At least two serious would-be buyers have emerged for NorthPoint, the troubled multi-billion-dollar Cambridge mega-project long plagued by legal infighting. And while the pot may have just been sweetened by a state commitment to shoulder major public transportation construction costs at the site, the significant infrastructure costs that grounded two previous sales are still looming.
NorthPoint is a beleaguered partnership between members of the former Boston development firm Spaulding & Slye and Pan-Am Railways, the successor to the Boston & Maine Railroad. Pan-Am controls vast swaths of weed-strewn land where the B&M’s rail yards once sat. The railroad company owns 75 percent of the project, but the project development company is managed by its minority members under an LLC called Cambridge NorthPoint.
The project is permitted for 5 million square feet of development over 19 city blocks. The development partnership splintered in 2007, when the partners sued each other in Boston and in Delaware.
Kicking The Tires
At least two groups are exploring taking over the project – one led by Forest City Enterprises, and another by HYM Investment Group.
HYM is the investment and development firm headed by Tom O’Brien, the former Boston Redevelopment Authority director who recently took control of the Government Center Garage redevelopment project.
Forest City developed Technology Square at MIT, and the REIT had tried to buy NorthPoint for $103 million in late 2008, but was outbid by Berkeley Investments in a deal that ultimately disintegrated. The Archon Group, the real estate arm of Goldman Sachs, had the project under agreement in 2007 for $177 million; Archon’s bid eventually dropped to just $77 million, before the firm walked away altogether.
“We still feel very strongly that it’s a valuable project,” said Peter Bailey, one of Cambridge NorthPoint’s corporate officers. “It’s difficult to value land right now, but we’ve always been in it for the long haul. It was tied up twice before for a price in excess of $100 million, and we think it’s worth a lot more than that.”
Pricing isn’t the big stumbling block, though. The big question still dominating talks is the project’s immense infrastructure tab.
NorthPoint was conceived as a massive public-private partnership roughly a decade ago. Under a pioneering agreement with the Massachusetts Bay Transportation Authority, NorthPoint’s developers agreed to relocate the T’s Lechmere Green Line station to their East Cambridge site, and finance the construction of a new station privately. In exchange, the T would hand NorthPoint’s owners the five-acre development parcel where Lechmere station currently stands.
That land swap fell apart amid the project owners’ infighting. The T is legally obligated to extend the Green Line into Somerville by 2014, and since it can’t do that without relocating Lechmere, the agency is currently designing and managing that project on its own.
Carrot & Stick
In a significant shift, Richard Nangle, a spokesman for the Massachsuetts Department of Transportation (MassDOT), told Banker & Tradesman that the new Lechmere station and Green Line extension will be fully built and financed by the MBTA.
One industry source called uncertainty over who would pay for the Green Line work “a $100 million variable on a project that’s so underwater it’s not even funny.” The T’s new commitment removes a $100 million liability from developers’ plates – a fact that could entice more bidders to enter the fray.
Nangle also said MassDOT and the MBTA expect any NorthPoint buyer to also purchase the land where Lechmere station currently stands. The T appraised the Lechmere land at $32 million in 2006, and will demand that price in a sale.
The new deal structure is essentially an alternative way of bridging the differences between the T and private developers over the cost of the Green Line work. The T gets a guaranteed $32 million payment from a private developer for land it had previously committed to giving away, while any new NorthPoint developer is able to buy into the project at a steep discount to the T’s previous $100 million price tag. It also insulates a developer from exposure to cost overruns on the T project, which is already a year behind its latest target completion date.
But the Green Line work isn’t the only infrastructure bill looming at the project site.
Banker & Tradesman reported last year that an internal MBTA document pegged NorthPoint’s infrastructure costs at $257 million; the Green Line tab accounted for just $111 million of that sum. Even without the Green Line, the cost of road construction and utility work at the site could still approach $150 million.
“Whether the land is worth $88 million or $120 million, it’s a small detail compared to the infrastructure bill,” said a second industry source with knowledge of the project. “It’s a tremendous site with very real and significant liabilities in infrastructure, potentially enormous liabilities.”
Upfront Savings, Backend Costs
David Begelfer, CEO of NAIOP Massachusetts, also worried that developers might end up footing some Green Line costs on the deal’s back end, rather than up front.
“Clearly, having that piece of the puzzle resolved really piques the development community’s interest, but I don’t believe this is a free ride on the T,” Begelfer argued. He said it’s likely state environmental regulators would try to extract new financial or in-kind benefits from a new site developer. “The T can’t afford to wait on negotiations with a new buyer, but that doesn’t mean it doesn’t come with a price tag.”
Ground broke at NorthPoint in 2005, but just two residential buildings on the development site have gone vertical. Sales at both buildings have been sluggish.
In June, a Delaware judge settled the latest round of litigation between the feuding NorthPoint owners (it was the project’s third Delaware suit, on top of one in Boston) by handing Pan-Am a stinging rebuke.
The ruling slapped Pan-Am with roughly $14 million in damages, fees and interest, on top of millions in damages and fees it had been awarded in earlier rounds of litigation. It also empowered Cambridge NorthPoint LLC to liquidate the development partnership.
The gears of a sale are already in motion. Before Cambridge NorthPoint can liquidate the project, Pan-Am has to give state officials a right of first refusal on its 75 percent interest in the NorthPoint site. MassDOT’s Nangle confirmed that the state has received an offer from the railroad that it’s “reviewing pursuant to the statutory process.”
