Commercial Real Estate
A Tale of Two Cities
Evan Plotkin was talking about how “something has to give.”
With that one phrase, he was talking about the commercial real-estate markets in the central business districts of Boston and Springfield.
In the Hub, said Plotkin, president of NAI Plotkin, rents are sky-high and continue to climb — to more than $100 per square foot in some locations and to roughly $63 per square foot on average, with more space being built to accommodate soaring demand. Meanwhile, traffic, congestion, and problems with mass transit are strangling businesses, he said, to the point where meetings can’t start until 10 a.m. and overall productivity is impacted.
Meanwhile, in Springfield, rents are low — less than one-third the average in Boston — and they are flat, as in consistently flat. “They really haven’t gone up at all in maybe 25 years,” said Plotkin, who noted that there are several reasons for this, but especially the fact that there is, by his estimate, roughly 600,000 square feet of vacant class A space in Springfield’s downtown.
Exacerbating this relative stagnancy in the City of Homes has been new and seemingly unneeded inventory coming on the market — especially the 60,000 square feet at Union Station and the redeveloped property known as 1550 Main — and movement among a growing number of businesses to reduce their physical footprint by enabling (or in some cases requiring) employees to work from home.
This is where the ‘something has to give’ part comes in, said Plotkin, in a very candid interview with BusinessWest, noting that things need to change in both cities. And both would seemingly benefit if just some of the state offices now based in the Hub, as well as many different types of private businesses, would change their mailing address from Boston to Springfield when their leases expire.
“There’s 70% rent inflation in Boston, so when these businesses’ leases expire, they’re looking at incredibly high turnover rent,” said Plotkin, who co-owns a portion of the office tower known as 1350 Main St. He noted that class A rents in Boston have climbed $12 to $15 per square foot over the past few years. Meanwhile, in Springfield, property owners are charging $15 to $20 per square foot of class A space.
“It’s outrageous what’s going on in Boston — and everyone can do the math,” he said. “If state agencies don’t have to be in Boston, they can be decentralized and relocated to office space in Springfield or perhaps Worcester. They’re looking for creative solutions for Boston, and this could be one of them.”
Besides these opinions, all Plotkin really has at this point are those numbers he mentioned earlier (as well as some other statistics) and what appears to be that sound theory — that businesses and state agencies that don’t really need to be in Boston could and should be incentivized to seek other locations, including the 413 and especially downtown Springfield.
He has meetings planned with other downtown property owners as well as Rick Sullivan, present of the Economic Development Council of Western Mass., to discuss what can and perhaps should be done to at least raise awareness of what Springfield has to offer and perhaps create some migration west.
Plotkin said he understands there are reasons why state agencies and businesses want to be in Boston — especially because they know there’s a skilled workforce there — and he understands that moving about 90 miles west on the Turnpike is expensive and presents some risks, especially when it comes to workforce issues.
But he says the numbers speak for themselves, and if those paying sky-high rents in Boston could come to understand the numbers in this market, they could become inspired to relocate.
And if high-speed rail between Boston and Springfield becomes a reality, then people could, in theory, live in the Boston area and work in businesses and agencies relocated to the 413 — a decidedly differently spin on how that service might change the business landscape in the Bay State.
That’s a very large number of ‘ifs,’ and Plotkin acknowledges this as well. But as he said at the top, and repeatedly, something has to give in both cities.
As he talked with BusinessWest, Plotkin continually leafed through the pages on a white legal pad he brought with him.
They contain various notes he’s collected over the past weeks and months on the Boston real-estate market and the overall business climate in New England’s largest city.
There are some statistics he’s collected — such as those regarding average rents in the Hub, the amount of new space under construction (2.5 million square feet was the number he had), and the current vacancy rate in the city — an historically low 6%, according to the New York-based real-estate giant Cushman & Wakefield.
But there were also some general thoughts, observations, and notations from various publications and other sources.
Among them was a quote from the Massachusetts Biotechnology Council citing a survey which revealed that 60% of the life-science employees working in Boston would “change their job tomorrow” if they could get a better commute. There was also something he read in another publication (he couldn’t remember which one), noting that many Boston-area residents had simply given up on mass transit because it was so unreliable and were instead driving to work and getting there mid-morning.
“In one report I read, business owners in Boston said they had to add staff to make up for transit delays,” he said, putting a verbal exclamation point behind that comment. “Think about how disruptive that is to your business. We don’t understand that here — there’s no such thing as traffic in Springfield.”
