Year End Client Update

YTD Downtown Condominium Sales Trends                   2011   vs.  2010

            Transactions                       +2%                             2712            vs.            2665
            Sales Absorption                 +1%                     $1,793,172,920     vs.     $1,785,705,754
            Average Price                      -1%                           $661,199         vs.        $670,058
            Median Price                       -1%                           $468,500         vs.        $470,000

High End Data Points; Leading the way

• YE Sales $1MM+: 373, $2MM+: 100, $3MM+: 36, $1,000+/Sq.Ft. 108, $1MM+ as % of total sales: 13.8%

O&A View:

YE 2010 we took note of the rebound of the Downtown Boston real estate market in the wake of the Financial Crisis and the Great Recession (2008/2009): “As we start the New Year all of the Downtown Boston Condominium trends noted above are positive.  The number of transactions closed in 2010 was up 2% over 2009.  The total sales absorption finished the year 15% ahead of 2009 with $23,645,683 more in sales.  The average and median selling prices are up 13% and 7% respectively over 2009.  While those numbers are eye-catching what is most impressive is that at year end the median selling price of a Downtown Boston Condominium is equal to the record median selling price - $470,000 set in 2008.”  Those trends have also continued through year-end 2011, for two consecutive years of solid numbers for the Downtown Market.  Values have held as is demonstrated by the key data points for the five year period beginning in 2007:

Year  Transactions          Absorption                     Average Price      Median Price

2007       3706             $2,284,296,470                   $616,378             $459,500
2008       3131             $2,250,410,638                   $718,751             $470,000
2009       2598             $1,537,521,929                   $591,810             $441,000
2010       2665             $1,785,705,754                   $670,058             $470,000
2011       2712             $1,793,172,920                   $661,199             $468,500

We expect prices to hold and experience upward pressure as inventory remains tight and the demand to live in Downtown Boston continues to be strong.  A new development cycle has started with Seaport/Innovation District kicking into high gear and announcements of multiple mixed use projects.   In our review, five key headlines emerged which frame-up the year 2011 and give indications on the future direction of Downtown Boston housing.  They are, in no specific order:

• The Seaport and Innovation district is becoming the hub of growth in Downtown Boston

• Focusing on Fort Point – Boston Globe – 1/11/11 – Tenants include “…steakhouse Smith & Wollensky (which will retain its existing Boston location on Arlington Street) and the Boston Society of Architects, which will also run architecture tours in the area from its new offices.”…“You can expect performances, art and architecture, and restaurants that will spill onto the plaza.’’

• Convention Center Makes Case for Growth – Boston Globe – 6/16/11 – “A state panel yesterday recommended a $2 billion expansion of the Boston Convention & Exhibition Center that would nearly double the size of the Seaport District complex”

• Where Innovation Means Business  Boston Globe 12/5/2011 - The area is “primed for growth,’’ Mayor Thomas M. Menino wrote in an e-mail. Changes to zoning rules to make the area more business-friendly are up for debate in the new year, which “will help build on that, encouraging entrepreneurs to invest, attracting new jobs

• Waterfront Housing Formula: Views, Viable Rents, Very Little Space  Boston Globe 12/13/2011 - The tiny apartment that is a staple of New York City will soon be more available in Boston as Mayor Thomas Menino pushes developers to build units as small as 375 square feet … the administration is testing the idea in the South Boston Innovation District, their chief objective is price, and attracting young workers employed in the Seaport and Financial District. Such units will rent for around $1,500 a month, substantially less than a typical downtown one-bedroom.

• Waterfront’s Growth Highlighted in Visit - Boston Globe – 3/30/11 “Two senior White House officials toured Innovation District, at least 29 new companies in last 12 months to Innovation District for approximately 1100 jobs.”

• Rental rates increase while vacancy rates decrease in Downtown Boston

• Rents Hit a Record High in Hub Area Boston Globe – 7/25/11 – “Boston-area rents are hitting new heights - with the median price recently reaching $1,665 a month - as the vacancy rate falls to the lowest level in almost a decade, new data show.”

• No Vacancy – Downtown Hub - Boston Herald – 8/12/11 – “Renters looking to secure apartments may have a difficult time in Boston’s downtown, with vacancy rates at the lowest they’ve been since 2002 and asking rents reaching all-time highs.”

• Still Renting After All These Years - Wall Street Journal – 1/8/11 – “If anything, the rental trend even may be accelerating: In the last quarter of 2010, apartment vacancies fell below 7% nationally for the first time since the last quarter of 2008.”

• High Rent District - Boston Herald – 5/13/11 – Talks about demand for rentals and upward pressure on rents and why. “Boston employers will expand payrolls by 2% this year by adding 49,000 jobs, the largest annual increase in more than a decade.” “Demographics as well as strong economics are fueling the increased rental demand.” …All part of the picture and strengths of market.

