Atlantic Wharf, a mixed-use development scheduled to include a waterfront plaza, 30,000 square feet (2,787 sq m) of retail and public spaces, and a 31-story, 750,000-square-foot (69,677-sq-m) Class A office tower, is taking shape in the capital of Massachusetts. And in strong markets around the New York metropolitan area, retail development appears to be a bright spot. In neighboring Connecticut, the single-family home sector is expected to strengthen this year, and the office market in northern New Jersey is starting to gain traction.  

“While ongoing challenges are still [affecting] the Northeast real estate industry,” says Steven Polivy, office managing shareholder in the New York office of the national legal firm Akerman Senterfitt and chair of the firm’s economic development practice, “there is some activity in the market, which indicates that a recovery has begun. It is our feeling that this activity will continue and start to accelerate in the coming months.”  

There is no question that the real estate sector in New York, Massachusetts, New Jersey, and Connecticut is showing some signs of life. While the pace is slower than it has been in the past several years, buildings are being constructed, plans are being made for targeted development, and owners, designers, bankers, and others remain guardedly optimistic about this year and next. In addition, sustainability continues to be a key trend in the four states as tenants, owners, and developers realize its corporate, social, and economic benefits. 

Consider Massachusetts, where construction has dropped sharply, but work continues on projects that were funded prior to the real estate correction. “Boston’s job losses were lighter than [other cities’], supply did not get out of control, and the economy didn’t get hit as hard as [it did in] some other places,” says M ark Hickey, real estate economist at Boston-based Property & Portfolio Research, Inc. “We predict a strong pop in real estate values from 2011 to 2014, with office returns in that period better than in most other areas.”  

Already, the Bay State—particularly Boston—is attracting real estate investors from around the globe, says Robert J. Plumb, managing director at Boston’s A EW Capital Management, LP, a firm that provides real estate investment management services. “There’s still a global capital and investment market and, from an international perspective, Boston has all the ingredients to enable it to recover pretty quickly,” he says. “I’m optimistic because Massachusetts for the first time is having net in-migration. People want to live and work here. You can’t say that about a lot of cities. Boston has a stabilized job situation and our educational infrastructure is second to none.”  

The Massachusetts real estate market isn’t as challenged as some others because it didn’t experience the excesses of other areas. “The mix of industry here also is better than [that in] other states,” says Michael Acton, managing director at A EW Capital Management. “The biotechnology and medical research sectors weren’t as affected as other industries and the universities are countercyclical, although their endowments were affected by the drop in value. Boston and Massachusetts are expected to come out of the recession a little bit ahead of the nation. The real advantage Boston has is that we spent 15 years rebuilding our transportation infrastructure using federal money. We are a 300-year-old city that retrieved more than a mile [1.6 km] of green space. What other city has that?” 

Real estate sales activity is expected to pick up in the commonwealth and leasing fundamentals in Boston will gradually start to improve over the year, says Lisa M. Campoli, executive vice president in the Boston office of global brokerage firm Colliers Meredith & Grew. “Investors are poised and ready to start buying, but sellers remain scarce,” she continues. “Boston’s well-known ‘intellectual capital’ continues to fuel growth in the health care and life sciences sectors. The education sector is expected to be a bit quiet this year as most institutions continue to manage the fallout from their endowment losses.” 

Biotechnology and the pharmaceutical industries are bright spots, Campoli continues, noting that Colliers Meredith & Grew represented biotechnology leader Alkermes in the relocation of its corporate headquarters to Waltham, Massachusetts. “The financial services sector, which is the heart and soul of downtown Boston, appears to be recovering from its losses in 2008–2009 and, while not in a growth mode, is clearly stabilizing,” she says.

Sustainability continues to be a major factor in Bay State real estate development, emphasizes Elizabeth Meek, principal at Sasaki Associates, a Boston-based design firm. “The question is whether developers and tenants are willing to pay a premium for green space, and whether or not they are willing to pay a premium for L EED,” she adds.  