Summing up all he’s read and heard about Boston and possible solutions to its congestion problems — everything from incentivizing employers to let workers telecommute to taxing motorists for using certain roads at certain hours — he said the situation is fast becoming untenable for many living and trying to do business there.
“You have inefficiency, spiraling upward costs, shortages of affordable housing, transportation problems, congestion, and sky-high cost of living there,” he said. “Businesses locate in Boston because they can attract that workforce, which makes sense, but if that workforce can’t afford to live there and can’t deal with the congestion, then what’s the point of being in Boston?”
Which brings him back to Springfield and its downtown. And for this subject, Plotkin didn’t need a legal pad.
He’s been working in, and selling and leasing commercial real estate in, downtown Springfield for more than 40 years. He knows what’s changed and, perhaps more importantly, what hasn’t, especially when it comes to demand for space in the central business district, and what would be called net gains.
Indeed, Plotkin said that what the region has mostly experienced — there have been some notable exceptions, to be sure — is companies moving from one downtown office building to another.
In this zero-sum real-estate game, one building owner loses a tenant, and another gains one — but the city and its downtown don’t gain much at all, he said.
“There’s been negative absorption in the downtown for many years now, and I don’t see anything really changing,” he told BusinessWest. “I’m seeing people moving from one block to another, one office building to another, but not many new businesses moving in. Meanwhile, everyone’s vying for the same tenants, which drives the rental rates down even lower than they have been historically; it’s a tenant’s market here.”
It’s anything but that in Boston, which has seen a surge of new businesses moving in — everything from tech startups to giant corporations, like GE. The real-estate market is exploding, and traffic woes and mass-transit headaches have been consistent front-page news. All this calls for creative thinking — as in very creative — and perhaps looking west, said Plotkin, who did some simple math to get his point across.
“Using the example of a 20,000-square-foot tenant paying $63 per square foot in Boston … if the same tenant came to Springfield and paid $18 per square foot, we’re talking about millions of dollars,” he explained, adding that these numbers should strike a chord, especially when it comes to businesses and agencies that don’t have to be in Boston.
Many of those who think they do need to be in Boston are focused on workforce issues, he went on, adding that he believes the Greater Springfield area can, in fact, meet the workforce requirements of many companies.
And over the past several years, the city has become more vibrant with the addition of MGM Springfield, said Plotkin, adding that there are certainly other selling points, like a high quality of life and a cost of living that those residing in and around Boston might find difficult to comprehend.
As he talked with BusinessWest, Plotkin all but acknowledged that getting businesses and agencies to trade Boston for Springfield will be difficult, for all the reasons stated above.
But the situation in the Hub could be reaching a tipping point when it comes to affordability, traffic, congestion, and quality of life.
And these converging factors might, that’s might, finally convince some decision makers to seek a very creative alternative.
George O’Brien can be reached at [email protected]
A New Anchor
Tower Square has seen its ups and downs over the years, but its new owners have been aggressive about selling potential clients on the renovated space, convenient parking, downtown amenities, and simply being part of an economic renaissance in Springfield. Wellfleet took that pitch to heart, which is why it agreed to become the tower’s anchor tenant.
Vid Mitta, managing partner of Tower Square, called Wellfleet’s relocation to the downtown Springfield office tower “a big thing.”
It’s even bigger when one considers how far the company has come, said Drew DiGiorgio, Wellfleet’s president and CEO.
“When we started, it was five employees,” DiGiorgio said. “My office was not an office — it was a desk and a chair located at the bottom of the stairs at a barbershop in Wilbraham. We would open up envelopes, and I would lick them because didn’t even have the little spongy thing. We answered the phones when they rang; we did everything. To go from that to this is pretty humbling, and I appreciate everyone’s support to get us here.”
“If this was five years ago, the issue might have been safety in the downtown. But the dynamic has changed. The downtown is attractive, there are all kinds of venues and attractions nearby, and security doesn’t appear to be an issue any longer.”
Wellfleet, a Berkshire Hathaway company providing accident and health-insurance products, recently staged a press conference to announce the relocation of its national corporate headquarters — and 150 of its employees — to the 10th, 11th, and 12th floors of Tower Square in August.
Wellfleet — which has built a national niche insuring college students, handling more than 100,000 students at more than 200 colleges and universities — has outgrown its current office space on Roosevelt Avenue in Springfield. The new offices at Tower Square will give employees up to 80,000 square feet of class-A office space and provide ample room for Wellfleet’s new and growing Workplace Benefits division.
