The group of developers jostling to build the FBI’s Boston headquarters has a new player. A source with knowledge of the selection process has indicated that Patrick Purcell, owner of the Boston Herald, and Newton-based developers National Development have joined the FBI sweepstakes.
Purcell and National Development join a pack that already includes South Boston developer Tim Pappas and Chelsea-based ACS Development Corp. The prize is a new, build-to-suit headquarters for the FBI, which will vacate office space in Equity Office’s Center Plaza in July 2011. The agency is seeking between 230,000 and 270,000 square feet of custom-built office space – a significant requirement in the city’s stagnant office development market.
In the summer of 2007, Purcell sold the Herald’s headquarters to a joint partnership between himself and National Development. The sale allowed Purcell to jettison the Herald’s antiquated and costly printing press, and sever relations with the union pressmen who operated it – a critical step in stabilizing the tabloid’s balance sheet.
Under the deal, the Herald would vacate its 6.6-acre parcel, at the edge of the South End and Chinatown, and consolidate newsroom and sales operations in smaller, cheaper office space. Purcell and National Development would then raze the newspaper’s former home, replacing it with residential and office space.
Boston’s real estate landscape has changed dramatically since the summer of 2007, though. Those changes have likely pushed the redevelopment of the Herald site to the far edge of the six-year window Purcell and National Development established when they struck their deal.
The barriers to development are now extraordinarily high. Office construction is only proceeding in cases where projects are more than 50 percent pre-leased. Even when projects meet pre-leasing requirements, lenders are imposing strict equity commitments, and slapping harsh recourse terms on loans.
What’s more, a glut of empty office space has sent rents into a freefall, and observers don’t expect them to recover for years. After a recent NAIOP forum, Boston Properties CEO Edward Linde said Boston office rents had fallen to a level where they didn’t justify new construction.
“The market has changed,” he said. “You couldn’t afford a new building at $50 a [square] foot.” He added, “As far as increasing activity, credit isn’t the real driver. The real driver is the lack of demand. I don’t see it improving in anywhere close to the near term.”
The Herald site faces an additional hurdle: it sits in an isolated slice of the city, between two established neighborhoods. It’s boxed in by the Massachusetts Turnpike on the north, and by the elevated Southeast Expressway on the east. Marginal markets normally draft off of construction booms – they don’t often lead recoveries.
Hence the lure of the FBI. The agency would bring certainty and long-term cash flow to a site where the future is currently quite uncertain. If the partnership comes up short, there’s no great consequence, as the site isn’t immediately in play for any other development.
Purcell did not return calls for comment. An executive at National Development said the firm couldn’t offer any comment.
The FBI’s office search began in the spring of 2007, and since that time, it has been the subject of intense speculation. The FBI and the General Services Administration, which manages federal agencies’ real estate, have barred participants from speaking publicly about the site selection process.
Boston Mayor Tom Menino has made it a priority to keep the FBI’s regional offices in the city. The agency previously took a long look at Fan Pier, before discarding the site because of security concerns and costs. More recently, Commonwealth Ventures’ President Dick Galvin considered pitching a U.S. Postal Service lot to the FBI. That idea reportedly received a cool response from City Hall.