Sasaki Associates provided interior sustainability and design services for the tenant spaces at National Grid’s 300,000-square-foot (27,871-sq-m) Davis Marcus Partners building near Boston that has achieved LEED Platinum status for both the base building and the interior. “National Grid, a local gas and electric company, added a photovoltaic component to the roof of the building which powers half of the lighting for the 1,800 building occupants,” says Meek. “The innovative office lighting is highly efficient, with energy use more than 40 percent below code. The building also incorporates a graywater system, so that it uses 66 percent less water than a typical office building. With 97 percent of the staff in low, open workstations, National Grid’s employees have a clear connection with the outdoors. Collaboration is fostered through visibility and easy access.”

Sustainability continues to be a major force in Connecticut real estate, too. “There are increasing government mandates, at the state and local levels, to achieve enhanced sustainability,” says Bruce Beinfield, partner at South Norwalk–based Beinfield Architecture PC, who notes that the firm is working on a LEED Gold–certified addition to Stepping Stones Museum for Children in Norwalk and a new jet terminal and hangar facility at the Bridgeport Airport. “The construction industry has additionally introduced significant new product lines for sustainable construction,” he says. “Sustainability is becoming increasingly embedded in the entire design and construction process.” 

Still, many expect 2010 to be a tricky year to navigate, with more normalcy returning to the commercial real estate market the following year. “The rental housing market is not as robust as it was a few years ago, but does show some signs of life,” says Beinfield. 

At the same time, Hartford will see market fundamentals beginning to turn positive by the end of this year, says Hickey of Property & Portfolio Research, Inc., who adds that the recovery will be a mixed bag. “Conditions will improve significantly but not as well as [in] many other metro areas, nor will conditions return to prerecession levels.”  

Having a sustainability component is increasingly important to potential lessees and buyers in the Northeast, points out John R. Connelly, Jr., acquisitions officer at the U.S. real estate operations of UBS Global Asset Management, based in Hartford. “When evaluating a property, we consider how the end user’s decision making may be [affected] by sustainability considerations,” he continues. “On the multifamily side, one aspect of sustainability that we now take into consideration when investing is proximity to public transportation. I n 2009, our acquisition efforts considered sustainability as an important factor in our underwriting. We believe perspective renters value living close to public transportation, enabling these properties to outperform the competition within their markets.” 

This year should bring a number of potential acquisition opportunities in the Northeast area, says Connelly. “Last year, we evaluated many potential transactions, but found that many owners were not distressed enough to sell at prices the market offered,” he says. “In the second half of 2009, the spread in cap rates remained wide between A and C properties, but cap rates for the best properties stabilized. We expect that more distressed sellers will continue to come to the market this year. We believe our portfolios are well positioned and will focus our acquisition efforts on quality properties to strengthen our performance for the long term.” 

UBS’s most significant transaction in the New England area last year was the sale of a large apartment complex in Boston. “The property had performed well for us over the years, but we intend to focus on newer, more urban properties going forward,” Connelly says. “We have been actively managing our properties because we believe that our current portfolios present the best opportunity to increase value. We are also focused on successfully delivering two redevelopments including one in Brooklyn, New York, to market while strategically improving our portfolios by selling older and buying newer properties.” 

The real estate sector in New York is also looking up. Lenders are now more willing to provide credit on smaller transactions—both refinancings and new transactions—although the underwriting terms remain extremely conservative, explains Polivy of Akerman Senterfitt. “We anticipate that loan restructurings will still be prevalent throughout the year, particularly with an increasing number of loans in need of refinancing,” he says. “Our group is also seeing increased activity in the affordable housing market as several developers throughout New York City are seeking land use and site approvals for projects. Importantly, this will result in financings once the approvals are in hand. “ 

Akerman Senterfitt is working on several projects, including a retail plaza project in the Rockaway area of Queens, a retail development that will be starting in downtown Brooklyn, an expansion of retail stores in a transit hub in upper Manhattan, and an expansion of a department store in Yonkers, he adds. “We’re currently involved in several zoning applications, including a rezoning of the area adjacent to Yankee Stadium for a client who will be building a mixed-use development, including affordable and middle-market housing as well as retail,” says Polivy. “In addition, our group is representing numerous lenders and borrowers in the restructuring of commercial real estate loans.”  

