Image courtesy city of Cambridge/NBBJ

The former owners of a 3.6-acre Kendall Square property say life science developer Alexandria Real Estate Equities underpaid them for the acquisition, inaccurately calculating its costs to gain the city’s approval for a 370,000-square-foot office-lab project.

Canal Realty Trust, which is affiliated with the former owners of the Metropolitan Pipe & Supply Co. property, claims that Alexandria mischaracterized five payments totaling over $37 million as linkage, reducing the agreed-upon purchase price. In all, Alexandria said it paid over $65 million in linkage related to the project.

“Alexandria failed to act as a prudent and sophisticated real estate developer in agreeing to make $65 million in purported linkage payments,” states a lawsuit filed last week in Middlesex Superior Court by attorney Wayne Dennison of Boston-based Brown Rudnick, representing Canal Realty Trust.

Alexandria bought the plumbing supply company’s 70-year headquarters at 303 Binney St. in 2017, closing on the 3.6-acre parcel for $80.25 million. Metropolitan Pipe has since moved to Somerville’s Inner Belt.

Along with the initial purchase price, however, the sales agreement included an earn-out clause that called for additional payments tied to the amount of development approved at the property over the next 15 years, minus linkage payments that Alexandria agreed to pay to gain the city’s approval.

The lawsuit lists five items that Alexandria allegedly mischaracterizes as linkage payments, reducing the final payments to Canal Realty:

  • Payment of $20.29 million to provide interim parking during demolition of Boston Properties’ Blue Garage property in Kendall Square.
  • Payment of $12.3 million to buy 135 Fulkerson St. from Eversource and deed it to the city for free.
  • $3.28 million in linkage payments to the Cambridge Affordable Housing Trust that are allegedly unrelated to securing additional density on the site.
  • Payments of $840,800 to the Linden Park Neighborhood Association and $300,000 to the East Cambridge Planning Team Open Space Trust Fund.

“Linkage payments or mitigation obligations must therefore be `connected’ to the impacts associated with a project,” the complaint states.

The Eversource payment is related to Cambridge officials’ search for a non-controversial site for a new substation proposed by the utility.

In 2019, Eversource proposed the substation at 135 Fulkerson St., prompting an outcry because of the location next to an elementary school and residential neighborhood. City Manager Louis DePasquale appealed to private developers to offer an alternate site, which narrowed down to Boston Properties’ 1,000-space Blue Garage property on Binney Street.

Under a compromise designed to provide incentives to developers, Boston Properties would demolish the Blue Garage and sell a portion of the property to Eversource for the substation. To offset its financial burden, Boston Properties would receive city approval for two 400,000-square-foot office-lab buildings on other sections of the property, along with a previously-approved apartment complex.

Alexandria, for its part, would provide temporary parking at its nearby properties to replace the Blue Garage spaces lost during demolition and reconstruction. And Alexandria agreed to buy the rejected Fulkerson Street substation site for $12.3 million and deed it to the city for free, as a community benefit to rezone the Metropolitan Pipe site for additional density.

Cambridge city councilors approved the rezoning in March 2020, and the planning board approved a special permit on Oct. 20.

According to the lawsuit, the purchase-and-sale agreement defines linkage payments as “(a) cash payments required by the Cambridge Zoning Ordinance from time to time, plus (b) any other cash payments, and the cost of satisfying any mitigation obligations, required by, or offered to induce the adoption or issuance of, any amendment to the Cambridge Zoning Ordinance or any variance or Special Permit which authorizes increased density at the Property, including but not limited to acquisition costs for open space required as a condition of the amendment, variance or Special Permit.”

In an email responding to a request for comment, Alexandria CEO Joel Marcus characterized the lawsuit as “meritless.”

Former Owners Say Alexandria Underpaid for Kendall Square Property

by Steve Adams time to read: 3 min