Construction has now officially begun on the new Wynn Boston Harbor casino in Everett. And while the venue isn’t set to open until 2019, it is already having a material impact on commercial real estate in the area.
The $2.1 billion Wynn Boston Harbor resort, which will actually be on the Mystic River instead of Boston Harbor, will boast more than 600 hotel rooms, more than 4,500 gaming positions, and more than 100,000 SF of dining and retail space.
As part of the development process, the casino’s ownership group purchased a number of local properties and parcels which may have been “in the way” of the casino’s approval and future expansion.
According to Scott Gredler, a Senior Director at Cushman & Wakefield focusing on the Inner Suburbs, the casino’s decision to “overpay” for some of those properties has created a ripple effect which has distorted the local market somewhat.
“Many owners who sold properties to the casino have put it back into replacement properties,” he said. “Because they have the capital, some are choosing to overpay for their new property, while others are investing in an asset larger than their actual needs.”
He adds that asking rents at some properties have also trended up based on what owners perceive as greater demand coming from the casino.
How the casino will impact commercial property prices in Everett, Malden, and Chelsea remains to be seen. While there’s been very little academic research on the topic, some parallels can be drawn from casino developments elsewhere.
Comparisons with Other Markets Mixed
Foxwoods and Mohegan Sun may be familiar to many Boston residents, but Hartford-based Cushman & Wakefield Executive Director Jon Putnam says their relatively isolated locations don’t offer the best point of reference for a casino being built in a relatively urban area.
“In their heyday, the casinos started peripheral businesses, like shipbuilding for fast ferries to bring customers, broadcasting for internal capabilities and marketing, and they built a Native American Museum,” says Putnam. “There was speculation in land, but very little new development was generated unless the casinos built something on their own. Because of their remote locations in a quiet part of the state there was almost no impact on commercial real estate.”
He added that even retail properties which might theoretically benefit from added traffic to the area don’t see a boost because the resorts are designed to be self-contained, even operating their own gas stations.
Excluding Las Vegas from the discussion, some of the closest parallels can be seen in urban casino projects developed in Cincinnati, Cleveland, and St. Louis.
The Jack Cleveland Casino, formerly known as the Horseshoe Cleveland, opened in mid-2012 in Downtown Cleveland. To this point, it hasn’t made a noticeable impact on rental rates, according to Bill Saltzman, an Executive Vice President for Cushman & Wakefield | CRESCO Real Estate in Cleveland.
However, he did note that tenants in some office properties close to the casino have complained about a spike in parking prices due to casino-related demand. (The Wynn Boston Harbor project is expected to include nearly 3,000 parking spaces).
In Cincinnati, where another Jack Casino opened in 2013, impact has also been limited beyond the additional tax revenue it generates. The property was built on an outer edge of the city’s CBD, replacing mainly parking lots and vacant land near the highway, and serves largely as a stand-alone driving destination without a connected hotel.
The opening of St. Louis’ Lumiere Place Casino in December 2007 was greeted with optimism as a driver of economic activity downtown. However, the downtown submarket was hit hard by the recession, with the overall vacancy rate spiking five percentage points in 2008 and reaching a peak of 25.6%.
While vacancies in St. Louis have recovered somewhat since the recession, a portion of the negative absorption is due to the conversion of offices into residential properties, rather than a fully revived office market.
The overriding understanding in all three scenarios is that the casino itself hasn’t created a significantly positive or negative long-term influence in terms of an area’s commercial real estate market.
While the properties may influence the “feel” of an area or have localized impacts on parking and crowding, rental rates continue to be driven by larger economic conditions.
So while prices in Everett and Chelsea may feel inflated now, owners and tenants in the area should continue to focus on fundamentals. The project has created some impacts in terms of warehousing demand and other services, but not to the degree where rents asking rents should be double what they were 12 and 24 months ago.
Over time, it’s likely that they will settle back down again as the momentum from the casino’s buying spree begins to peter out.