May 25 - June 1, 2000
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Has the Fenway become too hot for the Red Sox to handle? Fenway neighborhood may be too expensive for the Red Sox
$90 million may not be enough to buy the land needed for a new park
by Seth Gitell
The century-old neighborhood is experiencing a land and development boom that may price the baseball team out of its plans to build a new park. Commercial rents have more than doubled during the past five years. One-bedroom apartments in old residential buildings now rent for more than $1200. The Landmark Center -- an office complex with shops and a state-of-the-art movie theater -- is opening in the old Sears building. Developers are planning a hotel and housing complex across Brookline Avenue from the Landmark Center, and a swanky European-style hotel is being constructed in Kenmore Square; one of Boston's name chefs will probably be installed in the hotel's restaurant.
When leading real-estate attorney Lawrence DiCara, local business leaders, and members of the Boston City Council met May 15 at a closed-door, off-the-record lunch meeting sponsored by the Boston Municipal Research Bureau and held at the downtown offices of the law firm Nixon Peabody, a real-estate developer drove the point home. The developer actually asked why the city would squander one of its hottest areas -- an area that taxpaying real-estate developers are "salivating" over -- on a new ballpark.
Sox CEO John Harrington announced last Friday that he will seek $275 million in public financing and pony up $352 million of the team's money to fund the estimated $627 million cost of a new stadium; the plan calls for the city to purchase the needed land and then lease it back to the team. But the scheme doesn't take the Fenway's dramatically increasing land values into account. And while the latest plan doesn't call for an increase in the Sox' contribution, the public portion has increased by $82 million -- so far. Given all that is happening with the market, the $90 million that the Red Sox have allocated for land acquisition is a paltry and inadequate figure -- a fact privately acknowledged by some of Boston's most experienced land assessors.
Experts say it may cost the Sox more than five times that amount -- around $450 million -- to acquire the needed land. That's just $177 million less than the $627 million budgeted for the entire project. Real-estate experts note that the city paid the owners of land taken for the new convention center four times the assessed values of their properties. But the market value for the properties the Red Sox hope to take may be seven to 10 times
their assessed value. The Red Sox have said they need 15.5 acres to construct the ballpark. City assessors have valued the 26 property parcels on these acres -- some 459,765 square feet of land -- at $48.7 million. If the Red Sox have to pay seven to 10 times that figure, they'll need between $341 million and $487 million just to purchase the land. (Even if the Sox can get the land for four times the assessed value, as with the waterfront properties, it brings the land-acquisition costs to $195 million, an amount that would derail the financing plan.) The money earmarked for purchasing land won't pay for the demolition of existing buildings and other site-preparation costs -- nor will it pay for the legal fees associated with litigating the land takings. The Red Sox have asked the city to contribute an additional $50 million for "site preparation" costs.
It's important to note that this is only an imprecise, back-of-the-envelope estimate, not the kind of parcel-by-parcel, building-by-building analysis that a skilled appraiser could do. It should also be noted that the offices of the Boston Phoenix, at 126 Brookline Avenue, would be demolished under the Sox' plan. (The Phoenix, which agrees that the players and their fans deserve a new park, has editorialized against the plan, arguing that the new park would be better situated in another location.) Also slated for demolition, among other properties, are the site of the Twins Enterprises souvenir shop and the Howard Johnson Hotel on Boylston Street.
The Fenway's high property values are the result of several converging factors. First, property in Boston is scarce, and real estate in general is booming; prices are high all over. Second, the Fenway has become a desirable neighborhood in recent years. It's centrally located, and the addition of the Landmark Center and other developments is making it a destination in itself. Third, Boston mayor Tom Menino has initiated a rezoning study of the area for the purposes of putting in a new ballpark. That's opened the door to new kinds of development on land now zoned only for minimal industrial uses; developers believe they will soon be able to build high on Boylston Street, where buildings are now limited to two stories.
But for the Red Sox, costs would be especially high. Anyone seeking to take property by eminent domain ends up paying a premium for that long and costly process. As the takings for the convention center showed, land costs much more than the first government estimates suggest.
