Market Overview



1.0 Market Analysis

In order to determine the most appropriate and valuable use for the 505 Congress Street parcel, a market analysis is necessary. This analysis will begin with a review of the economic health of Boston in relation to similar cities and the US economy as a whole. Then the study will consider strengths and weakness of the Boston market and consider the feasibility of different products based on historic and projected market performance.

In addition to this analysis of demand drivers, the report considers existing and projected supply for multifamily residential and the marketability and target demographic for that product. Analyses of national, regional, and local markets will determine the highest and best use for the site by accounting for economic trends as well as site and regulatory considerations.

The US Economy and Boston

With rapid globalization transforming the US economy, the mix of industries within the US has changed significantly. Manufacturing within the US has declined consistently due to the off-shoring of production to Asian countries, especially China. Outsourcing to countries such has India has also eroded the service industries (call centers, data entry, software etc.). The US remains strong in most high tech industries, research & innovation, education, financial services and tourism. Going forward these value-added industries will represent an increasing share of gross domestic product.

Boston is strongly positioned in all these sectors. With MIT, Harvard, and several other world class institutions, Boston

is a leader in education as well as research and development. Boston is also home to some of the largest financial and consulting firms in the US. Being at the crossroads of industry, research and innovation, Boston is an attractive convention destination. This has a positive impact on the hospitality sector. As a city with historic significance, tourism also contributes significantly to the Boston economy.

1.1 Comparative Market Analysis

To understand Boston’s position within a competitive market, and ability to attract firms, workers, and residents relative to other similar cities, San Francisco and Seattle were selected for a comparative analysis.

San Francisco and Seattle were selected for a comparative analysis based on the following similarities:

• Population size between 3-4.5 million

• Employment profile between 2-3 million

• Significant research and development employment

• Numerous educational institutions

• Strong tourist centers

• Waterfront cities – land-locked, ports

• Many corporate headquarters or significant offices of large companies

Figure 1a shows that Boston has the highest total employment, second highest per capita income, and lowest vacancy rate. The orientation of the demand drivers position Boston well for sustained growth.

Further comparison of the cities’ significant demand drivers identifies Boston’s economic strengths. The following section examines the historic changes in population, employment, income and property vacancy rates. This analysis confirms impressions gleaned from Figure 1a. Although Boston is not leading the nation or comparable cities in every demand driver, it remains in the top tier.

Population

• The growth in all three MSA’s has been below the US average in 2003, the most recent year for which data was available (See Figure 1b).

• A decline in growth began before the 2001 recession.

• Completion of the Big Dig and recent opening of the underground central artery will have a significant impact on future growth prospects for Boston.

Conclusion: After the 2001 recession, Boston has hit historic lows and is recovering from the trough of the cycle. San Francisco, which has similar demographic and industry mix characteristics is already showing signs of recovery and we expect Boston to follow.

Employment

• Employment growth has been declining in all three MSAs’ since the recession and is still below the national average (See Figure 1c).

• Growth has begun to increase for all three MSAs in 2002 but is still below the US average.

• Boston and San Francisco will compete for employment from the education and health sectors as well as professional business services, which are leading industries in both cities. (See Figure 1d.)

• Seattle is focused mostly in the government sector, with hospitality and leisure, education and health, and retail trade all tied for third.

• Personal income growth is also recovering. (See Figure 1e.)

Conclusion: Boston has experienced historic lows and can safely assume that the economy is recovering from the trough of the cycle. However, Boston is recovering more slowly than the U.S. as a whole.

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Data Sources: US Census 2000 and Bureau of Economic Analysis

Vacancy

• Vacancy rates decreased significantly in 2003 in all MSA’s except Boston. (See Figure 1f.)

• However, Boston had the lowest vacancy. With a vacancy rate of 4.9% in 2004, Boston is significantly below the US average of 6.1%.

• Boston, as an older and more mature market, has had smaller fluctuations.

