By Greg Ryan
One year ago almost to the day, the Nissenbaum family was on the brink of becoming $150 million richer. Things did not go as planned.
For much of 2022, the Nissenbaums had a tentative deal in place to sell their car-parts junkyard near Somerville’s Union Square to the real estate developers building the massive Boynton Yards property next door. The four-acre site had been in the family for over a century, but all around it, life sciences labs were starting to sprout. The brothers running the operation, Joseph and Allen, are in their 80s. They decided the timing — and money — was right.
But with interest rates spiking and the lab market softening, the developers pulled out of the agreement days before it was supposed to be finalized, Allen Nissenbaum said. Now, at 80 years old, Allen comes to the now-shuttered scrapyard at 6 a.m. to take $20 from the construction workers who park on the property.
“When people complain, I tell them, that’s less than a dollar an hour! There are 24 hours in a day!” Nissenbaum said with a laugh.
Inopportune time for a slump
Those construction workers are building a nine-story lab building across Columbia Street from Nissenbaum’s. No tenants have been announced so far.
The falloff in lab demand is hitting real estate firms and property owners across Greater Boston, but the dip comes at a particularly inopportune time for Somerville. Developers burst into the city in recent years to build lab space for the many biotechs priced out of Kendall Square and Cambridge. Somerville has key things that other cities and towns craving life sciences tenants do not: It’s close to Kendall, and it has the T, including the brand-new Green Line extension.
As a result, there is 1.2 million square feet of lab space now in the city and another 2 million square feet under construction, according to Hunneman data. But given the industry slowdown, completed purpose-built space has a vacancy just under 50%, Colliers research director Jeffrey Myers said. Several major projects — including at least three in Union Square and another two in Assembly Square — are scheduled to be ready in the next year or so but have not yet named any tenants.
Fundraising by biotech startups, meanwhile, remains stuck in a slump.
“Let’s just do the math game,” Myers said. “If we say there won’t be any absorption, the worst-case scenario could end up with an occupancy rate in the low teens.”
The fundamentals for the Somerville lab market have not changed, Myers and other experts say. When leasing activity picks up, the city is well-positioned to attract tenants, given all of the new projects built by well-known developers. It’s a matter of how long it will take for that moment to arrive, and how much pain landlords will feel in the meantime.
Fast rising, slow leasing
DLJ Real Estate Capital Partners and Leggat McCall Properties are as invested in Somerville as any real estate firm. The duo are jointly developing Boynton Yards, a massive mixed-use development in Union Square. They backed away from the Nissenbaum deal after “capital markets got tight very quickly,” DLJ principal John Fenton said.
“The biotech market has been in expansion mode for over 15 years, and there had to be a change at some point,” he said. “It came rather abruptly, with the Russian invasion of Ukraine and interest rates popping and a recession looming.”
Boynton Yards is home to Somerville’s biggest life sciences success story to date: the nearly 300,000-square-foot complex at 101 South St. that opened in 2021, which is fully leased to companies backed by Flagship Pioneering. The developers are building an even larger tower next door, at 808 Windsor St. That building’s core and shell should be finished by early spring, Fenton said, but it has not yet announced any tenants. A third project, a 400,000-square-foot building at 89 South St., is lined up to begin construction in the future.
“We have the long view on this,” he said. “We’re well-capitalized and prepared to see this through.”
The first lab building in the other Union Square mega-development, USQ, is even further along in construction than 808 Windsor. The building’s base is being completed now, and two floors of “spec” suites are being built out, according to a spokesperson for development group USQ, but at this point she could say only that USQ is “in leasing conversations with prospective tenants.”
Boynton Gateway, the 336,000-square-foot project from CV Properties and Cannon Hill Capital Partners that Nissenbaum’s parking customers are building, is set to be delivered for occupancy in the summer or early fall.
The teams behind the three Union Square projects could not have been happy when the MBTA revealed last month that the tracks on the just-opened Green Line extension were too narrow and would need to be overhauled.
“Everyone knows it’s very important and it has to be fixed, and I’m sure it will be fixed,” Fenton said.
Two other projects that are well underway in Assembly Square are off a more established T stop — the Orange Line’s Assembly station, nearly a decade old — but similarly have not named any tenants. The core and shell for the first phase of life sciences development stalwart BioMed Realty’s Assembly Innovation Park is supposed to be ready in the spring or early summer, while lab newbie Greystar’s 74M is expected to deliver next spring. Combined, the two projects are nearly 1 million square feet.
The waiting game
At Somerville City Hall, officials are in “constant communication” with developers, according to Rachel Nadkarni, Somerville’s economic development director. The city is seeking to be responsive to developers’ zoning, infrastructure and other needs, she said. Nadkarni pointed out the Ultragenics recently moved into North River Leerink’s 100 Chestnut, where it has taken roughly a fifth of the new building’s space.
“We’re confident the spaces that are built and that are opening will be filled,” Nadkarni said. “It may take a little longer than it would have a few years ago.”
Somerville is certainly not alone in waiting for its lab developments to find tenants. Across the region, vacancy is at 11.7% and projected to keep increasing, according to Colliers research. Cambridge, Boston and the suburbs are all seeing record amounts of sublease availability. Projects like BioMed’s conversion of the former John Hancock building in Boston’s Seaport District have not named any tenants.
Somerville does have a cluster of clean energy and climatetech companies, which have been leasing some of the space designed for life sciences companies locally, given their similar real estate needs. That industry is not nearly as large locally as life sciences, however, and the needs of some of the companies may not align with the space coming online.
If life sciences leasing does pick up, there are another 2 million square feet of labs that have been proposed in Somerville, according to Hunneman data. Developers are pursuing projects not only in and near Union Square, but untapped locales like Davis Square.
Allen Nissenbaum said he still has occasional conversations with prospective buyers of his family’s junkyard. DLJ’s Fenton told the Business Journal it’s possible his team could one day make another offer on the land.
“Whoever comes along at the right price,” Nissenbaum said. “We’re not like McDonald’s. We don’t need 1 million customers. We need one buyer.”