Worcester Business Journal

26 Worcester Business Journal | December 23, 2024 | wbjournal.com ECONOMIC FORECAST 2023 Housing Weathering the perfect storm BY ERIC CASEY WBJ Managing Editor A t the beginning of the decade, it was reasonable to think Worcester may be heading down a path to slowly build itself out of its housing crunch. A number of prominent parcels had become available to potential multi-fam- ily construction, leaving developers with more options to choose from. With a growing population and the lowest lend- ing rates seen in some time, Worcester seemed ripe for a full-throttle residential housing boom, with developers lining up to get in on the action. en, the prevailing winds of the mar- ket shied dramatically. A three-headed monster in the form of difficulties raising capital, larger construction costs, and higher labor expenses struck, interfering Worcester's once-robust slate of multifamily development proposals was hit hard in the last year, but a handful of projects were able to break through with planned developments in the city. is has brought a consistent trend of developers going back to City of Worcester government officials seeking extensions for permits. Other residential projects have been canceled altogether. "ere were problems that we were having with the supply chain, and for a little while there were some problems with the banking system," said Joshua Lee Smith, a partner at Worcester law firm Bowditch & Dewey, who represents a number of these projects. "It all kind of went into a very perfect storm." However, it hasn't been doom and gloom for every project. While some have languished, others ranging from affordable projects to luxury buildings have gotten over the finish line. Capital access played a role, as did timing. Some of Worcester's proposed housing projects falling by the wayside isn't help- ing the region's housing crisis, where a lack of available housing is causing prices to climb and housing costs are taking up a larger portion of residents' incomes. While the city has seen more than 1,300 residential units added to its inventory since 2019, rents continue to increase. e average asking rent in the city is $1,950, which is 12.2% higher than the national average of $1,726 and a figure which has grown 21.2% since 2020, ac- cording to real estate data firm CoStar. CoStar projects the average asking rent in Worcester to eclipse $2,000 in 2025. Biding for time Speaking at a Worcester Regional Chamber of Commerce event in Novem- ber, Smith said the amount of extensions he's seeing requested by developers for projects is growing to record numbers. "I've been a land-use attorney with Bowditch for about 20 years, and I've never had a period [like] the last two- plus years we're I've had to submit [this many] requests for extensions of permits on behalf of clients," Smith said. "Devel- opers are having trouble penciling out projects." Smith later told WBJ the flood of delayed multi-family projects wasn't lim- ited to just Worcester, but was boosted by the fact some were rushing to have their projects submitted before the City of Worcester's new inclusionary zoning rules went into effect. By doing so, they avoided the require- ment that projects either reserve a por- tion of the building's units for affordable housing or pay a percentage of the total construction costs to the City's Afford- able Housing Trust Fund. Since this rush to submit, the financial environment for multi-family projects has changed dramatically. Developers requesting extensions have consistently cited the same reasons: Dif- ficulties accessing capital due to inflation and interest rates, the instability of the banking system, and an overall slow- down in commercial real estate. ese issues have been persistent, and with some exceptions, have largely driven down new multi-family construction nationally. In the Worcester metropolitan area, apartment units under construction peaked at 1,516 in the third quarter of 2023, falling to 551 so far in the last quar- ter of 2024, according to CoStar. Delays and cancellations e number of total residential units in Worcester proposed since 2019 but not yet built eclipses 600, while at least 825 units have been outright canceled. Hopes for more residences on Shrews- bury Street in particular have been hurt by the cancellation of two projects set to be led by Auburn-based Lundgren Equity Partners, which saw a combined 305 units axed. It doesn't just come down to the devel- oper, as some firms have success getting one project over the finish line only to see others delayed. Perhaps the most prominent example of a developer with a mixed record of success is Boston-based Madison Proper- ties, the developer behind e Reving- ton, a 228-unit building in the Canal District, across the street from the Polar Park baseball stadium. e Revington has had some success PHOTO | EDD COTE District 120, a 83-unit affordable housing project built in the shadow of the Polar Park stadium, held its ribbon cutting in July. PHOTO | ERIC CASEY One of the area's most prominent land-use attorneys, Joshua Lee Smith of Worcester's Bowditch & Dewey has a front row seat to developer's struggles in getting multi- family projects completed.

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