• Boston is close to a historic high in the vacancy cycle. We can expect upward pressure on vacancy from the increasing number of new completions, but downward pressure from the increases in the renter pool that results from rising interest rates.

Conclusion: Boston is showing positive trends in employment and income. With completion of the Big Dig, Boston is well positioned to increase population and compete with San Francisco in key competitive industries as discussed above. These factors will keep absorption and vacancy stable.

Boston has shown significant sensitivity to economic recessions, suggesting uncertainty and risk in any investment. Also, the cost of doing business in Boston is approximately 40% above the national average, which could deter the growth of new companies and encourage existing companies to relocate. However, we feel the positives outweigh the negatives and Boston is poised for sustained growth.

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1.2 Boston Demand Drivers

While comparative analysis facilitates an understanding of the general health of Boston’s economy, a consideration of key demand drivers for the Boston market will help determine which products are most likely to succeed in the current economic market.

Based on a forecast of the Boston economy through 2008, the city appears to be in a strong position for sustained economic growth in the next five years. The forecast used several real estate data sources and examined key demand drivers.

Personal Income Growth & Population Growth

Similar to Employment Growth, Personal Income growth is projected at 1.7% and Population Growth is projected at 0.4% over the next 5 years. This projected growth in demand drivers is evident in Figure 1g.

Industry Specifics

Nationally and in the Boston MSA, the greatest declines in employment in the last 5 years were in manufacturing and information. Meanwhile, in the last 12 months, 2 out of 3 of Boston’s greatest increases were in education and health and professional and business services, which are Boston’s 2nd and 3rd leading industries. In addition, these industries are projected to have the highest national growth in the next five years along with hospitality and leisure industries, suggesting that Boston is leading the national curve for growth in these top industries. (See Figure 1h.) Note that while in most cases Boston’s growth rate is below the US average, it has a greater absolute increase.

Employment Growth

Torto-Wheaton Research (TWR) projects the total employment in Boston to grow at an average 1.1% over the next 5 years. At present Boston seems to be nearing a peak, however we are still well below historic peaks.

In Sum

After the downturn associated with the 2001-2002 Tech Market Crash, all three indicators have been positive and are projected to continue to grow for the next five years. The most important demand driver, employment growth, will grow more during the next five years than the previous twenty-five years[1]. As a result: (1) Net Absorption will be positive for the next five years, (2) Rent Inflation will be above CPI inflation and (3) Vacancy Rates will remain below the critical 5% level[2], indicating that Boston will remain a “landlord’s market”. (See Figure 1i.)

The Boston economy is recovering from a period of negative growth and economists do not foresee a decline in growth rates over the next ten years.

1.3.1 Demand Analysis by Product

The following section of the report considers four property types including retail, hotel, office, and multifamily for-rent, and draws conclusions about the best product for the site based on 1) the Boston economy, 2) permitted uses and regulatory requirements for the site, 3) suitability of uses based on specific attributes of the site, and 2) current supply of uses in the South Boston neighborhood.

Hotel

A preliminary hotel analysis using Torto-Wheaton data suggests the danger of oversupply because over 1,600 hotel rooms are currently in the pipeline for South Boston. Furthermore, the site has difficult ingress and egress issues, which make high traffic less appropriate.

Retail

The retail analysis indicates decreasing rates of rent inflation and only slight increases in net absorption. Although the Boston retail market is not saturated at present, the forecast over the next 5 years is not encouraging and projects an over supply to the metro area. Figures 1j and 1k illustrate the retail and employment trends. While the burgeoning South Boston neighborhood will need additional retail and services to compliment the growing residential community, the 505 Congress site does not provide an opportunity to develop significant retail because of parcel’s small size and difficult accessibility by car and foot. Limited, convenience retail could be successful on this site but not large scale retail.

