"Fan Pier work stalls, leaving future tenant Vertex in bind
By Casey Ross, Globe Staff | November 11, 2008
A deal to make Vertex Pharmaceuticals the first biotech company to locate its headquarters on the South Boston Waterfront is stalled because Fan Pier developer Joseph F. Fallon can't borrow money to build the drug maker's new home.
The Cambridge company had been negotiating with Fallon for a lease in the second office building proposed for the Fan Pier site. But Fallon, like many other developers, has been unable to obtain financing amid the global credit crisis and slowing economy, an executive involved in the project said.
The delay puts Vertex hard against a deadline for renewing the patchwork of leases it has at multiple offices in Cambridge. Two leases totaling more than 290,000 square feet expire in 2010. With Fallon unable to start construction, the building for Vertex could not be ready until 2011, at the earliest.
Negotiating a short-term extension on those leases could be complicated and potentially costly for Vertex. The company's landlord, BioMed Realty Trust, has already said it would expect two to three years' notice if Vertex is planning to leave its property.
Neither Fallon nor Vertex would comment on their negotiations.
A spokesman for Vertex said the company is exploring its options. "Our current leases afford us the flexibility to make real estate decisions needed to support the business," spokesman Zachry Barber wrote in a statement.
Steven Pellegrino, a spokesman for Fallon, said the developer has received inquiries from numerous tenants interested in moving to the waterfront site. "The Fallon Co. is fully committed to moving Fan Pier forward and making this world-class destination a reality for the city of Boston," he said.
Fallon has one office building under construction at the 21-acre site, and three others planned. The $2.5 billion development would also include three residential buildings, a 175-room hotel, retail space and restaurants, a marina, and public parks.
The development is one many in the city facing delays as a result of the financial crisis at the nation's lending institutions. The $700 million redevelopment of the former Filene's building in Downtown Crossing is on hold as its developer, John B. Hynes III, looks to fill a financing gap of $50 million to $100 million.
Officials with the Boston Redevelopment Authority, the city's planning arm, said the delays are temporary.
"We are closely monitoring all major projects in the city," said BRA spokeswoman Susan Elsbree. "We have been working with the Fallon Co. on the progress of its second and third buildings at Fan Pier, and we feel confident that once the credit market loosens up, this new construction will commence."
Real estate professionals said the Vertex deal is especially complex because it involves moving a pharmaceutical company to a part of the city that does not have any large biotech tenants. Such tenants require highly specialized and expensive laboratory space, meaning that Fallon and his financial partners would be betting heavily on Vertex's ability to thrive in that location.
If the company doesn't need all of its space or leaves, it could be difficult to find another biotech tenant to replace it.
"It's highly unlikely this deal is going to get financed in today's environment, with even some deals in the city's core locations being put on hold," said Mark Winters, managing partner of the life sciences practice for the real estate brokerage Cushman & Wakefield.
Still, executives involved in the project said they continue to field inquiries from many biotech firms and other companies interested in moving into Fan Pier's planned 1.5 million square feet of office space.
Though it has yet to turn a profit, Vertex has been expanding rapidly ahead of the launch of Telaprevir, its widely anticipated pill to treat hepatitis C, which analysts believe could potentially generate billions of dollars in annual sales. The company is also developing a drug to treat cystic fibrosis, called VX-770. Based on the hope of those drugs, Vertex has a stock market value of more than $4 billion, making it one of the region's biggest life sciences companies.
But the biotech sector is notoriously difficult; many experimental drugs don't ever make it to market, because they turn out to be unsafe or ineffective.
Casey Ross can be reached at
cross@globe.com. Todd Wallack of the Globe staff contributed to this report. "