• Rent or Buy, A Matter of Lifestyle New York Times – 5/11/11 – A rent ratio is the sale price of a house divided by the annual cost of renting an equivalent house. When the ratio is below 15, most people should lean toward buying.

• Homeownership Needn’t Be For All – Boston Herald – 6/10/11 – “While owning a piece of the American Dream is still a worthy aspiration, it may now be time for us to learn another lesson from Europe and reconsider our attitudes toward home -ownership.”

• Demand for Rentals Drives Big Rise in Home Building - Wall Street Journal - 12/21/2011 “Starts in November were up 9.3% from October and 24.3% ahead of the November 2010 figure.”

• Owning One's Home Loses Some Appeal - The Wall Street Journal - October 7, 2011 – “The rate of home ownership in the U.S. fell in the last decade by the largest amount since the Great Depression, although the percentage of Americans who own their home remains the second-highest on record, the Census Bureau said Thursday.  In New York City, where residents typically rent well into their 30s and 40s, renters made up 69% of households, followed by 61.8% in Los Angeles and 55.1% in Chicago. ”

• Downtown Boston continues to outpace the “Boston Metro” Market as reported by the S&P Case Shiller Home Price Index

• ‘Lots of Optimism’ in State’s Housing Market - Boston Herald – 1/5/11 “There an awful lot of optimism out there,” - economist Karl Case.

• The State of the Nation’s Housing 2011 - Joint Center for Housing Studies at Harvard University 6/6/2011 – As we noted in June “The value of the national housing market has been re-set back to 2003 levels according to data from First American CoreLogic.  (In contrast at the time the news story was written Downtown Boston had seen the Median Price of a condominium home increase 29% since 2003 from $375,000 to $485,000 with the Average Price increasing 48% from $478,000 to  $709,008.”)

• Development Returns to Downtown Boston, in the form of new construction of luxury rental apartments

• Copley Place Looks Skyward – Boston Herald – 6/16/11 – “Mall giant Simon Property Group resurrected plans for a 47-story tower at Copley Place yesterday, a $500 million retail and luxury condo project that would be Boston’s eighth-tallest building, and tallest residential building.”

• Building in Boston back on track Boston Herald 12/30/11 ““We’re in pretty good shape,” Boston Redevelopment Authority Director Peter Meade told the Herald. “We broke ground on 1,000 units of housing (in 2011) — and the last time we did that was in 2006.”

• “Victor” Emerges in Hub - Boston Herald – 8/2/11- “A Denver developer will finally break ground next week on a $140 million apartment project on a stretch of Greenway grass near North Station”

• A Rental Revival – Boston Globe – 1/12/11 – “…construction crews for the WinnCompanies are busily finishing 60 apartments and several artist studios, which will be dubbed the Oliver Lofts”…“Thanks to an infusion of federal stimulus funds and the return of banks and other real estate investors…” 

• New Developer pitches apartments on Stuart St – Boston Globe - 8/12/11– “AvalonBay Communities Inc. is proposing to build a 404-unit apartment tower adjacent to the Jacob Wirth restaurant, the latest developer to pitch a large-scale rental housing project in downtown Boston.”

• Herald Site Developer Restarts Plans - Boston Globe – 4/1/11 ” National Development is shopping a new plan to redevelop the Boston Herald property in the South End… Commencement of construction would be a major step forward in the city’s efforts to revitalize an industrial section of the South End between Harrison Avenue and Albany Street.”

• Chinatown complex gets green light from city - The Boston Globe 2/18/2011 “The Hudson Street developers said their project is distinct from the others because more than 40 percent of its units are priced as affordable, including 95 rental apartments and all 50 of the condos.”

• Herald Site May Get Apartments, Market, Shops – Boston Herald- 6/8/11 – A proposal to redevelop the Herald’s Harrison Avenue headquarters calls for converting the existing structure into 262 luxury apartments and nearly 64,000 square feet of retail space.”

• In 2011 Buyers made all cash purchases in nearly 50% of the closed transactions in Downtown Boston, up from 31% in 2010

• Cash Buyers Lift Housing - Wall Street Journal – 2/8/11 – “Buyers in markets around the U.S. are snapping up homes in all-cash deals, betting that prices are at or near bottom.”

• Downtown Boston’s Three Year Leverage Trend (As closings were recorded in The Banker and Tradesman)

                                                              Year                 Percent of All Cash Transactions 

                                                              2008                                 29.8%    
                                                              2009                                 29%   
                                                              2010                                 31%   
                                                              2011                                 48.8%  

For a copy of Otis & Ahearn's Downtown Boston Condominium Weekly Report, click here to request.