Office

Although high Boston office vacancy rates and decreasing net absorptions coupled with increasing completions in 2007 onward suggest an uncertain long-term outlook, slowly increasing rents and decreasing vacancy show an improving market. (See Figure 1l.) The market continues to be saturated with completions from the late 1990s and this over-supply will maintain downward pressure on rents over the next 10 years, although rents and vacancy are both stabilizing. Despite the overall weak market, the site’s proximity to the new convention center and World Trade Center suggests an opportunity to meet unique, short-term office needs.

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Multifamily Residential

The multifamily housing market in Boston is well positioned for stability over the next 10 years. However, it is important to clearly identify a growing market segment as the customer base and create a niche product to further differentiate and ensure faster absorption within this market segment.

The following trends will impact the demand for multifamily housing in Boston (see Figure 1m):

• Vacancy rates are forecasted to increase from 4.2% to 4.9% in 2010. This is a minimal increase and well below the historic high of 5.5%.

• Rent inflation is projected to increase from 1.3% to 3.7% above inflation in 2010 – an attractive indicator for apartment development.

• Net absorption is forecasted to decrease significantly, but is coupled with a decrease in completion rates.

Data suggests that the for-sale condo market may have already peaked. Following a few years of increasing condo sales, the first nine months of 2005 saw a 12.3% decline in sales according to Listing Information Service, which tracks the Boston condo market. For comparison purposes, 2004 sales increased 32% from the prior year. Additionally, economists have argued that falling

sales are expected based on high prices, rising interest rates and falling consumer confidence about the economy and the value of real

estate.[3] Based on TWR's projections of increasing rents combined with a weakening for-sale condominium market, we have chosen to pursue a for-rent project.

In Sum

From an economic market perspective, the best use is multifamily for-rent. While it does not provide a strong growth-oriented outlook, the market will be stable enough for the next 5-10 years to support a small 117-unit development. Second, while office has not been a good investment in Boston in recent years, market indicators are stabilizing enough to warrant a small amount of on-demand office space on the first floor of the building, particularly given the site’s proximity to the convention center and neighboring hotels. In both markets (office and multifamily), product differentiation and conservative rental rates will be the key to maximizing the absorption rate.

|Product |Boston Market |Completions |Absorption |Vacancy |Rent |

|Retail |Not strong, | | |NA | |

| |declining | | | | |

|Hotel |Not strong, | |NA |NA |NA |

| |improving | | | | |

|Cultural/Civic |N/A | | | | |

|Residential |Stable, holding | | |No change in trend| |

| | | | | | |

1.3.2 Supply Analysis

The supply analysis includes several different levels of inquiry. The broadest level is the outlook for supply in the Boston MSA of residential units. Next, we looked at comparable projects based on a population with our target customer or a strong similarity in product type/location. Finally, we examined the immediate supply neighborhood.

Supply in the MSA

At the Boston MSA level residential development continues at a rapid pace. Cap rates for residential are 4.45% (Korpacz, 2005), indicating high demand for such projects. According to a November 18, 2005 Boston Globe article, Boston’s residential building boom today rivals the building spree of the 1980s. Compared to that period, today’s boom has equal or greater completions and three times the demand. The City’s planning department reported nearly 14,000 units in the pipeline for Boston, most of which are condominiums. The same article also noted that South Boston has the most units in development in the city, and the strongest demand is by young professionals 20-34 years old, which make up a 1/3 of the city’s population. Considering that the majority of projects are for-sale but the population with the highest demand also make up the most mobile workforce the US has ever seen, we believe ample opportunity exists to provide a for-rent project that is differentiated by virtue of its product-type.

Determining the status of the building cycle tells us where Boston is headed with respect to near-term multifamily supply. The completion data presented here is the most important factor in forecasting supply. According to Figure 1n, the Boston market will reach a construction peak in 2005. After the peak, the nominal estimates of completed units will decrease starting in 2006 to just slightly over 3,000 in 2010. The flattening of the completion rate shows that gross supply will tighten over the next five years, and also may indicate that the bottom of the building cycle will occur around 2010. However, absorption is also decreasing, which is a concern.

