Frustration is only thing rising, it seems
Ambitious building projects stalling all over the city as economy worsens
By Casey Ross, Globe Staff | October 4, 2008
The nation's credit crisis has stalled some of Boston's most ambitious building projects, forcing developers to wait out the financial carnage on Wall Street before moving forward with the construction of massive office towers, hotels, and shopping centers.
In neighborhoods across the city, proposed developments that were launched with much fanfare a few years ago are now crawling along or have completely halted. The projects are caught in a confluence of spiraling financial factors: Construction costs are skyrocketing, credit is difficult to get, and investors are increasingly wary of taking on new risks for questionable rewards.
Among the projects affected are Waterside Place, a 1.1-million-square-foot retail, hotel, and residential project on the South Boston Waterfront; Hayward Place, a $200 million proposed condominium development downtown; Columbus Center, an $800 million mixed-use complex over the Massachusetts Turnpike; and a planned South Station development that includes a 40-story tower above the station, a hotel, condominiums, office space, and stores.
"Right now we're in the twilight zone of financing, and no one knows what decisions to make," said David Begelfer chief executive of the Massachusetts office of the National Association of Industrial and Office Properties. "Everything is on hold."
Several developers did not return phone calls seeking comment about the status of their projects.
Meanwhile, city planners who have approved about $12 billion in new development are trying to determine whether the projects can move forward. Officials worry that the nation's economic troubles will delay broader efforts to revitalize neighborhoods and shopping districts.
"We're monitoring this closely," said John Palmieri, director of the Boston Redevelopment Authority. "These are international financial issues, and we need to keep our eye on the ball."
The financial environment has worsened considerably in the past couple of weeks, as bank failures have shaken global markets and virtually shut down lending to businesses and consumers. Developers of large commercial projects are particularly vulnerable to the tumultuous conditions, because their costs are high and they often require a number of lenders and investors to secure adequate financing.
Projects being delayed include some ambitious efforts to revamp the city's skyline.
On the South Boston Waterfront, developers of Waterside Place are battling to start work following a legal fight among the project's investors. A recent ruling led to John E. Drew and Vornado Realty Trust buying out the interest of Maxx Private Investments, an entity that includes the Kraft Group LLC, led by New England Patriots owner Robert Kraft, and Edward A. Fish.
Drew and Vornado want to build a shopping plaza, a 300-room luxury hotel, a parking garage, and a 19-story condominium building on 10 acres between Summer and Congress streets. The project was approved in June 2007.
The $600 million-plus complex will require building an expensive deck over the Massachusetts Turnpike. An official with the Massachusetts Port Authority, which owns the property, said the project faces hurdles.
"It's challenging to find a feasible approach in the current environment," said Lowell Richards, Massport's chief development officer. "Even if there is a feasible deal, it's not clear there would be a lender."
An executive with Vornado did not return a phone call seeking comment. A spokeswoman for Drew Co. wrote in an e-mail the project is delayed, but she could not provide more information.
Similar problems are plaguing Columbus Center, a condominium, retail, and hotel project on the border of Boston's Back Bay and the South End. The $800 million complex also requires a deck over the Turnpike.
Pamela McDermott, a project spokeswoman, said consultants are considering ways to cut costs, including using a cheaper engineering method for the deck. Columbus Center's developers, WinnDevelopment and MacFarlane Partners, failed to secure more than $400 million in financing from Anglo Irish Bank last year, and lost tens of millions more in public subsidies.
Now, the developers have hired consultants from Beal/Related Cos. to determine whether the project is financially viable. "It would be premature for us to even wonder about financing because we don't know when we would go after it," McDermott said.
Commercial banking executives said large, complex real estate projects are facing higher borrowing costs and tougher scrutiny from potential lenders. Only projects backed by experienced developers with deep-pocketed investors are likely to qualify for funding, they said.
John Fowler, partner at the firm Holliday Fenoglio Fowler LP, said the downturn in the real estate market will encourage equity investors to focus more money on buying distressed assets to turn a quick profit, taking a significant source of funds away from new development.
"The spigot for development was running two years ago, but now it's just dripping," he said.
The financial pressures are also creating major obstacles for construction of a 40-story glass office tower over South Station. Developer Hines Interests LP, based in Houston, received city approval to proceed in June 2006, but the firm still has not moved forward with construction.
In addition to the tower, the project includes construction of a 200-room hotel, condominiums, office space, stores, and nearly 1,000 parking spaces along a block now dominated by train and bus traffic. The office tower must compete for tenants from projects already under construction, such as Two Financial Center and complexes at nearby Russia Wharf and Fan Pier.
Executives with Hines were unavailable for comment this week.
Also facing an uphill fight is the proposed condo complex at Hayward Place, where developer Millennium Partners wants to build a 155-foot-tall condominium building on the site of a parking lot near the Ritz-Carlton Hotel downtown.
In 2006, a Millennium executive said the firm hoped to break ground in early 2007, but the project remains in limbo. Millennium did not return phone calls this week.
Casey Ross can be reached at
cross@globe.com.
