Image courtesy of Cube 3 and Jacobs
A Medford lab development site that heads to foreclosure auction on Tuesday provides a stark example of how Massachusetts’ rapidly retreating life sciences market left some developers and lenders high and dry.
In March 2023, Hudson-based Avidia Bank provided a $25 million mortgage to Boston-based developer Rise Construction Management, which planned to build a 311,535 square-foot lab tower at 4054 Mystic Valley Parkway.
The 1.4-acre property currently contains a Bertucci’s restaurant. Rise bought the property for $8.25 million in April 2023 according to data compiled by The Warren Group, publisher of Banker & Tradesman.
But as life science tenants gravitated toward established lab clusters, Rise Construction Management failed to secure a tenant and never broke ground. It defaulted on the loan in March, according to a lawsuit filed by Avidia Bank in Suffolk Superior Court. A foreclosure auction is scheduled on Tuesday morning by Paul E. Saperstein Co. Auctioneers & Appraisers.
“At the time of the loan, the bank had an appraisal of $52 million and was granting a loan of $25 million which was a solid 50 percent LTV [loan to value],” Rise executive Brian Anderson told Avidia Bank in a March 28 email, according to the lawsuit. “[Rise founder] Jim [Grossmann] and I are painfully aware that this is no longer the case and that the value of the parcel and the proposed project have significantly decreased in value.”
The property is now worth $7.1 million, according to an updated valuation provided to the bank by an independent appraiser, the lawsuit states.
“[U]sually a potential buyer will seek to pay something less than the perceived fair market value of the property being foreclosed upon,” attorney Dennis McKenna of Riemer & Braunstein wrote in the complaint, which estimates Rise now owes $25.5 million including interest and outstanding real estate taxes.
Rise’s plans for lab developments in Medford and Charlestown proceeded as a historic boom in lab space in Greater Boston was drawing to a close. Lab demand dropped precipitously in the second half of 2022, after seven Federal Reserve interest rate hikes between March and December.
Total tenant requirements for lab space in Greater Boston declined from 6 million square feet to 1.8 million square feet during the third and fourth quarters of 2022, according to a January 2023 report by brokerage Newmark.
But vacancies remained just 6 percent in the industry epicenter of East Cambridge, giving developers confidence that demand for high-rent lab space would rebound and companies seeking large blocks of space would gravitate toward emerging submarkets such as Medford, Dorchester and Somerville.
Rise executives Grossmann and Anderson provided unconditional guarantees of the $25 million loan at the time of the closing, according to the lawsuit.
On June 25, Suffolk Superior Court Judge Julie E. Green approved motions for attachments of $5 million against both Anderson and Grossmann, ruling that Avidia Bank “has established a reasonable likelihood of recovering judgment” in the case.
The lawsuit estimates that Avidia Bank faces a loss of at least $17 million after a potential foreclosure. It states that three other Rise Construction Management projects have defaulted on loans, and that Rise and its principals are in perilous financial condition.
Rise’s acquisition of the Medford property was delayed by a lawsuit filed by an abutter challenging variances approved by the Medford Zoning Board of Appeals, which was eventually dismissed. Rise acquired the property for $8.25 million in March 2023.
Messages were left with attorneys for Grossmann and Anderson. Avidia Bank, which completed an initial public offering July 31 that raised nearly $192 million, declined to comment.