Comparable Projects

To utilize comparison projects for setting rents and design for our project, we first had to determine what makes a comparison project. We looked at projects that exist in areas from which we expect to draw renters—in other words, what types of products does our target customer currently occupy? Based on a study from Coldwell Banker and discussions with local real estate brokers, we identified Downtown Boston and Cambridge as key draw areas. We also looked at projects that were similar to our proposed project in product type and environment, such as developments along the waterfront in Quincy and Charlestown. We also looked at comparison projects for South Boston (discussed in next section).

Downtown Boston and Cambridge

According to data provided by Coldwell Banker residential brokerage services (40% of Massachusetts market share for residential sales), there have been over 2,921 inquiries for space in South Boston in the last quarter. Of these, 601 came from Boston (primarily Downtown) and 140 came from Cambridge. (See Figure 1o.) We verified the potential draw of South Boston from Downtown Boston and Cambridge through conversations with brokers, property managers of residential for-rent in these areas, and young professionals who work in Downtown Boston.

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In looking at Cambridge, we found that there is a considerable supply of rental properties due to the size of the student populations of MIT and Harvard. However, a relatively small proportion is 50-unit multifamily residential. We identified several recently opened properties in the University Park area of Cambridgeport which fit our comparison criteria including 91 Sidney, the Kennedy Biscuit Lofts, 100 Lansdowne, and Loft 23. (These projects are described in greater detail in the Table 1c.) Speaking with property managers for these projects revealed a growing interest by renters in the look and feel of finishes as opposed to common amenities on site, such as a “club room.” This new image for apartments is differentiated from the old fitness center/ pool/ carpeted units model by offering wood floors, granite counter tops, loft layouts, wireless café, and a rooftop lounge. This design would appeal more to our target market of Urban Achievers, Bohemian Mix, and Young Digerati[4] and will help differentiate the subject site in the market.

In looking at Downtown Boston, we found that there is a shortage of residential for rent, particularly in the Financial District. While conversion of office space to residential remains a popular trend, in nearly all cases the residential consists of condominiums. The few rental projects are billed as luxury, such as 1 Devonshire Place. Because there is such a low supply of for-rent product in Downtown, we looked at condos for-rent by their owners as a proxy for supply. A rough cut of all Downtown condos advertised for rent on (widely acknowledged to be the most popular tool for young professionals looking for apartments) for the first week of March 2006 resulted in similar figures to those found in our other comps. (See Table 1b.)

Comparison with Similar Products in the Market

Differentiation is not only important within South Boston – It is critical to ensure that our product stands out or meets a specific need within our projected five-mile radial draw. We have identified twelve projects for the purposes of comparative analysis, which are all within the 5-mile market area. We chose competitors based on the following:

• Location – all sites (except one) exist in neighborhoods similar to the South Boston waterfront area. These include the redeveloped Charlestown Navy Yards, the Quincy Marina, Revere Beach, and Dorchester Bay. The comparison sites are also located on or near waterfronts.

• They are all accessible to downtown via the local subway.

• We included one site on the waterfront in the North End to test the difference in value for a site not located in a semi-isolated location.

Details of the comparative assessment are included in Table 1c. Our observations from competitor sites are:

• Park Lane is the most direct competitor to the subject site, because it is only 3 blocks away and is a new building with water views. It is a mid to high-end project with 150 units currently for rent, and an additional 350 units under construction. The project has ground-floor retail space, currently planned for restaurants. Despite its “pioneering” risk, the 1st phase of the project was 40% leased in its first two months of operations.

• All sites had attractive landscaping and were clean.

• All sites offer some combination of the usual amenities including pool, laundry, dishwasher, carpet, parking, fitness center, sports.

• Most appear to be within a short walk to grocery stores and the train station.

