Doubling Down on Air Rights in Boston

September 18, 2022September 18, 2022 Admin

R. Donahue Peebles
CEO, Peebles Corp.
Age: 62
Industry experience: 35 years

A pair of developments at highway tunnel portals in Boston come with complicated design considerations, but also potential transformational changes. Peebles Corp. is the Massachusetts Department of Transportation’s choice to develop parcel 13 over the Massachusetts Turnpike in Back Bay with lab space and affordable housing, and parcel 25 at the southbound exit of the O’Neill Tunnel with 218 units of mixed-income housing and a 309,000-square-foot life science project. The nation’s largest Black-owned development firm, Miami Beach-based Peebles Corp. owns a multi-billion dollar portfolio of projects in New York, Boston, Philadelphia, Washington D.C., Charlotte, Miami, San Francisco and Los Angeles.

Q: Now that Peebles Corp. is committed to two major air rights projects in Boston, how do you compare the commercial real estate environment with the other metros where you’re active?
A: Boston is a very resilient market to begin with, which is one of the reasons we’ve entered the market. The office market has gotten some headwinds in Boston, and I think ultimately the housing market is going to have some headwinds as well. Inflation and rising interest rates have dramatically changed the housing market. But so far, Boston has outperformed in the office market beyond where I thought it would as a result of how people are working now.

Life science has more than filled the vacuum, and there’s such a backlog on life science space and so many developers including us are developing life science space, you wonder if we’ll overbuild. The market looks like it could use another 3.5 million square feet to meet the current demand. This is a positive shift since we initially began engagement on parcel 13 [in 2014].

The hotel market has been resilient. Every time I come here, I’m shocked at the rates I have to pay. At university graduation time, all of the hotels are booked up. Hotels have recovered far quicker [in Boston] than New York and Washington, D.C., and I think are almost on par with where Miami is. And rental housing in Boston is experiencing an increased demand, and that’s going to continue as interest rates price people out of homebuying.

Q: Seeking to build 100 percent-affordable housing at parcel 13, are you going to pursue a similar financing strategy as Related Beal’s Beverly project near Boston’s North Station?
A: We’re going to be considerably different because we’ve got other elements. We’re building on an overpass on the Pike, and that is driving costs and making land more expensive for any use. For affordable housing, it drives up the cost and we’re looking at several different sectors for additional subsidies. This is a very complicated site, but we strongly believe that affordable housing ought to be dispersed around the city and not in concentrations.

Q: What public subsidies are you exploring for the housing portion?
A: We’re exploring several of them and trying to move expeditiously, making applications in September. We’re looking to accelerate the process because we want to have everything approved and all the funding and commitments by the end of this year and early first quarter of 2023.

[In our original plan,] we were going to build an ultra-luxury housing component, similar to One Dalton, but in a lower-rise kind of building, and were going to be selling them for $2,000 to $2,500 per square foot. We’re exploring several different options and it’s a topic of great priority for Gov. [Charlie] Baker as he’s winding down his term.

We also redesigned the project to address the mayor’s priorities. We heard what the mayor campaigned on, and what she indicated was a priority. On the equity side, we’ll include over 50 percent women- and minority-owned contractors on day one. My son [Donahue Peebles III] started an affordable housing division a few years back because he felt our company ought to be part of the solution that, in many regards, we helped create. We have signed a development agreement and we have a ground lease form agreed upon. Our focus is finishing up the land use and getting financial support that the affordable housing needs. We are going to give the T a vanilla box [for a new Hynes station] and a second entrance on Boylston Street.

Q: What were the legal complications related to the station headhouse plans that delayed the project?
A: We were going to develop and renovate the station in its entirety and that was part of the initial process. However, the MBTA didn’t dot all the I’s with regard to the contracting process. As a result, there had to be a separate procurement for the renovation of the station in addition to the development of the site. What we are giving them is a part of the infrastructure and we are using our money to do it. Once it becomes their money, then they have to have a separate procurement process. The development team builds the deck and the headhouses that sit on Mass. Ave. and Boylston Street, and the developer is responsible for the core and shell of both headhouses.

Q: How were the designs updated to reflect resiliency concerns?
A: We had to locate a [MBTA] electrical substation at ground level, because permitting requires buildings like ours now to address those issues so you can’t have a system that shuts down. That’s part of why we have to redesign the platform and other aspects of the building, and needed some additional height. We lost a lot of space on the ground floor, and what can be adjacent to [the substation] is another issue. You can’t put housing next to that. It’s very heavy equipment. You’ve got to put it where it’s accessible for service, and where it’s somewhat isolated.

Q: What are the next steps for the parcel 25 redevelopment on Kneeland Street?
A: We’ve got to knock out the development agreement, which is in process now and hopefully will be executed relatively soon. We’ve done one with MassDOT so far, and this one is less complicated. We’ve got a lot of excitement in the marketplace. Once we’re finished with that, we’ll go into the land-use schematics and the community phase, and move through the development process as soon as we can. We won’t have the similar complications as with parcel 13.

Q: Is it difficult shaping a project in Back Bay that simultaneously meets the goals of the Baker administration and Boston officials?
A: Interestingly enough, the Baker administration has really bought into the affordable housing. In our interactions with [Deputy Transportation Secretary] Scott Bosworth, the state has been very supportive on that and [state Rep.] Jay Livingstone has been very supportive. The state’s top priority has been the station: it doesn’t comply with ADA and it needs our infrastructure to do that.

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