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A quiet deal done on a prime Boston waterfront site

Developer Joe Fallon brought buildings and jobs to Fan Pier where others could not. But that doesn’t explain his no bid rights to another Seaport parcel.

South Boston politicians have fought to keep preserve the Marine Industrial Park for manufacturing, fish processing, and other blue collar work.

DAVID L. RYAN/GLOBE STAFF

South Boston politicians have fought to keep preserve the Marine Industrial Park for manufacturing, fish processing, and other blue collar work.

It was one of the most generous land deals on the Boston waterfront in at least 25 years, giving prominent developer Joseph F. Fallon an exclusive chance to develop a prime city-owned lot in the booming South Boston seaport without the city asking if others were interested. Without collecting the usual deposit from Fallon. Without even knowing what Fallon planned to build.

But the five-member board that oversees development on city-owned land had no questions. They took less than 90 seconds at the July 12, 2012, meeting to give Fallon the go-ahead to negotiate a lease to develop the land right next to the Bank of America Pavilion, the popular summer concert venue.

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The unusual deal, which city officials say is now dead, showcases the jostling for inside position in what may be Boston’s last frontier, the 191-acre Marine Industrial Park where vacant government-owned waterfront stretches for nearly a mile. And it’s raising new questions about whether the Menino administration extended special favors to one of the mayor’s favorite developers in a part of the city that sprang to life during Menino’s mayoralty and which some call his legacy.

Fallon, an old friend of the mayor who helped pay for Mayor Thomas M. Menino’s 2006 inaugural festivities, was one of the pioneers in South Boston’s Seaport District, putting up luxury apartments long before the Seaport was one of the nation’s hottest real estate markets. Now, his bold redevelopment of the long-fallow Fan Pier is bringing thousands of jobs to the waterfront.

But the city’s offer to Fallon of an exclusive development opportunity on two waterfront acres that is potentially worth millions may have been more than generous; there was nothing else quite like it in the vast industrial park next to the Seaport District.

Though city officials aren’t legally required to auction off development rights on city property, they almost always do. Since 2007, they have voted to put seven properties out to bid while excepting only two, Fallon’s site and one that went to another developer with strong City Hall connections. But that property, called parcel R, was not on the water and was awarded to developer John E. Kavanagh after he made a losing bid for another park site.

“It looks like the public process was skirted,” said Matt Cahill, executive director of the Boston Finance Commission, a state-appointed watchdog agency that supports public bidding for the long-term use of public land. “Joe Fallon is a fine, reputable developer. But we don’t know the potential best uses of that parcel unless it goes out to bid.”

‘Joe Fallon [left] has done nothing wrong. No one’s done anything wrong,’ said Mayor Thomas Menino.

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Menino confirmed that he has been friends with Fallon for more than 30 years, but said he played no role in the waterfront land deal.

“I had no influence on it – I didn’t even know about it. I found out after the fact,” the mayor said of Fallon’s designation in an interview. “Joe Fallon has done nothing wrong. No one’s done anything wrong.”

And Fallon officials stressed their track record for integrity.

“We’ve successfully developed projects that stimulate economic growth and enhance neighborhoods for more than 20 years by strictly adhering to all federal, state, and local regulations,” said a company statement.

Officials at the Economic Development and Industrial Corporation, part of the Boston Redevelopment Authority, said their quick vote in favor of Fallon last July was just a case of giving a respected developer with a proven track record a chance to try to lure a company like Comcast or another business to the burgeoning waterfront.

“We saw it as a real opportunity to get something done that would be good for the city,” said BRA director Peter Meade, though Fallon never detailed exactly what the project would have entailed. “This was an experienced developer. But it didn’t pan out.”

When the Globe began asking questions about the deal last December, BRA officials said that Fallon had abandoned plans to develop the land sometime in the fall.

The BRA, however, has no record showing the project is dead, and the agency’s vote last July in favor of Fallon as the tentative developer remains in effect until July. The agency did not produce any e-mail in which the agency or the developer suggested the deal had run into problems.