• A number of comparison sites have unobstructed views of the waterfront and/ or skyline, and do not have the drawbacks of the vent/ exhaust building and tunnel adjacent to the site. This suggests that to remain competitive, rents will need to be set below those of sites like Park Lane to offset the negative aspects of the subject site.

The existing comparable sites present several challenges:

• Several sites, though minimally rehabbed, are somewhat outdated and do not directly compare to a newer site like Park Lane.

• Larger sites, such as Harbor Point with 1,200 units and Water’s Edge, are hard to compare because of differences in economies of scale.

• Several have views of waterfront and city skyline, and we anticipate that by comparison, when fully developed, other South Boston properties will block views for the subject site.

• The subject site, at approximately 117 units, is smaller than all comparable sites.

Further development of building design for the subject property will necessitate adjustments to the comparable rents to determine appropriate rent levels for the site, using Park Lane as a maximum threshold.

|CONDOMINIUMS FOR RENT  |

|South Boston |Rent/month |SF |Parking |Type |Other  |

|Gateway Terrace |$2600 |1000 |1 |new, luxury |"great light," central air, private laundry, gas heat |

| | | | | |included  |

|South Boston |$2100 | | |new, luxury |private laundry   |

|Seaport |$2100 | | | |  |

|Fort Pointe |$2500 |1509 |1 | |loft, concrete floors, fitness center, private laundry  |

|Downtown |Rent/month |SF |Parking |Type |Other |

|Financial District |$2245 | | |luxury |health club, swimming pool, heat included, granite counter |

| | | | | |tops |

|Downtown |$1800 | |1 |luxury |on-site laundry, parquet floors, 24-hr concierge  |

|Prudential |$1920 | |1 |luxury |laundry on floor, fitness center, 24-hr concierge  |

|Financial District |$2245 | |1 |luxury |heated indoor pool on 42nd floor , $400/parking space |

|Boston Common |$2420 | | |luxury |  |

|Financial District |$2425 | | | |  |

|Financial District |$1275 | | | |  |

|Financial District |$1630 | | |luxury |fitness center, pool, laundry, doormen, parking available  |

|Financial District |$2100 | |1 |luxury |fitness center, courtesy bicycles, concierge, $265/ parking |

| | | | | |space |

|Financial District |$1650 | | |luxury |bamboo floors  |

|  |

|  |Residential: 336 units |

|  |Retail: 554,000 SF |

|BRA Board Approved |

|  |Residential: 1,100 units |

|  |Hotel: 875 rooms |

|  |Cultural: 18,900 SF |

|  |Retail: 169,000 SF |

|Permitted |  |

|  |Residential: 320 units |

|  |Office: 840,000 SF |

|  |Retail: 1,100,000 SF |

|Under Construction |

|  |Residential: 858 units |

|  |Hotel: 790 rooms |

|  |Cultural: 65,000 SF |

A closer look at the residential inventory for South Boston indicates that we may be able to insert our project into the pipeline before saturation and after some pioneering projects have been completed to validate the area to our potential consumers and before oversaturation occurs. (See Table 1e.)

| |Residential (d.u.) |Office (sf) |

|Total |2,614 |2,425,000 |

|Under Review |336 |0 |

|BRA Board Approved |1,100 |1,585,000 |

|Permitted |320 |840,000 |

|Under Construction |858 |0 |

|*North of St. Vincent |

The vast majority of residential units in the pipeline are documented as for-sale. Because of anticipated changes in interest rates, we expect that some of these units may be converted to rental. It is also worth noting that most of the projects are described as high end or luxury units. Providing a mid-range project may provide another means of differentiation.

Conclusion: South Boston is the Boston neighborhood for new development and the time to get in is now.

