Slowdown Ties Up Boston Builders

The combination of Boston’s softening leasing market and the restrictive debt market will create high hurdles for office development through most of 2009. “A lot of (projects) may sit in limbo,” said Stephen Brodsky, senior vice president and head of Grubb & Ellis Co.’s Boston regional office.Few developers find themselves in Boston Properties Corp.’s fortunate position. The company is developing the $500 million Russia Wharf project on the Boston waterfront. Last spring, it signed Wellington Management Co. as a 15-year, 450,000-square-foot tenant to anchor the office component. And the pharmaceutical company Vertex Pharmaceuticals Inc. is continuing negotiations with The Fallon Co. to lease 500,000 square feet of an office building planned for Boston’s waterfront that would be part of Fallon’s $3 billion plans for Fan Pier.But most tenants will have little motivation to take space in newly constructed buildings when existing space is coming back to the market at good prices. Developers’ struggles present a silver lining in one respect: A dearth of new product will not be a factor in further diluting pricing.Meanwhile, plenty of developers plan to kick off ambitious projects once they receive city approval and the financial markets recover. The Druker Co. won approval in October from the Boston Redevelopment Authority for a $120 million office and retail project at 350 Boylston St. in the Back Bay. In early 2010, Midwood Management Corp. intends to start a 28-story mixed-use tower in Downtown Crossing, an aging retail district that the city is targeting for redevelopment. Plans for the $200 million project include 400,000 square feet of office space, 276 residential units and 49,000 square feet of retail space.A longer-term opportunity on the Boston waterfront may emerge from an unusual plan that the federal government disclosed in September. The Army Reserve and the General Services Administration want to arrange a swap, receiving construction services in exchange for 13 parcels that make up 8.1 acres near the Boston Convention Center and World Trade Center. The winning bidder would build an office and training facility for the Army Reserve at Fort Belvoir, Va., a suburb of Washington, D.C. GVA Williams, is marketing the Boston property, which includes a 620,000-square-foot office building, and suggested that it might be suitable for such uses as office, retail and life sciences.