of where your money will reap the best return on energy efficiency upgrades, as well as set a baseline for the “as-is” state of your home, and eventually, the efficiency of the “to-be” state.

The most common areas of deficiency are windows, insulation, and appliances, all of which can be upgraded with assistance from state and federal government programs. When considering which upgrades to undertake, keep in mind that the upfront cost is only part of the equation, years of discounted utility bills should also be considered in your analysis. For example, an energy star rated refrigerator costs less than half as much to operate per month as a 10 year old refrigerator, so you need to amortize the costs. As always, make sure that any upgrade is done by a reputable, licensed and insured company.

Once your upgrades are done, the next step is to apply for your tax credits. The most pertinent programs for common consumers are the Federal Residential Energy Efficiency Personal Tax Credits and the proposed Massachusetts Department of Energy Resources Energy Star Rebate Program. The Federal program credits you up to 30% of your upgrade cost with a $1,500 maximum.  The Massachusetts DEOR program is slated to receive $6.2 million in funding under the American Recover and Reinvestment act, to give consumers rebates for energy star appliance purchases. The DEOR is a program to recycle old appliances and replace them with new, energy star rated ones. At this time, there are no specifics on exactly what the limit per household would be and how it would be distributed – I would estimate it would be for one to two appliances, the major energy eaters such as refrigerators and washer/dryers, additional details and program logistics are forthcoming following the program’s announcement in late October 2009.

The net result of any energy efficiency upgrade will be hundreds of dollars per year in tax savings and energy costs, as well as a more valuable and marketable home.