1.4 Marketability & Target Demographic

Market Area Delineation

The 505 Congress Site is located in the South Boston Waterfront District. In delineating a market area, we used geographical, transportation infrastructure and demographic criteria. Our rough market area delineation appears below:

Because the site abuts Downtown Boston and generally consists of high-density urban infill structures, the target customer should place high value on living in proximity to employment, cultural and civic centers. Additionally, the target customer will be indifferent or prefer city living. Identification of this segment will simply rely on the consumer’s past behavior: those who have chosen to live in high-density areas with close proximity to the downtown will likely continue to do so in the near future. Generally, the five-mile radius shown in Figure 1r includes higher density communities.

We assume our target segment places high value on convenience of location given their willingness to pay higher costs to live downtown, and thus the transportation infrastructure and proximity will further pinpoint our market area. Based on the average commute time of 27 minutes[5] (U.S. Census 2002) in the Boston Metropolitan Area, we have selected a conservative 20-minute drive time as the outer limit of our market area since our urban-oriented customers will value proximity more than the average commuter. This 20-minute limit also coincides with the extent of the Boston subway system, another common mode for city-dwellers. This further reinforces the validity of our selected five-mile radius.

Target Users

Demographically, the five-mile radius primarily consists of many market segments, as defined by Claritas, a provider of marketing-relevant demographic data.[6] Of these, three groups emerge as target consumers for our project. Those groups are:

• Urban Achievers (19.74% of the population)

“Concentrated in the nation’s port cities…These young singles and couples are typically college-educated and ethnically diverse.”

• Bohemian Mix (18.68%)

“A collection of young, mobile urbanites…In their funky rowhouses and apartments, Bohemian Mixers are the early adopters who are quick to check out the latest movie, nightclub, laptop and microbrew.”

• Young Digerati (13.16%).

“Young Digerati are the nation’s tech-savvy singles and couples living in fashionable neighborhoods on the urban fringe.”

While different in subtle ways, these groups are all generally young, educated, employed in service-based jobs, ethnically mixed and more affluent than average - the ideal segment for our proposed multi-family urban development.

We believe many within these groups would also respond preferentially to a ‘green’ development. Based on observations from developers, including that of what is expected to be Boston’s first silver-rated LEED residential project indicate a growing interest by this demographic in ‘green’ buildings as a lifestyle trend.[7] Additionally, the City of Boston is considering a program that would give existing homeowners the opportunity to brand their home with window decals or other City-produced materials if their home meets City guidelines for energy efficiency and/or green living. The theory behind this program is that renters and buyers will prefer energy efficient/green homes, all else equal.[8]

The site is in the ideal location to provide proximity to the largest employment segment, service jobs, predominantly located in the Financial District. It is also ideally located within an urban environment but within a block of an incredible natural resource: the waterfront.

The demographic within the five-mile radius indicates the largest proportion of jobs in services[9], with significant portions of jobs also in the retail trade, the finance/insurance/real estate sectors, and the government sector. (See Figure 1s.) Using data from 2004, the graph below shows that service-based jobs, combined with financial, insurance and real estate account for nearly 75% of total employment in the five-mile radius area.

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Nearly half of the population earns over $45,000, likely attributable to the high concentration of service sector jobs. (See Figure 1t.) Based on the census data that suggests that households typically spend 20-30% of gross salary on rents, our target market will consist of households earning $65,000 - $125,000 per year. We believe that individuals earning more than this will seek higher-end residences. While those earning below $45,000 a year comprise more than 50% of the surrounding population, nearly 40% of the households earn $45,000 to $125,000, indicating that our target demographic, in terms of income, is well represented in the five-mile radius surrounding the site.

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Our aim is to target the niche market of environmentally aware urban professionals who are willing to pay a premium for residing in a green ‘showcase’ building with superior indoor air-quality and energy efficient systems. We see several benefits to the consumers:

1. Lower utility bills due to efficient design and mechanical systems.

2. Better quality of life due to controlled natural air quality improvements and natural light

3. ‘Conscience’ appeal to consumers who want to play their part in conserving natural resources.

4. ‘Premium’ appeal to consumers who wish to reside in a ‘land-mark’ project.

