John Hynes wants to sprint out of the recession and begin work on the first million square feet of his multi-billion-dollar Seaport Square development project next year. To do so, he’ll have to meet an ambitious timeline, out-duel his South Boston neighbors, and swallow an unusual clawback provision from the city.
As CEO of Gale International, Hynes is the public face of the far-reaching proposal to turn 33 acres of parking lots along the South Boston waterfront into a new neighborhood of 20 city blocks and 6.3 million square feet of commercial and residential space. Gale’s equity partner is Morgan Stanley. WS Development is handling the project’s retail component.
The aggressive construction timeline appears to be a significant shift from last year. Speaking at an Urban Land Institute forum last May, Hynes painted a cautious, if not dour, picture of the project’s development future.
Then And Now
At the time, Hynes had just endured months of public beatings over the failure of One Franklin, the Gale-led redevelopment of the former Filene’s building in Downtown Crossing.
His personal relationship with Boston’s powerful mayor, Thomas Menino, was reportedly at a low point. Menino had previously castigated as a “hare-brained idea” what Hynes believed to be one of the central elements of the Seaport Square plan: A private school to draw international executives to the South Boston waterfront. At the ULI event, he indicated that the full build-out of Seaport Square could be several years off.
A year later, the development environment, and Hynes himself, appear to be on firmer ground. Hynes has avoided Menino’s ire by mostly staying out of the Boston press – with the exception of an appearance in the Boston Globe last month, in which he criticized developer Don Chiofaro, Menino’s primary development foil. Gale has also made several approving nods to the notion of South Boston as an innovation district, a concept Menino introduced at his January inauguration.
But most importantly, city development watchers say, at a time when development in the Seaport has slowed considerably, Hynes is laying plans to quickly remake an area that has long been a priority for City Hall.
A recent project filing with the Boston Redevelopment Authority said Gale expects to break ground on more than 1 million square feet of residential construction along Northern Avenue next year. The developers would follow that with 2.1 million square feet of residential, hotel and office space in 2012, and another 1.5 million square feet of residential and hotel in 2013.
“If we receive our permits from the City of Boston this year, we plan to break ground in 2011 on our first phase, assuming there is market demand for one or more of the uses we propose,” said Tom Palmer, a spokesman for the developers. “And we believe there will be.”
Too Much, Too Soon?
Privately, some Hub developers are calling the plan overly-ambitious. They say it could be difficult for the entire city, let alone one neighborhood, to quickly absorb the volume of new space Hynes is talking about. They also note that the project’s abutters at Fan Pier and Pier 4 already have their permits in hand, but aren’t talking about the type of development timelines Hynes is.
Joe Fallon, developer of Fan Pier, told reporters after a recent NAIOP Massachusetts forum that he was eyeing a three-year timetable for getting a luxury residential tower in the ground.
“2011 seems a little optimistic from a permitting standpoint and a financing standpoint,” said Vivien Li, executive director of the Boston Harbor Association and a close observer of Boston development. “I hope his optimism is based in reality. I would love to see four parcels start in 2011. It would be fabulous.”
Jack Hobbs, president and CEO of RF Walsh Collaborative Partners, said while the market for new office space remains years away, he’s seeing signs of the market turning for rental housing development in Boston.
“It depends on the individual deal, but the numbers look fairly good for those to happen,” he said. “A bit longer term, condos could begin work too, based on the numbers I’ve seen.”
“It might be the right time to start condos down there, as well as high-end rental,” added David Begelfer, CEO of NAIOP Massachusetts. “There is clearly an interest in retail for premier locations. Residential is intriguing. I wouldn’t be surprised to see a number of multi-family construction projects start work next year.”
Kairos Shen, chief planner for the BRA, said his agency wants to see Seaport Square roll out as planned. To prod the developers into action, the BRA will insert a clause in the project’s permits that would make its final phase contingent upon meeting a five-year deadline for getting 1 million square feet of construction in the ground.
“Part of the problem is, for the past 15 years, developers have had permits and they have not been acting on them,” Shen said. “We want to make sure we have some provisions to incentivize the acceleration of development. It makes the developer more accountable.”
“If we start construction as planned, there is no concern about getting approval to go forward on our last phase,” Palmer said.
Financial pressures also appear to favor a swift build-out. Morgan Stanley purchased the 33-acre site for $204 million in 2006, financing the acquisition with a $155 million mortgage from Capmark Finance. That note has come due and been extended twice, first in September 2009, and then again in March. Seaport Square’s owners now have extension options that run through the end of 2013. Gale and Morgan Stanley anticipate having 4.7 million of the development’s 6.3 million square feet under construction by that point, according to their most recent filing with the BRA.
