The credit crunch and a lack of office tenants have stalled a trio of major development projects in downtown Boston, according to commercial real estate sources.
At stake is $2.5 billion in construction deals that would add more than 3 million square feet of office space, 480 hotel rooms and 316 luxury condominiums to the downtown. Among the projects are the South Station Transportation Center, One Franklin St. and a glass tower at Winthrop Square.
?We have taken potential tenants to these projects, and it?s common knowledge that those three developments do not have financing,? said David Fitzgerald, executive vice president at CB Richard Ellis. ?As a tenant, you can?t make a deal with a developer until the financing is set.?
Construction was expected to commence earlier this year at South Station, according to Hines, the Houston-based developer. But the project has yet to break ground. David Perry, a Hines vice president, did not return a call seeking comment.
So far, plans for the 75-story Winthrop Square skyscraper championed by Mayor Thomas M. Menino have stumbled. Steven Belkin, chairman of Boston-based Trans National Proper-ties, parted ways with the project?s architect, Renzo Piano; the development team and the city have yet to agree on a price for the city-owned parking garage where the building would be constructed; and The Boston Globe recently reported that the Federal Aviation Administration had concerns about the tower?s height.
A spokeswoman for Trans National Properties said the development team is having ?conversations with funders, and we know that we are able to finance this building, but how can we have financing in place for a project that isn?t permitted yet??
Trans National Properties has not yet filed a project plan with the Boston Redevelopment Authority (BRA).
The third project, One Franklin Street, got under way last fall. The BRA approved the mixed-use project, and the development team of Vernado Realty Trust and Gale International began demolition work last fall with an anticipated completion date of January 2011.
Russell DeMartino, vice president of development at Vornado Realty Trust, a partner in the One Franklin project, said of rumors about the project?s inability to secure financing, ?I can?t comment one way or another on that.?
Still, Roger W. Breslin, a Colliers Meredith & Grew vice president, said while these projects are important to the city, they appear to be delayed. ?It?s a Catch-22, but the reality is that no one will get financing until they get tenants,? he said. ?The South Station project or the mayor?s 1,000-foot tower is not going anywhere until they get a lead tenant to commit or get their financing ? which neither has.?
Casimir Groblewski, managing director at Fantini & Gorga, a Boston-based real estate financer, said despite the fact that these projects have very good fundamentals, financing is a challenge nationwide.
?Lenders perceive that the residential market nationwide is very weak and they are tending to be more cautious,? he said. ?And retail and hotels are also harder to finance. Developers know they need to put more of their own cash in, but even their equity sources are scarce.?
Financing is tougher than it has been in 25 years, brokers said, despite the fact that Boston?s luxury condominium market has held its own this year and the city?s office vacancy rate is in the single digits.
?We do have a low vacancy rate in the office towers, but developers need a major tenant or two seeking 200,000-300,000 square feet of space before they can line up all the financing,? Groblewski said. ?They will be hard to find.?
Still, Groblewski said each of the development teams will succeed, but it will take longer.
?These are very strong, financially sound and patient developers and they will pull it off,? he added. ?It may take longer, up to five years, but they will get done.?
Jessica Shumaker, a BRA spokeswoman, insists that Boston? economy is strong based on the number of projects filed with the city?s planning agency. ?We have 65 projects under construction valued at $4 billion, and another 250 in the pipeline worth $12 billion. That?s huge.?
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