Worcester Business Journal

10 Worcester Business Journal • August 3, 2015 www.wbjournal.com cover mortgage and other costs remains popular, said Tom Rhealt, a Realtor at Coldwell Banker who bought his Worcester triple decker in 2007. "They hold their value in a way that singles don't because you are making money from this. It is a real cash flow," he said. "It's a part of the fabric of the city and what it is known for." Adding to the popularity is that these buildings are often priced in the same range as single-family homes. According to Warren Group data, the median sale price of a single-family home in Worcester in 2014 was $182,250; the median for a three-family was $180,000. Bidding wars for some? Demand is strong for these unique housing options, according to Dave Stead, a Worcester real estate agent and regional vice president for the Massachusetts Association of Realtors. A property with a desirable location or condition will be snatched up within days of entering the market, he said, while those with both have recently resulted in bidding wars. Investor interest is so intense in Worcester, experts said, that it's outstrip- ping inventory and driving up prices. Warren Group data showed that the median price for single-family homes and condominiums in Worcester grew 6 and 18 percent, respectively, between 2010 and 2014, well below the 56 percent for three-family homes, since the Great Recession's nadir in 2009. Compounding the demand is that tri- ple deckers are no longer being built, said Warren and Stead. Between the high cost of complying with modern housing regulations and the ability to get a higher return on investment with larg- er apartment complexes, triple deckers are not a popular option among devel- opers. "The triple decker was a popular style in its day, but I don't see it being built. People who are thinking multifamily housing are thinking of doing bigger apartment complexes," Warren said. Even amid rising prices and lack of new construction, Worcester's triple deckers remain a solid investment, said Jimmy Kalogeropoulos, an agent for ReMax. Local investors specializing in these properties will buy one in any con- dition in any part of the city, confident that they will be able to rent it out after renovations. Often, these investors are aiming for the lowest-priced options to maximize their profits from rents. Drawing the college crowd More specifically, triple deckers locat- ed near college campuses command higher prices and attract investors will- ing to put more money into them, Kalogeropoulos said. Investors know they'll be able to get higher rents and a steady stream of renters. And, students will pay $1,500 a month for three- or four-bedroom apartments near campus, Kalogeropoulos said. While that's higher than elsewhere in the city, these prices are lower than on-campus housing costs. Kalogeropoulos has seen more inter- est from Boston investors recently, with the Boston and Middlesex County mar- kets tightening and becoming more expensive. Prices east of Worcester "have gotten so out of control they can't afford to do business anymore," Kalogeropoulos said. "That's going to be huge to (Worcester) in the next few years." The statistics indicate that all this demand is outstripping available inven- tory, according to Warren and Stead, with overall sales of triple deckers down through 2014. Along with a lack of new construction, most owners hold onto their triple deckers for years until they grow too old to maintain them or they tire of being landlords, Stead said. Rhealt has seen this himself, with both his father and grandfather having com- piled portfolios of triple deckers. He plans to follow in their footsteps. "I'll sell this when I'm 80. That's it. I will never get rid of it," said Rheault, who is in his early 30s. But this constrained stock is not a concern, Stead said, since it reflects the value of these properties. He predicts that the value of triple deckers will con- tinue to grow and demand will remain high. The continued increase in value might not be as steep as it has been since 2009, but prices will remain steady as demand continues. Kalogeropoulos feels the values will likely level off in the next five years, but that doesn't make these properties a bad investment. "Worcester is a great place to invest, but especially with multi-family houses," he said. "They are affordable and , depending on what you buy, you can get a quality building." n necessarily a feasible one. A life sciences industry veteran who now works to con- nect young companies with the resourc- es they need to grow, Norton said it's common to see a company run on grant funding for a decade and not progress much from its starting point. Often, the founders complain that venture capital and seed money to finance major milestones is hard to come by, Norton said. But in many cases, the business's product doesn't have what it takes to convince investors. "We can't break a thousand hearts tell- ing every single company that," Norton conceded. But what Norton does do is encourage startups to go big when it comes to rais- ing money. A common mistake of some of those companies, she said, is raising small amounts of cash that finance large company milestones, such as clinical tri- als. "When you raise money to achieve a milestone, you actually create value in your company, making it easier to raise the next (round of ) money," Norton said. Raising a large amount of private funds was a challenge that Worcester- based Grove Instruments Inc. struggled to meet. The MLSC had provided $750,000 through its Accelerator Loan Program, which provides working capi- tal for high-potential life sciences start- ups. But MLSC is now a creditor in Grove's Chapter 7 bankruptcy case, which it filed in April. MLSC spokesman Angus McQuilken said the agency was enticed to fund Grove because of the technology it was developing, a device that would have been the first non-invasive blood glu- cose monitor for diabetics. But in the end, McQuilken said Grove was unable to raise enough private money to bring the product to market. "Any time you are investing in early- stage companies, you do so knowing that some of them will fail, and that's the risk," McQuilken said, though he noted that the Accelerator program has a pret- ty good success rate: Just three of the 32 companies funded since 2009 have ceased operations, and eight have repaid their loans. 'Proof of concept' required For investors to take a company seri- ously, it must first reach some "proof of concept," such as pre-clinical or clinical data showing a drug's efficacy. Ashland-based Biosurfaces Inc. has reached that point by piecing together federal research funds over the last dozen years. Matthew Phaneuf, who co- founded the company with his wife, Tina, said there were maybe one or two times since launching Biosurfaces when everything was running smoothly; keeping the cash coming in is always in the back of Phaneuf 's mind. Ready for bigger fish But now, Biosurfaces is ready to seek venture funding to bring to market its biomedical device, a grafting product meant to mimic the body's own cell scaf- folding for use in artificial arteries that are for patients who need hemodialysis for end-stage kidney disease. Venture funding would finance clinical trials, which Phaneuf hopes will begin next year. He's also working with a major medical device company, whose identity he asked not be revealed, that's interested in using Biosurfaces' technology in prod- ucts such as sutures. Such a partnership could also potentially fund clinical trials. Meanwhile, the Phaneufs hired Eugene Anton to lead Biosurfaces' first spinoff, NuVascular Technologies. Anton is funding NuVascular, the com- mercial company for the grafting prod- uct, called the NuSpun Access Graft. Finding someone like Anton, who has a venture capital background in the bio- tech space, to run the company was a stroke of luck, Phaneuf said. "They're hard to come by," Anton said. "You need to find that you click; you have the same goals." Anton said he was drawn in by the novelty of Biosurfaces' technology and the potential to help people. The growing pains for life sciences startups >> Continued from Page 1 Sales of triple deckers surge >> Continued on next page >> Continued from Page 1 Tom Rhealt, standing in front of his triple decker in Worcester, wants to build a portfolio of them. P H O T O / M A T T V O L P I N I Triple deckers gain in value The median sale price of a three-family home in Worcester and Middlesex counties soared more than 50 percent from 2009 to 2014. 2009 2010 2011 2012 2013 2014 WORCESTER COUNTY Number of sales 390 392 342 342 271 289 Median sale price $118,500 $133,750 $130,000 $136,505 $170,100 $180,000 MIDDLESEX COUNTY Number of sales 268 289 277 325 315 330 Median sale price $340,000 $400,000 $415,000 $440,000 $457,500 $529,500 Source: The Warren Group

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