This business story has profound ramifications for Mayor Menino, House Speaker Thomas Finneran, and Senate president Thomas Birmingham, who are going to end up having to hand over even more money than the Sox are now asking for. As reported in the Phoenix two weeks ago (see "Fenway Funk," News and Features, May 12), the Red Sox are already under severe financial strain to finance what they say is a $627 million ballpark project. Boom-time realities only worsen the Sox' position; Federal Reserve Bank chairman Alan Greenspan's decision last Tuesday to raise interest rates half a point will alone require millions of dollars of additional funding. The team, like a long-time resident of Charlestown or South Boston, is finding itself priced out of a rapidly improving neighborhood. But unlike the Townies who have been forced to move out to the 495 belt, the Red Sox hope that a government subsidy will allow them to stay.
Unless the team can force landowners to accept less for their properties than they are worth, the Red Sox will need the city to initiate land-taking proceedings through eminent domain. First the city must show that the taking achieves a "public purpose" -- a standard made much tougher under a recent case involving a minor-league baseball stadium in Springfield. The court rejected an attempt by the city to take land for the ballpark on the grounds that a baseball stadium did not constitute a public purpose and, accordingly, violated the state constitution. If the Red Sox can get through this stage successfully, a judge will eventually put the question of the property's market value before a jury. To determine the value, the jury will look to the rents at other properties in the area; if those rents are going up, as they are in the Fenway, the finding must reflect that. Further, the valuation must reflect the time the taking is attempted. If the city wants to take the property at the apex of the strongest land boom in more than a decade, too bad: the government -- or the Red Sox -- must pay top dollar. And that still doesn't include all the costs. As part of an eminent-domain proceeding, legal experts say, the taker must also compensate business and residential renters who are forced to move. This can be costly.
The city may attempt to take all the land, pay some piddling amount, and wait for the aggrieved landowners to fight it in court. This would mean higher costs in the long run -- but it would get the current crop of politicians off the hook. The issue might not go before a court for five years, by which time many of the politicians who approved the deal might no longer be in office. The scenario is a recipe for another Big Dig-style fiasco -- the citizens have just been told the new park will cost them $275 million when the real figure may be two or three times that. (Tax dollars for Fenway could result in even more government money being spent. Worcester's legislative delegation is promoting a plan to link Fenway money to funding for a new ballpark in that city. Baseball-stadium money for Springfield and perhaps Southeastern Massachusetts might not be far behind if such a scheme were adopted.)
The multimillion-dollar government project that most resembles what the Red Sox want to do in the Fenway is the $700 million convention center. Contrary to what project planners would have you believe, it is behind schedule and could face numerous lawsuits over land taking. Fenway's twin?
The city faces multiple lawsuits over the convention center. The idea that it's on time and on budget is an illusion.
On Wednesday, as Mayor Thomas Menino and Governor Paul Cellucci were scheduled to appear at the groundbreaking ceremony for the convention center, problems regarding the project were beginning to emerge. The groundbreaking is late -- it was supposed to take place earlier this spring -- and even now, not all of the property is vacated. The Boston Water & Sewer Commission is still using its 425 Summer Street headquarters and may not move until at least the end of the year. This is a key parcel, a gateway of sorts to the project. In the meantime, Neal Tully, an attorney for six property owners with land on the site of the planned facility, says the city has failed to offer a fair price for these properties.
The only reason work on the convention-center site appears to be on time and on budget is that 15 to 20 percent of the land needed to build the center was public to begin with. That property went to the convention center for one dollar. "If you include the public property, that can tend to boost the percentage of those who are satisfied," says Tully, who is the name partner at the city's leading eminent-domain firm, Masterman, Culbert & Tully.
Although seven landowners have settled, 10 have not, he says. "If you look at the 10 that have not settled, they probably represent in land area 60 percent of the property in private ownership." Tully represents developer Frank McCourt, who has already filed suit, plus five other landowners; he says he expects to file several more suits shortly.
For those who are considering litigation, the reasoning is simple: the city has not paid enough. "The owners are dissatisfied with the valuations," he says. "They feel they are too low and that the fair market values of their respective properties are considerably higher than what they've been paid by the Boston Redevelopment Authority."