“To me, Wellfleet is a home-grown, small, Springfield-based company which has grown to this size today, and we should applaud their success,” said Mitta, who announced that Wellfleet’s name will be placed on the tower as its anchor tenant.
Rethinking the City
Demetrios Panteleakis, principal of Macmillan Group, the real-estate firm that represents Tower Square, said his team was in discussions with Wellfleet for about a year as Wellfleet searched the suburban market for a home.
“We were the alternative. They were kind of weighing it against what the suburbs had to offer,” he said, adding that he was able to pitch a downtown headquarters as much more than a fallback. In fact, the more Wellfleet’s leaders considered Tower Square, the more it made sense.
“If this was five years ago, the issue might have been safety in the downtown,” Panteleakis told BusinessWest. “But the dynamic has changed. The downtown is attractive, there are all kinds of venues and attractions nearby, and security doesn’t appear to be an issue any longer.”
In short, a thriving urban center is simply more attractive than the suburbs to many companies. But that shift in perception didn’t happen overnight.
“I think it’s a culmination of everything the folks at City Hall, the Business Improvement District, and all the economic-development folks have been working on, rowing in the same direction, for the last four or five years,” he said. “The result is not only attracting new tenants, but bringing tenants from Westfield, West Springfield, Northampton, Agawam … these are folks saying, ‘Springfield is the heart of the economic engine in Western Mass., and that’s where we need to be; that’s where our employees need to be.’”
DiGiorgio said Wellfleet employees, when asked what’s appealing about Tower Square, cited the modern, renovated space itself, with its natural light, city views, and covered parking, as well as the food options downtown and the fact that the district has been emerging economically in recent years.
“In New England, it’s not a lot of fun when the snow and rain come, so having a secure garage, and having the ease of a building that kind of provides you everything you need over the course of the day, that’s highly attractive,” Panteleakis added.
Formerly known as Consolidated Health Plans, Wellfleet branded under its current name in January, uniting its insurance carriers and claims-administration organizations under one marketing name. It boasts approximately 175 employees, 150 of whom work in Springfield; others work remotely or from satellite offices in Florence, S.C. and San Rafael, Calif.
“We believe being part of Springfield is important,” DiGiorgio said, noting that the company has long been involved in efforts like the Memorial Spring Cleanup, Link to Libraries, Friends of the Homeless, Rays of Hope, and Open Pantry. “We are active in the community. Our name is not well-known, but we think that will change in the future.”
Springfield Mayor Domenic Sarno noted that Tower Square’s owners have been aggressive and creative in bringing an eclectic mix of businesses to the facility, from Wellfleet to the YMCA of Greater Springfield to White Lion Brewing Co.
“A lot of people, years ago, said, ‘what can you expect? It’s Springfield.’ More and more people are saying now, ‘why not Springfield?’” the mayor said. “I won’t say the downtown is re-emerging as much as it is reinventing itself. Springfield is getting on the map. And my administration continues to be business-friendly because it brings jobs.”
At the end of the day, Panteleakis said, Tower Square is becoming an easier sell.
“When you walk people through the space and they consider the economics of it — for a few dollars more, they can have parking at their leisure, then the level of security and the amenities a class-A building has to offer — it sells itself.”
That’s why he enjoys those tours of the building with prospective tenants, and hopes more companies and organizations request them.
“What they need to understand is what Wellfleet understands — the level of the buildouts of the existing spaces in Tower Square rival anything you’d see in Boston or New York City,” he told BusinessWest. “These are class-A, high-tech buildouts, and there’s a difference between being in a class-B or suburban market and being in a state-of-the-art, class-A office space with spectacular views of the Pioneer Valley.”
At the press conference, Panteleakis said welcoming Wellfleet was “a special day” for the city and the office tower.
“It’s quite remarkable to have another insurance company that’s growing at the rate this company is growing, and it’s only fitting it makes its home in the marquee building in the center of the city, bringing its people, its energy, and its vitality to the downtown,” he noted. “It’s just a great day to see it happen to our city. I think it’s going to be one of many great announcements Tower Square has for you over the coming months.”
Joseph Bednar can be reached at [email protected]
Painting the Town
Britt Ruhe is a huge fan of public art, specifically mural art.
After attending what have come to be called ‘mural festivals’ in cities such as Worcester and Salem and seeing the many benefits they bring to those communities, she lobbied hard to bring a concept known as Fresh Paint to the City of Homes.
