It’s an unprecedented move, yet these are economic times the likes of which our country has not seen since the Great Depression.
Bay State developers are pushing for their own bailout, one that would not shower money on projects but would rather give would-be office tower and megaproject builders something as equally valuable – extra time to round up that ever more elusive financing needed to make their plans a reality.
Massachusetts NAIOP, the trade group that represents developers across the state, has filed a bill at the State House that would automatically extend regulatory permits for all projects in the state for another two years.
And given the deep ditch the economy has stumbled into, the group is not ruling out coming back for another two-year extension after that, if need be.
If nothing else, it’s an admission that you can expect little if anything in the way of actual construction on a whole range of development plans, from condos to office towers, until at least 2011.
Still, the proposal is also needed for another reason, one that highlights a big problem here in Massachusetts. Getting a project approved the first time around can be hard enough, with anything remotely controversial – a 50-story office tower, how dare you! – expected to draw a horde of objections from Not-In-My-Backyard (NIMBY) activists and bureaucrats.
But developers could face having to run that gauntlet all over again, watching helplessly as time limits on their permits expire as a wretched economy makes it impossible to move forward.
At stake are dozens of projects with billions of dollars in new construction.
“The two-year extension may not be enough, if the recession is a deep one,” said David Begelfer, chief executive of Massachusetts NAIOP. “There just isn’t any capital out there.”
With credit markets frozen and new development projects at the top of banks’ do-not-lend lists, the move is clearly a reflection of the grim reality facing developers large and small across the state.
Examples abound of projects that have their approvals in hand, or have even begun work, and have been forced to shut down construction amid the global credit crunch.
There’s veteran downtown developer John Hynes, who began demolition work for his sweeping plan to renovate Boston’s Filene’s complex, and build a new tower next to it, only to run out of money.
Equally ambitious, multibillion-dollar development plans in the suburbs, such as Westwood Station and the revamp of the old naval air base in South Weymouth, have also stalled on the launch pad, unable to get the bank loans needed to start work.
So the NAIOP bill, sponsored by Rep. Michael Rodrigues (D-Westport), would grant a two-year extension on all permits granted to projects between Jan. 1, 2008, and the end of this coming year.
“Even good projects that are fully leased aren’t getting financing,” NAIOP’s Begelfer said.
The proposal, in turn, looks to deal with a danger that, here in Massachusetts at least, could prove as fatal as the lack of money.
In order to get a major project approved around here, you need to negotiate a gauntlet of state regulatory agencies and local officials. Collecting the myriad permits needed to begin work can take months if not years.
In a major city like Boston, that can mean shelling out millions in legal bills, marketing costs, and side deals with activist groups for everything from affordable units to day care slots.
But a project that wins all its regulatory approvals, but can’t move forward, becomes a big fat target. As permits expire, it presents a tempting opportunity for opponents to revisit a project.
Nor are local officials immune from such temptations. While there are no specific time limits on permits granted by the Boston Redevelopment Authority, the agency’s first response after the global credit crisis was to threaten to revisit projects that had failed to start construction within 18 months.
Hynes’s Filene’s $600 million-plus redevelopment was squarely in the target zone of that proposal.
It’s not clear where that BRA proposal is right now.
For now, anyway, the economy’s devastating slide downhill may be forcing local officials to give developers a bit more breathing room.
“It seems like a reasonable thing to do in this environment,” said John Palmieri, the BRA chief, of the two-year permit extension.
Still, even when local officials are sympathetic, wooing skittish lenders can be that much more difficult when you have an expiring permit ticking down.
Just the specter of a permit running out a few months down the line can be enough to spook lenders in this market, who all know the huge difference in a tough-to-build-in area like Boston between a proposal and a fully-permitted project.
Most local officials, in turn, won’t consider renewing a permit until its expiration date comes up. In the months leading up to that decision, lenders may simply put any decision on hold.
“It does make financing much more difficult,” said Westwood Station developer Jay Doherty.
However, there’s a good argument, beyond just keeping projects alive, for extending all permits out a couple years.
As surely as the economy has gone down, it will come back up again. But if projects across the state are caught up in a tangle of red tape trying to renew various permits, Massachusetts could miss out on that rebound.
Moreover, just about every industry out there, from banks to casinos, has been pushing for a multibillion-dollar slice of President Obama’s $787 billion stimulus plan.
As far as bailouts go, this one looks pretty darn cheap.