The city made preliminary payments to landowners roughly one year ago, and sporadic negotiations have taken place throughout the year. Tully estimates that legal proceedings will take a year and a half to three years. Three years of expert witnesses, legal haggling, and lawyers' fees could add plenty to the price tag.
-- Seth Gitell
One politician who is concerned about these issues is Finneran, who raised the subject of land-taking during a May 23 speech to the Greater Boston Chamber of Commerce. "I suggested to the members of the audience that they should read the Springfield case," he recalled in an interview with the Phoenix -- adding that the public-purpose question will be one for the courts to decide. "None of us should go into this thinking it's legal serendipity," Finneran says. "It isn't."
Ultimately, a jury will decide what the city will pay -- and it will likely be an amount far greater than $90 million. "The question is what a willing buyer would pay a willing seller," explains Herbert Gleason, a former corporation counsel for the City of Boston and an attorney retained by the Fenway Action Coalition and Save Fenway Park. "You pay market value. To force anyone to accept anything less than that is unconstitutional -- classic deprivation of private property without due process of law."
The case of the South Boston Waterfront, where the city needs to take land to build the new convention center, may offer a preview of what will happen in the Fenway. As an indicator of what the city is paying, the Boston Herald reported that the city paid $43 million for a parcel of land owned by James Pappas -- an amount four times greater than the assessed value. According to the Boston Globe, developer Frank McCourt last month challenged the amount offered to him by the city for his waterfront parcel. McCourt may not be alone. The owners of three-fourths of the private land taken for the convention center are considering going to court to get the city to pay full market value for their property. If the city failed originally to offer these owners a deal comparable to the one Pappas received, a jury will likely rule to bring the amounts in line. The result: even more spending from the city.
Given that the Fenway neighborhood is so hot right now, the Red Sox may be forced to pay an even richer valuation than the convention-center authority will. "You have an improving trend in the neighborhood. It's not stable. It's not declining," says one real-estate appraiser, who declined to be identified. (Appraisers must keep the details of their work for clients confidential. In addition, many may end up in court testifying for one side or another in disputes over what land is worth -- a likely scenario with some of the Fenway parcels.) The appraiser explained that the shortage of office and housing space in Boston, coupled with the Fenway's convenient location, makes the neighborhood a gold mine. To waste this land on a new ballpark would be a mistake, the expert said: "You're screwing properties that are improving very fast."
Nothing exemplifies the changes in the Fenway more than the Landmark Center. What was for years an empty old building now boasts a Staples office-supplies store. A Bed, Bath & Beyond, a state-of-the-art General Cinema theater, and thousands of square feet of office space will soon be in place, and a Longhorn Steakhouse is in the works. Bob Epstein, the chairman of the Abbey Group, which is developing the project, confirms that rents in the building have increased dramatically since the start of work. Abbey is also responsible for a large luxury residential building, Landmark Square, on nearby Peterborough Street.
"There is no question that Landmark Square and Landmark Center have set a totally new standard for the value of space in the Fenway area," Epstein says. "The rents for the last pieces of remaining space [in Landmark Center] are above $35 a foot -- anywhere from double to triple what Fenway rents were five years ago."
These figures are only likely to increase as the Fenway's commercial rents fall into line with the rest of the city. Commercial rents in the Back Bay, a nearby neighborhood whose residents and businesses are spilling into the Fenway, are between $50 and $70 per square foot. And in Brighton, a less convenient area than the Fenway, commercial rents are already $35 per square foot.
Zoning changes could push prices up even more. Menino has appointed a Fenway Planning Task Force to study the possibility of expanding the zoning of much of the area beyond two-story industrial uses. The mayor needs the zoning changes to allow the new ballpark to come in; it's not clear whether the changes will go through if the park isn't built. But, presumably, his willingness to change the zoning has set a precedent that may apply to other developers. By fast-tracking the zoning change and setting up the special committee, he's signaling to developers that the area's traditional zoning usages are not etched in stone.