Even so, real estate development in New York is expected to be extremely quiet in the coming year, says Steven Davis, partner at the New York City–based architecture firm of Davis Brody Bond Aedas. “If there is a second wave of stimulus spending, New York will likely benefit,” he continues. “Sectors to include infrastructure, education, and potentially health care. Depending on the loosening of credit, we could see accelerated absorption of condo inventories due to advantageous pricing.”

Davis, whose firm is design architect for the National September 11 Memorial Museum at the World Trade Center and associate architect for the memorial and is currently designing a comprehensive infrastructure upgrade and phased renovation for the Field Building at Baruch College, notes that sustainability will be integral to future Big Apple development. “As environmental consciousness continues to pervade the mainstream, there is a greater understanding of long-term building performance and the benefits to building owners and occupants,” he says. “Municipal guidelines on new construction will ensure that New York real estate development is mindful of sustainable strategies and incorporates innovative design solutions.” 

The Gotham Center development in the Long Island City neighborhood of Queens, which will anchor a new major business district, is targeted for L EED certification, according to Rob Speyer, president and co-CEO of New York City–based Tishman Speyer. “The company has adopted an integrated portfolio-wide approach to sustainability that encompasses both new and existing buildings,” he says. “The firm achieved New York City’s first Existing Building LEED certification for a multi-tenanted office tower at 520 Madison and currently has numerous such L EED projects in process.” 

The situation in the Garden State is looking up too, says Ed Bednarski, associate director at Morristown-based MetLife Real Estate Investments, a firm that has a large presence in New Jersey. “We are even starting to see the reemergence of construction activity,” he says. “There is a large speculative office project underway in Metro Park and the redevelopment of the former Ford plant on Route 1, which is expected to become a 400,000-square-foot [37,161-sq-m] lifestyle center, with a potential office component. While the traditional New Jersey pharmaceutical companies continue to slowly downsize space needs, we have recently seen the entrance of some Japan-based counterparts setting up headquarters here, such as Otsuka America Pharmaceutical in Princeton and Eisai, Inc., in Woodcliff Lake.” 

Bednarski adds that as the local economy rebounds, the company is actively seeking to grow its portfolio. “A bright spot is the port-related industrial sector,” he says. “Port activity has kept availability of space relatively low for projects in close proximity. Further, although there is a good deal of vacant space in the 8-A marketplace south of the ports, there are no major speculative industrial projects under construction, which will allow [for] an even more rapid recovery for the sector as the national and local economies rebound.” 

While anticipating that recovery, real estate developers in the Garden State continue to ride out the economic uncertainty by tightening their belts and remaining cautious. “It’s interesting right now that in New Jersey, we’re seeing some real estate mergers and acquisitions,” says William A. Feinberg, president of Feinberg & Associates, PC , an architectural design firm in Voorhees. “Some of our clients are forming joint ventures to participate in different opportunities. Having a partner oftentimes makes obtaining financing easier. There are only a certain amount of developable sites, so it makes sense to join forces.” 

Feinberg’s firm is working with Sharbell Development Corporation of Robinsville, New Jersey, on completing Washington Town Center—a “downtown” in Washington Township that was first started five years ago. “Washington Town C enter is a 500-unit neo-traditional neighborhood with an affordable housing component. We’re designing the last phases of the development,” says Feinberg. “We have two residential buildings under construction and are working on a third. We’ve even developed a new product type for Washington Town Square—a multifamily building with townhouses every other floor. It contains 28 units, all two stories.”  

Even with the development bright spots in the Northeast, the mood in Massachusetts, Connecticut, New York, and New Jersey is one of cautious optimism. Many in the real estate sector say they have learned from the past and will be prudent about their plans for the future.