Developer may exit Filene?s project
City?s deadline is approaching
By Casey Ross, Globe Staff | July 14, 2010
With Boston officials threatening to revoke its permit, the co-owner of the $750 million Filene?s redevelopment in Downtown Crossing is seeking to pull out of the massive project and sell its stake to another developer, according to people involved in the discussions.
A change of ownership could be the first sign of progress since work on the property stopped two years ago ? although it is unclear whether a new owner would have more success getting financing than Vornado Realty Trust of New York has had.
Since mid-2008, the site of the promised 39-story office and residential complex has been little more than a giant hole in the city?s central shopping district.
Vornado executives declined to comment yesterday.
The New York real estate firm?s departure would probably be well received at City Hall, where Boston Mayor Thomas M. Menino has been critical of how the firm?s executives have handled the project and has repeatedly pressed the development team to move forward.
Just two weeks ago, Menino?s top development aide, Boston Redevelopment Authority director John Palmieri, sent Vornado a letter threatening to revoke its city permits if the development team is unable to resume building by Sept. 26, the three-year deadline under the permit for proceeding with construction on the shuttered work site.
The developers, which include John B. Hynes III, halted work in June 2008 when they were unable to raise construction financing following the global credit crisis and recession. A revocation would force them to devise a new plan for building on the property.
Hynes, who is managing partner of the project for JP Morgan and Mack-Cali Realty Corp., its other major investors, said he is in discussions with several potential investors.
?We work on it every day in some form,?? Hynes said. ?I have some interested parties, but nothing has come through yet.??
It?s unclear whether a change in ownership would persuade the city to extend the Filene?s permit. It?s also unclear what level of interest the project is drawing within the real estate community.
So far, the chief executive of Boston Residential Group, a luxury home builder, acknowledged he is interested and would like to build apartments and stores on the property.
?I?m certainly a believer in the Downtown Crossing neighborhood,?? said Curtis R. Kemeny, the Boston Residential Group chief executive. ?We?ve had positive discussions with the current owners about our concept, and we hope those discussions will continue.??
Boston Residential has remade several properties in Boston, including 360 Newbury St., the former Tower records building on the corner of Massachusetts Avenue. Kemeny converted it to 54 luxury condos with 46,000 square feet remaining for retail space. He also redeveloped 285 Columbus Ave. into 63 loft units and 10,000 square feet of retail.
While Kemeny was successful with those two projects, the Filene?s block would be a significant step up in scale and complexity for him.
Failure by the Filene?s development team to move forward on any front by the deadline could have significant consequences for the redevelopment effort. The permit allows Hynes and Vornado to build a 1.2 million-square-foot tower on the site. But if they were to lose the permit to inaction, there is no guarantee the city would allow another development of that size again.
Still, Vornado?s exit could be seen as a step forward, since the firm?s executives are out of favor with Menino, who has made redevelopment of the Filene?s block a top priority. In March, Menino accused Vornado executives of deliberately allowing the property to become blighted in order to pressure the city to provide funding or other help.
?This development is too important to Downtown Crossing and to the entire City of Boston to be used as a bargaining chip to improve your bottom line,?? Menino wrote at the time.
The most recent letter from the city does not have the same angry tone as Menino?s missives, but it makes clear Boston officials are running out of patience and appear unlikely to give the developers any leeway if they do not meet the deadline.
Palmieri wrote that if they fail to move forward with construction, then he will ?undertake promptly?? a review and determination about the status of their permits. The letter indicated the city could revoke those permits and force the developers to resubmit their application, triggering another review process that could take several months.
The primary stumbling block for the project remains money. With the economy still sluggish, many large real estate developments cannot find banks or other investors willing to underwrite the steep construction cost of large projects, and that problem does not appear likely to ease anytime soon, real estate specialists said.
After halting construction, the Filene?s redevelopment lost the one major office tenant that had pledged to move into the new building, a law firm that instead signed a deal to move to another new building, on the South Boston Waterfront. Also the project?s primary hotel investor backed out.
Hynes said he has been trying to revise the project to focus more on residential development ? the only type of product that has remained attractive to lenders ? but most do not want to risk such a large project.
?If you looked for large construction loans issued in the last 24 months, you probably wouldn?t find any,?? he said. ?Eventually it?s going to soften up, but we haven?t seen it yet.??