We think the location for such a project is particularly strong because it capitalizes on the dichotomy of urban amenities and natural comforts desired by this niche consumer. The site is close to the central business district, but also to the waterfront, and is an up-and-coming urban neighborhood, but within a ‘green’ project that brings a sense of the organic to indoor life.

In addition to the residential program, we intend to leverage the ideal location and high value of the ground floor by incorporating an ‘office on-demand’ concept. Demand for fully furnished offices with complete a/v facilities, conference rooms and secretarial services will come from proximity to the CBD. World Trade Center (WTC) and convention center. These offices spaces are usually leased for short periods of time. Typical users range from conference business visitors, incubation companies and project offices for temporary business in Boston. We plan to lease the space to an operator such as Regus who specializes in the ‘office on-demand’ business.

Strengths & weaknesses of project & market-based risk

Strengths

• Political support for development: Mayor Menino, Save the Harbor/Save the Bay, the BRA, and many others have been actively planning for the development of the area since 1998.

• A critical mass of development has been permitted.

• Site is within one block to the waterfront.

• Site has excellent access to airport and major commute routes.

• Site is within walking distance to the Financial District.

• Site is within walking distance of several MBTA stops which stop at South Station and Rowes Wharf within a ten minute ride.

• Site is level.

Weaknesses

• Development projects are still in the pioneering stage – some of the permitted projects may not commence construction for years yet.

• Site is surrounded by high speed, noisy traffic.

• Site is adjacent to a hulking structure that ventilates underground tunnels.

• Neighborhood is not yet proven.

• Staging construction could be challenging logistically.

Market-based risk

• Condo market holds steady or improves

• Massachusetts continues to lose population; target group exodus

• Projects like Northpointe on the edge of Somerville, Cambridge, and Boston, siphon off potential demand before the site’s neighborhood reaches sustainable activity levels.

In Sum

Demand for multi-family housing generally increases with population growth, personal income growth and most importantly employment growth. Based on the data shown in the preceding section, multi-family development remains very attractive for this area. Boston, and more precisely the five-mile radius around 505 Congress Street, continues to provide significant opportunities for multi-family development projects.

1.5 Highest & Best Use

Given the market analysis and what is planned for the area, we feel that our strongest opportunity is for-rent residential. This product is also best supported by our site constraints and opportunities, discussed in the site analysis section. Another opportunity for differentiation from other product in the area, and a counterbalance to the “grittiness” of the neighborhood, would be the creation of the first LEED-certified project in the area.

Second, we see a potential to leverage the strategic location of the site by providing an ‘office on-demand’. The ‘office on demand’ concept provides fully furnished offices with complete a/v facilities, conference rooms and secretarial services, which can be rented on a daily or monthly basis, with the following potential clients:

• ‘Incubation companies’ requiring flexible Class A office space without the long-term commitment of traditional leases and the high up-front costs of furniture, fixtures and equipment.

• Business visitors to the Convention Center who require scaled conference facilities and access to secretarial services catering to their need to present/interact with newly developed business associates.

• Consultants visiting Boston on a project basis and requiring fully functional office space and secretarial services. Space will be leased for the tenure of the project (often more than a month).

• Residents of our apartment (or surrounding) who can work from home and yet require the focused environment and facilities of an office.

After discussions with operators in this business we have found that there is sufficient demand, and our site is an attractive location due to proximity to both the central business district, the convention center and WTC. We would lease the space to an operator such as Regus who specializes in the ‘office on-demand’ business, though the use of a long term lease paying market rents.

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[1] Torto Wheaton Research

[2] Ibid.

[3] Comments by economics professor Karl Case of Wellesley College.



[4] These segments were drawn from Claritas demographic data and have common characteristics, such as being young, educated, tech-savvy urbanites. A detailed description is provided in the section titled Marketability & Target Demographics.

