Frank Petz says Boston is a rapidly changing city. As a managing director for the commercial real estate firm Jones Lang LaSalle in Boston, he is in constant contact with the companies and individuals driving that change. Petz sat down with Globe reporter Casey Ross recently to discuss the city’s resurgent real estate market.
How is Boston doing compared to other cities as far as attracting real estate investment?
Boston is at the top of every investor’s list. It’s one of the top two or three markets in the country and it’s attracting every type of investor, whether they be high net worth individuals, pension funds, or [real estate investment trusts]. And it’s not only domestic capital. We’re seeing a large increase in the amount of international interest.
Why has Boston become so popular?
Boston really is hitting on all cylinders. They like our diversified economy, with the kind of cornerstones of financial, health care, technology, and education.
There are a lot of apartments under construction in Boston. Why the sudden rush to build rentals?
The number of 25- to 45-year-olds living in the suburbs has declined precipitously over the last three years, while the number moving into the city has increased. So the housing being built is primarily to serve that segment of the population. In Boston alone, over 7,500 units are under construction or getting ready to start.
With so many units being built, could we end up with an overbuilt apartment market?
There is always a risk of overbuilding, but there are plenty of factors that justify the amount of development activity. There is strong demand with all the people moving into the city. There is also a lack of supply. Boston just hasn’t built much of this product over the last 20 years.
How has Boston’s commercial market changed during that same time frame?
Boston has moved away from being a large corporate headquarters town. There’s a much greater mix of industries. It used to be primarily financial services and legal, but now we’re seeing technology, health care, advertising, and consulting. It’s more midsized companies that are really driving the economy today.
What’s behind the migration to cities?
In the last two to three years, it’s really accelerated. It’s a combination of not only people wanting to live here, but businesses wanting to be here as well. Employers are recognizing the benefit of being close to their workers and locating where you can provide a live, work, play environment. Kendall Square in Cambridge was a perfect starting point for this. That concept has also shifted to the Seaport District, where there’s an innovation theme. It’s really created a place where people say, “That’s where we want to be.”
We know the residential sales market is improving. What about commercial properties?
The commercial market still hasn’t rebounded to the activity levels of 2006 and 2007, which were peak years. But the pricing level is starting to approach that. Part of the reason why the market isn’t as active is because people see a lot more upside in their investments in Boston, so they haven’t been trading as much. Another reason is that the Boston financing market is strong, so refinancing is an option. Those factors are now being balanced by the fact that pricing is achieving very enticing levels for owners to consider selling. So in 2013 we may see an increase in activity on the commercial side.
We’ve just been through the worst economic downturn since the Great Depression. How has that changed your business, and are any of those changes permanent?
First of all, the lending industry is no longer as aggressive and willing to take the risks that they were during the peak years of ’05 through ’08. And that relates to a number of things, both the risks they’re willing to take in the properties, as well the amount they are willing to lend on any particular property. We’re also seeing investors buy assets without debt because they are saying to themselves, “You know what, I’m not taking any risk on the financial engineering. I just want a pure return.”