By William C. Shelton
(The opinions and views expressed in the commentaries and letters to the Editor of The Somerville Times belong solely to the authors and do not reflect the views or opinions of The Somerville Times, its staff or publishers)
Somerville has the worst jobs-to-workers ratio and commercial-to-residential-property ratio in Massachusetts. Both accelerate the displacement of long-term residents, while limiting revenues that can support city services. And a tiny commercial tax base means high homeowner taxes.
Yet Somerville Chamber of Commerce CEO Stephen Mackey tells us, “Today, companies are bypassing Somerville.” He’s right, despite our city’s being well positioned to lure tech firms.
At a forum that his organization sponsored last week on our potential for becoming “The Next Innovation Center,” 130 attendees heard what many of us have been saying for years.
Peter Bekarian told the audience that Somerville already has most of the ingredients that it needs. Mr. Bekarian is Managing Director of Jones Lang LaSalle, a leading real estate brokerage and consulting firm.
He says that we enjoy critical advantages that competing communities, including the flourishing Seaport District, do not. We are a mile from the densest innovation cluster on the planet, with easy access to the foremost research centers. Our residents and city government have an “entrepreneurial, creative spirit.”
We are well serviced by transit, and will become more so with the Green Line’s arrival. Already, 30.5% of us get to work using public transportation, as opposed to 12.3% for Greater Boston.
We have a “built-in talent pool.” The proportion of our population that is between the ages of 25 and 34 and that has college degrees is, respectively, 226% and 129% that of Greater Boston. And we have the density of dining, entertainment, and cultural offerings that competing areas can only envy.
As Mr. Bekarian’s list may suggest, much of what influences tech companies’ location decisions is what will attract and retain talented employees, particularly those who are early in their careers. Talent is these companies’ most critical success factor and accounts for 80% of their cost structures, as opposed 8% for real estate. So Human Resources Directors increasingly have as much influence on location decisions as CEOs do.
Bob Coughlin is President of the Massachusetts Biotechnology Council, a trade association with almost a thousand member organizations. He told the Forum audience that employees want to “live, work, and play in the same place.” While acknowledging that Somerville offers that, he seemed unaware that he was echoing the City’s own promotional message.
He’s right, of course. Commercial brokers tell me that many small and emerging tech companies would happily locate here if there were only space that could accommodate them.
Except for a 250,000-square-foot commercial project proposed by Federal Realty in Assembly Square, no such developments are in the pipeline. Why?
The reason is not, as some suggest, that we need to “activate” the Union Square area with additional residential and retail development. We are already considerably more “active” than competing districts. Indeed, it is the lack of a daytime population that is holding back growth in retail and service businesses, not the reverse.
Nor does concern about a near-term economic downturn seem to be an obstacle. Kermit Baker, Chief Economist for the American Institute of Architects reported at the forum that although we are “in the latter stages of the economic/construction/real estate cycle, [a] downturn does not appear imminent.”
In fact, the nature of demand for biotech products, and emerging biotech firms’ reliance on venture capital and National Institutes of Health funding, make this industry segment less vulnerable to economic cycles. As the New England manager for one of the world’s largest biotech space developers told me, “Until death is cured, there will always be public and private investment in the life sciences. Cycles may affect us, but they won’t shut us down.”
For some developers, uncertainty about the Green Line and other infrastructure development remains a sticking point. And some would like greater certainty on future zoning, the first batch of which—for Union Square—is now before the Board of Aldermen.
But two commercial developers are looking to do major projects in Boynton Yards now, whether or not the Green Line is coming. And they feel that what they intend could be accomplished under current zoning, with some minor variances.
Zoning matters to the extent that it is ambiguous, and a slow approval process can, indirectly, undermine financing. It is very difficult for developers to finance projects for which tenants have not yet been secured—what the industry calls “speculative” or “spec” projects. Even within well capitalized firms, investment committees want to see executed leases or letters of intent for at least half the space.
But the kind of small and emerging companies that most commend themselves as tenants here have rapidly evolving space needs, which can change in as little as two years.
For these kinds of projects, the average time between when the project is marketed and a lease begins is eleven months. Mr. Bekarian reports that his brokerage will not begin offering project space until permitting is at or near completion.
Consequently, developers are obligated to self finance all of their own predevelopment costs. Even then, the expected time between permitting and occupancy may be too long for potential tenants to make the kind of commitments that investors require. This challenge may be the greatest obstacle, which in turn, can be aggravated by delayed permit approval.
Finally, while Union Square’s and Boynton Yards’ “frontier” status may pose no problem for potential tech tenants, it does for some developers, and even more so for their investors. We need pioneer developments that will demonstrate those neighborhoods’ viability as tech-company locations.
Competition with other regional locations for first mover advantages increases this imperative’s urgency. As do increasing interest rates and building materials costs.
But while the Union Square Zoning now before the Board of Alderman specifies a 60%/40% ratio between new commercial and residential development, it contains no mechanisms to effectively enforce this split.
And the draft contract between the Somerville Redevelopment Authority and US2, the Union Square Master Developer, allows US2 to delay commencement of office/lab space construction until two years after Green Line station construction begins, which itself is at least three additional years out.
In the meantime, MassBio President Bob Coughlin says, “Today I drive through Somerville on the way to other towns. That shouldn’t be the case.”
No, it shouldn’t.