[5] R04T160.htm 

[6] Claritas report produced using Claritas iXpress based on 2004 data, the most recent available. More info:

[7] Timothy Pappas, presentation at Center for Real Estate December 2005 on the Mcallen Building – 148 residential condos.

[8] Mayor Menino’s Green Task Force, Executive Summary, December 2004

[9] Claritas report produced using Claritas iXpress based on 2004 data. More info:

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Figure 1f: Vacancy Comparisons

Data Source: Torto Wheaton Research Fall 2005

Personal Income

• Growth began to increase in 2002, but was still below US average.

• Personal income in Boston was severely affected by the recession, due to its reliance on business services and technology industries, but is showing marked improvement since 2002.

Population (mil.)*

Total Employment (mil.)*

Per Capita Income ($000)

Vacancy Rate (%)**

Rent ($/unit)**

*Data 2003 Census

** Data 2005 Apartments Various sources

Seattle

Figure 1d: Employment Comparisons

Figure 1a: Boston & Comparable MSA’s

Figure 6: Vacancy Rates Comparison

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Figure 1e: Personal Income Comparisons

Boston

San Francisco

2004 2007 2010

Employment (1000) 2,896 2,995 3,079

Personal Income ($ bil.) 256.8 269.9 282.6

Total Inventory (units)* 410,107 426,125 435,582

Completions (units)* 4,002 4,273 3,029

Vacancy Rate (%) * 4.9% 4.7% 4.9%

Net Absorption (Units)* 6,745 3,921 2,524

Rent Inflation (%)* -2.2% 3.4% 3.7%

*For multifamily properties only

Figure 9: Projected Growth in Demand Drivers for Boston

Data Source: Torto Wheaton Research Fall 2005

Figure 1g: Comparison of Demand Drivers

Data Source: Torto Wheaton Research Fall 2005

Figure 1h: Comparison of Demand Drivers

Source: , Torto Wheaton Research Fall 2005

Figure 1b: Population Trends in Comparison

Figure 1c: Employment Comparisons

Data Sources: US Census 2000 and Bureau of Economic Analysis

Figure 1j: Retail Completion and Net Absorption

Data Source: Torto Wheaton Research Fall 2005

Figure 1k: Retail Employment and Rent

Data Source: Torto Wheaton Research Fall 2005

•

Figure 1l: Office Trends

Data Source: Torto Wheaton Research Fall 2005

Figure 1m: Multi-Family Trends

Data Source: Torto Wheaton Research, Falll 2005

Table 1a: Summary of Market Favorability by Sector

San Francisco

4.16

2.69

46.96

6.9%

$ 1341

Table 1e: South Boston Residential Projects

Source: Boston Redevelopment Authority Fall 2005

3.14

2.01

38.01

10.8%

$ 808

Table 1d: South Boston Projects (north of St. Vincent)

Figure 1t: Household Income Statistics within 5-mile radius of site

Data Source: Claritas 2005

Figure 1s: Employment Statistics within 5-mile radius of site

Data Source: Claritas 2005

Figure 1r: Target Market Area (5-mile radius; transit lines shown)

Data Source: Google Earth,

Figure 1q: Projected Haborfront Development

Source: Meredith & Grew Marketing Flyer

Note: Subject site is #1 in figure

Figure 1p: Existing Conditions

Source: Meredith & Grew flyer

Table 1c: Multifamily Comparisons

Source: search for 1 bedroom apartments in South Boston and Downtown Boston for March 1-6, 2006 

Figure 1i: Comparison of Demand Drivers

Source: , Torto Wheaton Research Fall 2005

Table 1b: Condominiums For Rent - Comparison

Figure 1o: Location of Potential Buyers

Data Source: Coldwell Banker Residential Brokerage, “New England Moves,” February 2006

Figure 1n: Boston Multifamily Forecast

Data Source: Torto Wheaton Research Fall 2005

4.43

2.97

43.14

6%

$ 1282

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