River’s Edge, the new office and residential development at the Medford-Malden line, has been hailed as a national model for brownfields redevelopment. Crew teams now row on the once-fetid Malden River. Trash-strewn post-industrial lots have been replaced by Class A office space, luxury apartments and parkland. Planners in Medford, Malden and Everett are already looking to replicate the site’s successes across the river, at the site of a former General Electric plant.
But all is not well on the riverfront. The downturn in commercial real estate is roiling the multi-city development commission charged with acquiring and redeveloping 200 acres along the Malden River. A Middlesex County judge recently upheld a $4 million eminent domain judgment against the Mystic Valley Development Commission. One problem with that: The commission doesn’t have any money, or even insurance, with which to pay the $4 million judgment.
Such is life these days on the municipal side of the commercial real estate crash. Cross-border municipal development partnerships are finding that, when development slows, a host of unanticipated (and costly) problems present themselves.
Back In The Boom Times
The Mystic Valley Development Commission, a multi-city board spanning Medford, Malden and Everett, was formed to reclaim and redevelop 200 acres of brownfields along the Malden River. The commission’s funding came from federal and state grants. It used those grants, and eminent domain powers, to assemble and prepare some 30 acres for the first phase of the River’s Edge project. In April 2008, the commission sold the development parcels to River’s Edge developer Preotle Lane & Assoc. for more than $13 million, and used those proceeds to finance more land acquisitions.
The commission’s member cities haven’t put money into the redevelopment initiative. The commission also lacks reserves, or a revenue stream. Those things didn’t seem to matter in a model in which development generated the cash to fuel future growth. But with the commission suddenly on the hook for $4 million that it doesn’t have, they matter a great deal.
Last month, a Middlesex County Superior Court judge upheld a $4 million judgment against the development commission. The court ruled a jury had not erred when it found the commission had short-changed the owners of a 250,000-square-foot Medford parcel seized through eminent domain. That parcel now comprises a portion of the River’s Edge parking lot. The commission has said it will appeal the ruling.
“If you don’t know what you’re going to do, and you don’t have an extra $4 million, you appeal,” said the plaintiffs’ attorney, George McLaughlin. “But the decision was very clear.” He added, “I want to know where the $4 million is coming from. I have to look under the hood, now that I own the car. They sold the property that was taken. I have a question as to whether it’s a legitimate sale. You can’t give away an asset and say you don’t have the money.”
Medford Rep. Paul Donato characterized the commission as being in “some very difficult financial straits,” adding, “The cities don’t have the money, and the commission doesn’t have the wherewithal” to pay the judgment.
Malden Mayor Richard Howard said the commission’s member cities can’t afford to shoulder the $4 million, adding, “We’re hoping the state understands that we need their continued assistance.”
Asked what the cities would do if the Legislature were disinclined to assume their court damages, Howard replied, “Plan B is, go to the plaintiffs. We can get what we can get. I don’t know how we’ll satisfy the verdict if it stands at $4 million without the state helping us meet it. We’re hoping to convince the state that, like Assembly Square, this continues to be a smart growth area. If part of that is taking care of the verdict, we hope to convince the state that it’s the appropriate thing to do.”
‘Put Together Without Thought’
“With these agreements one of the problems is when times are good there are no problems,” said David Begelfer, CEO of NAIOP Massachusetts. “They get put together without thought of downturn. A lot of these arrangements don’t have the financial backing to weather difficulty.”
To the south, the towns of Abington, Rockland and Weymouth are up against similar difficulties – difficulties that carry a much heftier price tag. Those three towns comprise the South Shore Tri-Town Development Corp., a municipal development entity charged with clearing the way for the $1.5 billion redevelopment of the former South Weymouth Naval Air Station. Like the Mystic Valley Development Commission, Tri-Town has few assets and no revenue stream of its own. It has been unable to bond out $100 million in immediate funding obligations because it has no credit history.
First, Tri-Town missed a March 31 deadline to purchase the air base’s remaining 900 acres from the Navy for $43 million. Then, last month, Tri-Town needed a $250,000 emergency loan from the base’s lead developer, LNR Property Corp., to avoid folding altogether. That loan keeps Tri-Town solvent until September.
The multi-town corporation, which must take hold of the base before turning it over to LNR, is pinning its hopes on Capitol Hill. Congressman Bill Delahunt is pushing a bill that would direct the Navy to hand the South Weymouth base to Tri-Town for free. Tri-Town is also hopeful that federal stimulus funds will cover the cost of a $60 million parkway that’s critical to the success of the base’s redevelopment. Still, the parkway only comprises roughly half of Tri-Town’s infrastructure obligations over the next decade.
“It’s difficult to get financing both in the private sector, and through bonding, unless [assets are] well-secured,” Begelfer said. “The problem is not just local, it’s national and global.”
Begelfer added that public development entities like Tri-Town and the Mystic Valley Development Commission were “not well-funded from the start for the downside,” as they were formed solely to capitalize on growth.
“You really have to be pragmatic as far as the upside and the downside. It’s hard to sell a town meeting on that. No one wants to commit if there’s downside risk. No one wants to think about worst-case scenarios. You’re selling the upside. That may be great marketing, but it’s not how the world works. It works in cycles, and you have to be prepared for the what-ifs.” n