The Massachusetts Convention Center Authority is planning the first step toward a $2 billion expansion of its South Boston hall with the purchase of a large tract of land on which it would build hundreds of hotel rooms, according to three people with direct knowledge of the transaction.
The authority would spend about $33 million to buy a rectangular lot on D Street, across the street from the Boston Convention & Exhibition Center, according to those with knowledge of the situation.
The 5.5-acre vacant lot is owned by Intercontinental Real Estate Corp.
The authority would not comment on the reported transaction, except to say in a statement that it has been shopping for land around the center and that no deal has been finalized.
The construction of hotel rooms is a key component of a much larger project by the authority to double the center’s exhibition space and build additional ballrooms, restaurants, parking garages, and public parks.
A state panel last year recommended the authority pursue the $2 billion expansion.
The authority would need the Legislature to approve tax increases or other public funds to pay for the project. Funding discussions with state officials are still in the early stages, yet with the land-taking the authority would essentially be laying the groundwork for the larger expansion.
“It’s perfectly clear that the leadership of the convention center authority wants to expand,” said Michael Widmer, president of the business-backed Massachusetts Taxpayers Foundation. “The issue has always been, what is the cost-benefit calculation here? Is this the best use of taxpayer dollars, given that we’re going to be in tight fiscal times for the foreseeable future?”
Officials with the authority have said the convention center needs additional hotel rooms, regardless of the expansion, since the largest trade shows are declining to come to Boston because there are too few places to stay nearby. For that reason, authority executives have been pursuing property around the Summer Street complex for several months.
The authority has been negotiating with Interncontinental and recently reached an agreement to buy the property, people with knowledge of the deal said. The closing is probably still months away. When a deal does close, the authority will use its eminent domain powers to complete the transaction because that process will give the agency a clear title to the property, according to several of the sources.
Eminent domain is the process governmental entities use to acquire property for projects they deem to be in the public interest.
While the government can force an owner to sell, it must also pay fair market value for the property.
However, people with knowledge of the transaction said this deal would essentially be a “friendly” taking agreed to by both parties.
The sale to the authority would appear to preempt an agreement Intercontinental had with another property investor, Hanover Co., to purchase the property for $35 million and construct 584 residences.
In a statement yesterday, Intercontinental Real Estate said:
“We’re working in good faith with a highly credible national developer to sell the property. As for the convention center’s intentions, we can’t control that and we’re still evaluating our options.”
Hanover did not return a call seeking comment.
The competition for the property underscores the rapid growth of the South Boston Waterfront, where developers are vying for a dwindling pool of prime sites.
Several apartment towers are under construction, and Vertex Pharmaceuticals is building an $800 million office complex at Fan Pier.
The private development has begun to clash with the convention authority’s expansion agenda. Although the authority controls a large amount of property adjacent to its complex, it wants more land for hotels, which it believes are crucial to the center’s convention bookings.
James Rooney, executive director of the convention center authority, has long argued that thousands of hotel rooms are needed to attract and retain the largest trade shows and other events.
Currently, large events such as the recent BIO convention must house attendees in hotels several miles from the South Boston hall, requiring organizers to spend additional money on transportation.
There are about about 1,700 hotel rooms within a half-mile of the South Boston hall, while facilities in other cities have between 6,000 and 19,000 rooms nearby.
Still, critics have argued that the state should not be in the business of hotel development and should let the market determine whether there is enough demand for additional accommodations in the area.
The authority is eying D Street for two mid-priced hotels that would offer an alternative to the Westin, Renaissance, and Seaport hotels, all of which emphasize luxury amenities, with prices to match.
The authority is also looking to expand the Westin by hundreds of rooms and build another 1,000-room headquarters hotel, which could require up to $200 million in public subsidies.
Mayor Thomas M. Menino’s administration has continued to offer strong support for the convention center and its expansion plans.
By some measures, 2012 is expected to be a banner year for the South Boston hall, with hotel-room stays expected to exceed 600,000 for the first time in five years.
“The convention center is one of the most important economic engines in our city,” Boston Redevelopment Authority spokeswoman Susan Elsbree said Wednesday.
“Creating more mid-priced hotels around the center will make it even more successful and allow us to host more world-class meetings and events.”