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© Copyright 2004 Globe Newspaper Company.
Published in The Boston Globe, November 9, 2004
Karp team won't buy Fan Pier
For 2d time in less than two months, a deal for site fails
By Thomas C. Palmer Jr., Globe Staff
For the second time in less than two months, a prospective buyer of the prime Fan Pier land in South Boston has pulled out of a deal.
A team led by shopping-center developer Stephen R. Karp, chairman of New England Development, yesterday informed the Pritzker family of Chicago, owner of the land, that he would not deliver a $10 million payment that was due at 5 p.m.
The last-minute surprise was the latest twist in the history of what is supposedly a coveted piece of waterfront property near downtown. But Fan Pier has gone undeveloped for decades, and now two experienced development teams have taken a look and failed to close deals after having reached tentative agreements to buy the property.
"A combination of both price and cost are of concern," said Mark Maloney, director of the Boston Redevelopment Authority, who said he had spoken yesterday to Karp on the phone.
Karp had a tentative agreement to pay $125 million -- apparently the same that a team led by Lennar Corp. of Florida had bid late in the summer, before being edged out by Karp in September.
Karp and his partners last night issued a statement saying the their team "is not moving forward with the purchase." The statement said that it would forfeit a $2.5 million deposit, "of which each partner's share is one-third."
The cost that Maloney referred to is the considerable amount of upfront capital expected to be required for foundations, sewer systems, underground parking, and roads on the raw land -- as well as millions of dollars worth of public amenities.
Maloney said Karp was disappointed that he could not make the deal work during his current "due diligence" period and wanted to see Fan Pier developed. Due diligence is the period in which a prospective buyer has a chance to examine the intricacies of a property before committing himself completely to the purchase.
Karp controls the Anthony's Pier 4 site, adjacent to Fan Pier, and was expected to try to coordinate development of the two.
Maloney said that a changed marketplace since the terrorism attacks of Sept. 11, 2001, and the recent economic downturn, leading to less need for office space and more for housing, had raised concerns about how any developer would pay the enormous upfront costs of developing Fan Pier, when the return on that investment might be years in coming.
"He couldn't figure out in the 45 days he had how to do that," Maloney said. "He wasn't going to give them the $10 million today. He couldn't think it through."
About a year ago, the Pritzkers said they wanted to sell the 21 waterfront acres that make up Fan Pier. The property had already received permits from the city and state for about 3 million square feet of residential, office, hotel, and commercial development, along with a large amount of civic and open space.
The long development process, estimated to cost $1.2 billion, was too complex for Hyatt Development Corp., which specializes in hotels and other business.
Nicholas J. Pritzker, chairman of Hyatt, issued a statement last night saying that Hyatt wants to find a buyer that will keep the promises made during the long permitting process.
"We have said all along that we were intent on finding a purchaser that would keep faith with the commitments we have made to the city and civic leaders," Pritzker said.
Pritzker spoke with Boston Mayor Thomas M. Menino on the phone about the sudden developments, according to two people involved.
Officials at Lennar declined to comment. But several people involved in the Fan Pier deal said Pritzker contacted Lennar immediately after Karp pulled out to see whether Lennar was still interested.
One executive, who asked not to be identified, said the Pritzkers would be talking with at least two of the bidders -- including Lennar -- that had been interested in the land last summer.
Another executive, involved with one of the teams that bid on the Fan Pier property last summer, said that yesterday's development was good news for that group, Leggat McCall Properties LLC, CS First Boston, and ING Group, a Dutch-based global financial company. The group has been interested in Fan Pier for a long time, has local roots, and bid an amount that was in line with what both Karp and Lennar had bid, the executive said.
Steven D. Fessler, executive vice president with Leggat McCall, would not comment on his company's involvement other than to say, "We've been on this project for the last six months and continue to be interested in the property."
In his bid, Karp was teamed up with the Prudential Center's owner, Boston Properties Inc., and the Related Cos. LP of New York.
Maloney said that the cost of public accommodations, such as the land for a new Institute of Contemporary Art, which recently broke ground on Fan Pier, and the streets and other basic costs may be too much in the current market.
"Maybe we should entertain a conversation about the timing," Maloney said, "of the public accommodations not accruing quite so quickly -- maybe having them reviewed and refined."
Maloney said that the added value of the public amenities required by government officials was a burden, especially when bidders are paying so much for the property.
"The real problem is the collision of that price with what we are demanding for the public," he said. "A good plan that cannot be built is not good enough."
Thomas C. Palmer Jr. can be reached at email@example.com.
© Copyright 2004 Globe Newspaper Company.
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