Identification and Acquisition of Development Property
Since Cambridge and Somerville are both dense urban environments, most development opportunities are condo conversions, adaptive reuse, and renovations. Residential lot sizes are small relative to nearby suburban towns and zoning often does not allow for expansion. Demolition of functionally obsolete properties is often not an option, since zoning sometimes does not allow for rebuilding at the existing living area. Some neighborhoods and properties are designated historic which restrict demolition and/or exterior alterations.
Types of Development Property in Cambridge and Somerville
Most development opportunities consist of the following categories:
Single Family Homes
The number of single family homes in Cambridge and Somerville is small relative to condos and multifamily homes. Demand for single family homes by end users is high but there are few that are profitable development opportunities. Also, developers also have to compete with end user purchasers.
Two and Three Family Homes
This property type is common throughout many neighborhoods in Cambridge and Somerville. Thousands of formerly owner occupied or tenant occupied two and three family homes have been converted to condominiums in the past 20 years. Condo conversion of two and three family homes can be profitable.
There are a wide variety of apartment buildings in Cambridge and Somerville, ranging from four units on up. After the end of Cambridge rent control in 1995 many apartment buildings were converted to condominiums. Apartment buildings are in demand by income investors and developers and inventory is low. Most apartment buildings that are put on the market in Cambridge and Somerville attract multiple offers. Apartment building are usually more complex than two and three family homes thus requiring a lengthier and more expensive renovation process.
Commercial and Industrial Properties
The highest and best use of property in many neighborhoods in Cambridge and Somerville is often residential. Properties such as manufacturing, car repair and gas stations, warehouses, schools, police stations and churches have been converted to residential use. The buildings are either demolished or renovated. The amount of planning and capital outlay are often higher for this type of development.
Criteria for Development Properties
The number one criteria for a successful development is a location that is in demand by buyers. Most buyers in Cambridge and Somerville prefer to be within easy walking distance to a Red Line T (subway) stop. Buyers also prefer to be able to walk to shopping, restaurants, coffee shops, and parks. The website Walkscore.com rates locations on a scale of 0 -100 based on the location's walkability. Most Cambridge and Somerville buyers are attracted to locations with a high Walkscore.
Zoning specifies the type of uses allowed, floor area ratio (ratio between the living area and lot size), building height, green space, parking, and setbacks. Development projects that need a variance or special permit to be profitable are riskier than projects than can be built by right.
To ensure profitability the project's value after development must cover all of the projects cost plus a profit. We help our developer clients to estimate resale value by looking at recent sales of comparable properties.
Lot Size and Character
Lot sizes in Cambridge and Somerville are small relative to suburban towns (3,000 - 5,000 square feet is typical for a single or multifamily home). Buyers of condos often share a back or side yard. Because of the density of neighborhoods, buyers desire some green space, trees, and some separation from neighbors. A neighboring home that is too close can make a property much more difficult to sell.
Most buyers prefer open living/dining/kitchen floor plans. For renovation projects, existing layouts that are easy to open up are preferable. Other buyer floor plan preferences includes master bedrooms with the bathroom en-suite, in-unit washer/dryer, children's bedrooms adjacent to parent's bedrooms, half bathrooms adjacent to the main living area, and bathrooms on every living level that has a bedroom.
Off street parking in Cambridge and Somerville is scarce and valuable. The majority of buyers of new construction or renovated homes demand off-street parking. Garage parking is the most desirable and valuable. Tandem parking (a parking layout where another unit owner's car blocks the driveway) is better than on street parking, but is less than ideal. If the location is very desirable (adjacent to Harvard Square, for example), buyers are willing to forgo off street parking.
Acquiring a Development Property
Supply of development property in Cambridge and Somerville is currently outstripped by demand. As a result many development opportunities attract multiple offers and acquisition costs are increasing. As property values have increased the inventory of bank owned and short sale properties has also greatly diminished. The good news is that although acquisition costs are higher resale values are also increasing.
To win in multiple offer scenarios developers are offering over asking price, and removing inspection and financing contingencies.
We help our clients to acquire development properties in the following ways:
- Identifying profitable opportunities.
- Previewing properties.
- Location advice.
- Analysis of market data.
- Developing resale proformas.
- Advice on offer price and terms.
- Negotiating price and terms.
- Transaction management.