NAIOP Leading Insights with Tom DeSimone, Part 1
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Marino, in partnership with NAIOP, recently spoke with past NAIOP Chairman and member Tom DeSimone, Partner at WS Development. In Part I of this two-part NAIOP Leading Insights, they discussed changes to the retail market both locally and nationally, the significant role Tom’s firm is playing in the Seaport Square development, and the strategy behind this market-changing development.
Tell me about the Seaport Square development. How has that process been and how has it evolved?
Seaport Square started with a complex land swap more than 10 years ago. At the time,
Rupert Murdoch, who is from London, owned the Los Angeles Dodgers. He sold the team to Frank McCourt and his partners, secured with a mortgage on the land here in Boston. Murdoch ultimately sold the land secured by the mortgage to Morgan Stanley and John Hynes.
Their initial vision was to master plan the whole site — about 6.5 million square feet on 24 acres. Since the plan was to build a vibrant community — not just a group of unrelated buildings — they knew they were going to need constant activity and foot traffic, giving a sense of place. Retail needed to be a big part of that.
Our company had a relationship with Morgan Stanley in Boston, and had done some work for one of their principals when he worked elsewhere years ago. This enabled us to secure a deal as the exclusive retail developer for every building they would construct as part of this Seaport project. Our arrangement also provided that for any parcels they would ultimately sell, we would have the right to develop the retail and help create a vibrant streetscape.
We were involved almost from the beginning, with the retail piece of the master plan between about 1 million and 1.5 million square feet.
Most of the buildings within the master plan include varying amount of retail, as little as 25,000 – 35,000 square feet up to as much as 250,000 square feet. The first two buildings we worked on — B and C, across from the court house — are actually being constructed as a joint venture between us and Berkshire Residential, though at completion each of us will own our respective pieces. Combined B and C include 250,000 square feet of retail on three levels.
Fast forward to about two years ago, and Morgan Stanley, which had been in the deal for about than a decade, decided they wanted to liquidate their remaining position due to the life of their investment fund. They had either sold or had done ventures on about half the land, with about half left. We bought their land position in the remaining 13 acres. Starting October 2015 we became the owner of all the land in addition to all of the retail in the blocks already under development.
We are still using the initial master plan, with modifications. We will likely increase the office portion from about a million square feet to over 2 million square feet to accommodate demand for the growth of Boston’s innovation economy.
Things have obviously been changing rapidly over the last few years in that area. How have you had to respond to what consumers, residents, and office workers want?
There’s already been a substantial amount of rental housing built, and while the master plan calls for more, we’re looking at whether that housing should be rental or condo and what the timing should be. We’re also looking at hotel opportunities.
Developing a 200,000-square-foot performing arts center had also been discussed, but this parcel is not viable or sustainable for that use. We’re looking at some alternatives that involve several smaller, more adaptable venues that the city would like to see developed.
What was your specific approach to retail? Since it is really such a massive development and one of the largest in Boston’s history, how did you approach that process?
We wanted to have a variety of store fronts along the street level so that people would feel like there’s activity and constant change as they walked along. For example, the movie theater is on the third level of building C, Equinox is on the third level of building B, and there’s a King’s Bowling on an upper level because we don’t want those large-space, square-footage users creating just a storefront that runs the whole sidewalk. We want little cafes and restaurants and other retailers that create a sense of place and diversity and activity.
At the same time, you’ve got thousands of people that are going to live there who need and want basic amenities, so we brought in a CVS, and are also focused on bringing in a grocery store. It’s about creating walkability and meeting the needs of the people that are going to live, work, and play there.
Right … there’s really not a lot of convenience yet.
Before Millennium came to Downtown Crossing, DTX had a problem. It was a Monday to Friday, 8 am to 5 pm place. But we’re trying to create a vibrant, 24/7 community at the Seaport both for people who live and work there but also to attract people from out of the area because it’s fun and experiential — getting an experience they can’t buy or experience online, and are motivated to get it, even if they have to travel a bit.
In terms of larger retail trends, not specific to just Boston or just this development…the market has been fluctuating across the US, particularly in regards to shopping malls, so how do you see the retail market shaking out over the next few years in terms of development trends and innovations?
As an organization we are also focused on how trends, demographics, and the economy are influencing consumer decisions, how we can best anticipate and understand that change, and how best to respond. We have two customer types — those who shop or patronize our centers, and our tenants. We are gathering as much knowledge as we can about what they want and need in order to formulate the bricks and mortar plan that will make us successful as a property owner.
For over 30 years, we have adjusted our strategy to meet the market. Currently we are focused on trying to stay on the forefront of the delivery systems that the retailers want in order to meet their customers’ needs.
Legacy Place in Dedham and Derby Street in Hingham are local examples of what we’ve done and where we’ve tried to create experiences for the customer. We’ve included a mix of apparel and standard shopping/retailer choices with experiences to be had, such as restaurants, movie theaters, bowling, health/wellness segments, and service-oriented retail businesses like hair and nail salons and spas. There’s also a new group of experiential tenants, for example companies like Muse Paint bar or Escape the Room.
The retailer experience continues to evolve but I think regional malls will continue to have their place, as long as it’s well located with the right anchors, in a Class-A mall, such as the Burlington Mall or the Mall at Chestnut Hill.
Meanwhile, we own Meadow Glen Mall, a small mall in Medford that at one point had two anchors — Marshall’s at one end, Kohl’s at the other. We recently de-malled it. We tore down the mall in the middle and now we have Dick’s and Wegmans and Petco about to open this fall. The bricks and mortar weren’t viable as a mall.
The B- and C-class malls most vulnerable are those without strong anchors, where the demographics have changed, or they face competing (non-mall) retail that are succeeding and disrupting their customer base. Those malls are going to get repurposed, whether it’s as a medical center, college, public building, or other use. Regional malls can work, but the fundamentals have to be there.
Continue to Part Two >