If the Red Sox had to contend only with the Landmark project, that would be one thing -- but pricey developments are encircling the area proposed for the new ballpark. New projects are announced almost monthly. Just two weeks ago, developer John Rosenthal unveiled plans to construct a massive residential building over the Massachusetts Turnpike, incorporating the site of a current Lansdowne Street garage. Weeks earlier, Steve Samuels announced his plan to build a project with a 200-room hotel, 320 residential units, and 149,000 square feet of retail space on Brookline Avenue. The Samuels project, which is already winning the support of the community, could help bridge the space between Kenmore Square and the Longwood Medical Area.Although nothing has been finalized, the Samuels plans include a Shaw's Supermarket on site. Because Shaw's owns Star Market, this would involve the closing of the Star Market on Boylston Street, which would open up the Star site for yet another development. And these are just some of the more significant changes in the works for the Fenway neighborhood.
All this is going on at the same time that Kenmore Square is experiencing a similarly dramatic transformation. Not only is there some kind of development planned for the Howard Johnson Hotel on Comm Ave, but Great Bays Holdings is constructing a 150-room European-style hotel in the space formerly occupied by the Rathskeller bar. The principal in the company constructing the project, Terrence Guiney, says the development will have commercial space and two restaurants, including one that he hopes will be run in partnership with an elite local chef. Of the prospective rents for the property, Guiney says, "We're assuming we will be at $35 per square foot and above that."
According to Guiney, the Landmark Center helped create the sense that the whole area is in an upswing. "We sensed early on that this very important neighborhood in the city that had fallen into disrepair was about to undergo a turnaround," he says. "It's a terrific location, sitting on the edge of the Boston University campus and near the Longwood hospital complex and on a major transportation hub."
Even without any talk of infrastructure improvements for a new ballpark, plans to refurbish the MBTA hub at Kenmore Square are already under way. Developers such as Guiney believe the multimillion-dollar investment at the T station will someday make the bus kiosk in Kenmore Square less of an eyesore. "It will no longer be just a bus-queuing area," he says. "It will let that area become a part of the Commonwealth Avenue Mall."
"This is absolutely a hotbed," says Robert Cleary, vice-president of Meredith and Grew, the real-estate broker handling the Landmark development. "You've got property values that are skyrocketing over there."
And though some observers attribute the increasing property values to speculation driven by the prospect of a new ballpark, other real-estate experts say that the economics of a stadium make that the least valuable use for the land. Bill Wheaton, the director of the real-estate program at the Massachusetts Institute of Technology, says both the community and the market would be best served with more housing in the Fenway. "It's a very attractive area," he says. "It's close to everything. There's been an improvement in crime. There's a shortage of housing in the city. There's a huge number of professionals in the city that want to live in the city. The next place to expand is that area."
That explains why the Red Sox need the city to purchase the land for them -- the law would allow the team itself to take the land only if the area were "blighted." And especially after the Springfield case, even the city will not have an easy time demonstrating that the ballpark furthers the "public purpose" necessary to allow the land-taking to go forward.
From the public's perspective, there could be many more worthy uses for the land than a baseball stadium. Neighborhood advocates would like to see more housing and mixed-use development. Jethro Heiko, director of community organizing for the Fenway Community Development Corporation, says there is "more potential for housing to be built in the Fenway than even in the waterfront."
There can be no question that the Red Sox have bungled this deal. Just a few years ago, the team had the opportunity to buy at market value a large amount of the land they are now asking the city to take. Instead, Arthur D'Angelo and his family bought the property. Today, defenders of the Red Sox maintain that the team failed to step up to the plate then because it hoped to build a new stadium on the city's waterfront. It was only when the New England Patriots' effort to build there faced massive community resistance that the Sox recognized these plans as futile. Still, even with the lack of acumen the Sox showed in failing to buy up the land when they could, much of the blame for the current difficulties lies with the city, which has jammed the Red Sox into a tough position.At any rate, the upshot is that the Sox have lowballed their estimate of land-acquisition costs. To understand the fix the Red Sox are in, consider what John Harrington told Boston Globe sports columnist Will McDonough two years ago about the costs of land acquisition: "It will probably cost between $80 million and $100 million." That was two years ago -- before Landmark, before the Samuels project, before the biggest economic boom in anybody's memory had revved up. The Red Sox need to rethink their finance plan. How much is the land really worth? In the words of one real-estate developer: "Pure gold." Can we afford that?
Seth Gitell can be reached at sgitell[a]phx.com.
