When Bulfinch Companies made its $57.5 million purchase of the former Muzi properties at 557 Highland Ave. in December 2021, the commercial real estate and life science sectors were far friendlier environments than they are now.

While some people saw life sciences as a bubble waiting to burst, the succession of blows to both sectors has been relentless. Projects have been delayed or canceled and multiple life science companies have shuttered. 

As a result, Bulfinch President Robert Schlager said the “What’s going to be built at the Muzi site?” question is a long way from having an answer.
“We don’t expect anything materially aggressive in terms of construction or advertising,” he said back in April. “We’ll sit back and wait to see how the market reacts to what’s happening with all the vacant space, the increase in interest rates and what appears to, unfortunately, be some defections from companies.
“We’re probably going to announce a leasing broker in the next 90 days or so, but that’s about it,” he said. “The honest answer is we don’t have any prospective tenants. When we began permitting the project it was a different environment than what exists today.”
Strong headwinds
The scenario was indeed much different 18 months ago. Recalling that period, Greg Reibman,  president and CEO of the Charles River Regional Chamber, believed the four Chamber communities — Needham, Newton, Watertown and Wellesley — were in a position to be a vital center of life science activity.
Reibman pointed to projects planned in all four communities that were at various stages of development and attractive to life science firms seeking alternatives to Cambridge and Boston. Then the hits just kept on coming. 
Not all of the headwinds are specific to the commercial real estate and life science worlds, however. The most significant barriers, in fact, are more macroeconomic as rising interest rates and a shaky banking sector have combined to create a frozen construction lending environment.
The prime interest rate that had been at 3% in late 2021 is now hovering around 8%. “The banking sector is a mess and nobody really knows where that’s going to go,” said Reibman. “Money was cheap for a long time; money is expensive now.”
Added to that are wide-scale problems and increased costs in the construction market that date back to the onset of the COVID-19 pandemic. There is still, for example, a “dumpster fire of a supply chain” according to a Boston Globe report on the construction environment. 
The situation within the life science segment is similarly challenging. According to a May 1 Boston Business Journal report, there have been 10 Massachusetts life science shutdowns in the past year, including in Wellesley and Watertown. 
And there’s the lingering COVID impact of more people working from home and the seemingly very slow rate of workers returning to offices.
Locally, the Needham project faced an eight-month special permit review process that involved multiple community meetings between Bulfinch and residents, as well as four public hearings before the permit was issued in December 2022.
Market to drive decisions
Somehow, this confluence of undesirable factors does not seem to have dampened Schlager’s enthusiasm for his 10 acres and 465,00 square feet of space at 557 Highland.
“The world market will dictate what the next demand is predicated on,” he said when asked where potential tenants may come from. “If somebody comes up with a new advancement, then hopefully we’d be in the forefront for where that R&D will take place. Somebody would come to us and  say, ‘We need a facility with X amount of square feet. We want to be in Needham.’”
Schlager obviously knows Needham, given Bulfinch owns and operates multiple commercial mixed-use properties in the town. The town’s positive attributes as a commercial location are still considerable.  The pitch, he said, remains the same: “There’s access to Boston. Great roads. Great schools. Come to Needham.” 
The approved permit for the project is clear that the site is not and never has been intended exclusively as a life science property.
“We never represented that the site would be straight life science,” he said. “ We proffered it as an office, R&D and life science type of development. That doesn’t mean it’s 100% life science, or 100% office, or 100% R&D.”
Housing, possibly in a mixed-use development, is one of the allowed uses should Bulfinch pivot to an alternative plan. While he doesn’t rule it out, Schlager does see housing as a problematic route.
“It becomes complex to create housing on that site,” he explained. “First, there are limitations on what can be built there environmentally, limitations on Needham school systems, issues on capacities associated with effluent flows.”
Schlager also noted that there are other complexities in terms of roads, the number of vehicles that would be coming in and out, and the number of single-occupancy vehicle trips on a daily basis.
“I’m not sure that an area abutting the highway is conducive to single-family residential development,” he said. “I’m not sure people would support the type of residential development in terms of condos or apartments at that location.”
The market, he said, will be his guide. “We try to be adaptable and provide the maximum return for our investors,” Schlager said. “If the right opportunity would surface, we’d certainly be in a position to pivot and we’d be prepared to pivot.”
It will help that Bulfinch is a substantial firm with a long history – more than $4 billion in assets, a nearly 90-year operating record and already a heavy presence in Needham commercial real estate. 
“It’s a tough time for everybody in the suburbs,” said the Chamber’s Reibman. “Part of it is overbuilding. Part of it is reluctance to invest in the (life sciences) sector. But it’s still a viable sector if one is able to be patient. And Schlager has been patient.”
Schalger seems confident that Bulfinch is better positioned than most to wait out the downturn and will be ready to move if and when the outlook brightens.
Is he right? Time will obviously tell. But Bulfinch hasn’t blinked while others have. Alexandria Real Estate Equities, for example, has dropped plans to convert its three-building Riverside Center office park at 275 Grove St. in Newton to labs and will put the property on the market.
Can Bulfinch wait it out? As Warren Buffett has famously said: “You never know who’s swimming naked until the tide goes out.”
For right now, Schlager seems confident that Bulfinch is well above the water line. 

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