Wanting to find a way to give back to the community, Ruhe, a financial strategist for startups and small businesses by trade, began meeting with festival organizers in other parts of the state to gather input and essentially learn how it’s done.
“I was able to see firsthand what an incredible impact mural festivals have on revitalizing a neighborhood, and I thought, ‘Western Mass. needs something like this,’” said Ruhe, adding that, when she approached Springfield’s business, civic, and community leaders about staging a festival here, she encountered overwhelming support.
Indeed, not only did Kevin Kennedy, the city’s chief Development officer, agree to the festival concept, he pushed Ruhe to set the bar higher than her original proposal of five murals in order to achieve a greater impact.
Over six days earlier this month, 35 artists, with considerable help from the public during several ‘paint parties,’ transformed 10 walls throughout the city during Springfield’s first mural festival.
“It’s been a great success; when you do something in a city the size of Springfield, it has to have the correct impact,” said Kennedy. “I thought five was a little too small to be impactful. This was the first time we were going into multiple murals, and I thought 10 was more impactful than five.”
He said encouraging the arts and culture sector, currently a $50 million business in Springfield, is important for the continued revitalization of the city, especially in the realms of housing and entertainment.
The 28 total works of public art add up to 20,000 square feet of murals, and the larger works were approved by building owners who had no idea what the finished product would look like.
“I was able to see firsthand what an incredible impact mural festivals have on revitalizing a neighborhood, and I thought, ‘Western Mass. needs something like this.’”
“The building owners have the biggest lift; they donate their wall,” said Ruhe. “As part of a festival, the building owner doesn’t have to pay, but they don’t get to choose what goes on their wall, which is a big ask, especially this first year around.”
Overall, the festival was a community effort, with $150,000 raised for the event from donors and several sponsors, including MassMutual, MassDevelopment, Tower Square Hotel, and many others.
Dozens of volunteers took part, and 1,500 cans of spray paint and 500 gallons of liquid paint were used to change the face of many formerly drab buildings and pieces of infrastructure.
But the benefits far outweigh the costs, Ruhe told BusinessWest.
“There’s a lot of data out there that shows that murals increase property value, foot traffic, and they’re good for residential and commercial businesses,” she explained, adding that, although the economic benefits are difficult to quantify, a study is being undertaken to examine the direct effects such a festival has on a city.
While little of the funds raised go to the artists themselves, Kim Carlino, artist of the mural at 8-12 Stearns Square, said there are many other types of rewards, especially the pursuit of such a daunting challenge.
“I like the experience of having something that’s bigger than you and can really engulf you,” she said, while transforming that massive, highly visible wall in the heart of the entertainment district. “Everyone coming by is just so thankful; it’s the same experience I have every time I make a mural — everybody wants more color in their life, and we need more of that in our day-to-day.”
Springfield, as noted, is only the latest in a number of cities — in Massachusetts and across the country — to embrace murals and the concept of a mural festival.
Wane One, a muralist for 38 years, has taken part in many of these events. He said the only American art form started by young children has turned into a worldwide artistic movement.
“This artform has gone global,” he said after creating the mural on the East Columbus parking garage. “It doesn’t matter what part of the world you go to right now, it has pretty much taken over.”
In the city of Worcester, the arts and culture sector is a $127.5 million industry, filling 4,062 full-time jobs. And murals have become a distinctive part of the landscape there.
Che Anderson, project manager in the Worcester city manager’s office, said that community’s mural festival — called “Pow! Wow!” — has brought more people out and into the local community, providing a boost to small businesses.
“Overall, ‘Pow! Wow!’ has provided an international platform to know about Worcester and the things that are already existing,” he told BusinessWest, adding that the festival has improved the city’s walkability. “The festival also provided an outlet for many creatives in the city.”
As for Springfield, similar effects are already in evidence.
“It’s been a great success,” said Kennedy. “It has delivered everything I think the mayor and I hoped for on the cultural side, the economic side, and the reputational side.”
Ruhe said the local business community’s support has been extremely helpful through the course of the festival, and she sees her hopes for the event’s future materializing.
“It’s really bringing the community together. People from all walks of life are coming out for the events or standing on the sidewalks looking at the art, talking with each other, painting together,” she said. “What makes mural art so powerful is that is brings art out into the street and into people’s everyday lives.”
Kayla Ebner can be reached at [email protected]