Stymied by a finicky capital market, W. Kevin Fitzgerald’s 400,000-square-foot office/ hotel complex planned near Boston Common is being repositioned as a luxury residential project, the veteran landlord and parking lot operator acknowledged last week.
While declining comment on specifics until he meets with residents of the abutting Chinatown neighborhood, Fitzgerald confirmed that he has been in negotiations with Charles E. Smith Residential Realty. According to sources, Fitzgerald and the Virginia-based real estate investment trust had a signed letter of intent for the development of the property that has since expired. That does not apparently mean the deal is dead, however.
Although Fitzgerald would not discuss any details, he did say that he and the REIT “are trying to enter into a firm partnership agreement” for the site, which is located at the corner of Washington and Essex streets near Downtown Crossing. “Like all things, these things take time,” said Fitzgerald, who would not discuss the matter further. If a pact went through, Charles E. Smith reportedly would operate the residential portion of the building, while Fitzgerald’s Fitz-Inn Parking Systems would oversee the estimated 400 parking spaces that would be added.
The change of plans for what was to be called Liberty Center reflects both the vagaries of the real estate industry and changes in the financial markets. When Fitzgerald first entertained thoughts of developing his 23-story building, it appeared that he had both an office user and a hotel operator to help anchor the estimated $120 million project. For various reasons, those arrangements ultimately fell through, although the more daunting problems came on the financing end of the effort.
Even in Boston’s booming downtown, where both office space and hotel rooms are in short supply, the financial markets have continued to shy away from backing such ventures without significant equity contributions. Coupled with rising construction costs, hotel projects throughout the city – including Starwood Hotel’s planned convention facility in the Seaport District – have found difficult sledding when trying to get the funding in place.
Whether those difficulties played into Fitzgerald’s decision is unclear, but industry observers say they believe it could be a prudent move given the current climate. According to Fantini & Gorga principal George J. Fantini, for example, “there’s much more debt and equity out there for multifamily housing than there is for office, and certainly for hotels.”
Fantini added that he believes the proposed location would also be attractive for residential use, especially given construction of Millennium Place barely a block away. That $475 million venture will include a mix of condominiums, office space and a Ritz Carlton Hotel. Along with the prestigious hotel, Fantini noted the project calls for amenities that would attract nearby residents, including a health club, restaurants and a major movie complex.
“I think he’s got a terrific story to tell,” Fantini said of Fitzgerald. “Big league housing investors on the luxury end will find that place as good a location as you can find.”
Quick Transition
That outlook has only come about recently, Fantini added, given that Fitzgerald’s project is located in the heart of the infamous Combat Zone, the adult entertainment district that has been slowly eroding for the past decade. Indeed, as part of his project, Fitzgerald earlier this year acquired the Liberty Bookstore Two for $7.5 million with plans to demolish that building to make way for Liberty Center.
Efforts to convert the midtown section have gone through various fits and stops since the late 1980s, but Fantini said he believes the change is now in full force. “In my 35 years in the business, I can’t think of an area that’s going to transition as quickly as that one,” said Fantini. “It’s really quite dramatic.”
Calls to Charles E. Smith were not returned by press deadline, but others familiar with the location said they also believe it would work well for housing. One source at a competing firm estimated that just over 300 units could be generated, although he added that, “there’s a lot of complicated pieces to the project,” including the question of how the structure would wrap around the existing Liberty Tree building on the corner of the block.
Despite those challenges, the source also said he believes Fitzgerald has the experience to succeed with the concept, both due to the proposed use and the developer himself. “Kevin is a tremendous asset to that whole area,” said the source, who requested anonymity. “I’m sure he has the political savvy to get it done.”
Charles E. Smith has been trying to crack the Boston market for some time, having made its original foray into the area in 1997 when it paid $27.2 million for 2000 Commonwealth Ave. in Brighton, a luxury high-rise apartment building developed by Jerome Rappaport. The REIT also reportedly had tried to acquire the former Stop & Shop bakery warehouse in Boston’s North Station district earlier this year, but failed when the Intercontinental Cos. acquired it for $24 million.