City officials’ treatment of Fallon contrasts starkly with its handling of another marine park property, a dilapidated pier visible from Fallon’s site. A month before Fallon won the city’s backing without competition, the Economic Development and Industrial Corporation put out a 44-page request for bids on the old pier, called Wharf 8, that attracted detailed, polished proposals from four experienced developers vying for development rights.

The controversy underscores the way the same boom that created the Seaport District from scratch over the last decade is now roaring down Seaport Boulevard toward the industrial park, a former military base that generations of Southie politicians have fought to preserve for manufacturing, fish processing, and other blue collar work.

Though parcel V-1, the one assigned to Fallon, is technically inside the industrial park, it is just on the other side of the Bank of America Pavilion from one of the Seaport’s best known new addresses, Liberty Wharf, a handsome wood and glass structure overlooking the harbor that houses four restaurants, including Legal Harborside. The developer of Liberty Wharf earned a cool $26 million profit from selling it last year.

City officials insist that they would not have allowed Fallon to build a restaurant in the industrial park, but internal ­e-mails show that they were negotiating to make zoning changes that would have allowed Fallon to build offices, retail shops, or restaurants if he chose.

There’s plenty of precedent for recreation in the industrial park: Already, visitors can shop for luxury furniture in the Boston Design Center, have a beer at the Harpoon Brewery pub, or a lobster roll in the restaurant at Yankee Lobster. Even the 5,000-seat pavilion was carved out of the industrial park by the legislature in 1999.

And more is coming: The would-be developers of Wharf 8 inside the park have proposed everything from a five-star restaurant and luxury hotels to a floating concert hall to a college marine studies program. City officials are expected to make a choice later this year.

The growing commercialization of the park long ago prompted former BRA head John Palmieri to warn that it could become “a slippery slope” leading to a makeover of the entire area.

James Doolin, chief development officer of the Port Authority of Massachusetts, the other big public land owner along the Southie waterfront, said there’s a “new buzz” in the area, one that “speaks to a demographic that is young, employed, and looking for social spaces.”

Meanwhile, industrial developments, such as a fish-processing facility recently planned for the park, have collapsed, with the developers forfeiting a $150,000 deposit, apparently because of a lack of financial backing, leaving little doubt that the momentum on the waterfront is behind shopping, entertainment, hotels, and other recreational activities.

“The seafood industry in Boston is simply not strong enough in any way to fill the park,” said Eden Milroy, who developed large seafood processing buildings in the Marine Industrial Park in 1997 and 2001. These days, he said, several seafood companies in the park “would like to open up restaurants if they could.”

Joe Fallon’s interest in the industrial park property called V-1 grew directly out of one of his biggest triumphs, his megaproject on long-fallow Fan Pier.

For 25 years, the Pritzker family of Chicago had tried in vain to develop the extraordinary 21-acre waterfront property with its grand views of the city skyline. But when Fallon and partner Massachusetts Mutual Insurance acquired Fan Pier for $115 million in 2005, it marked the beginning of a new era.

For Menino, Fallon’s intervention inspired hope that the best undeveloped waterfront site in Boston would now become a cornerstone of a neighborhood created entirely on his watch, his version of the Back Bay. It also cemented a friendship dating back to the 1980s.

During Menino’s reelection campaign in the fall of 2005, Fallon told a Globe reporter that he was proud of his ties to Menino, joking, “I’ll be driving people to the polls next week.”

Fallon needed almost six years, but finally, in January 2011, Cambridge-based Vertex Pharmaceuticals, an international biotechnology firm, committed to renting 1.1 million square feet of space for its headquarters there, bringing at least 1,300 permanent jobs and more than 1,000 construction jobs to the waterfront — the biggest private construction job in the country at the time.

“It took a little longer than we expected,” a relieved Menino told the Globe in 2011. “We took a lot of hits. There were a lot of naysayers, but Joe Fallon wasn’t a naysayer. I wasn’t a naysayer.”

Vertex officials initially said that in addition to offices on the Fan Pier, they needed 90,000 square feet of manufacturing space nearby. Fallon’s team thought V-1 — less than a mile away — would fit the bill and the BRA saw no conflict with the park’s mission to foster industry.

The Economic Development and Industrial Corporation normally holds open auctions for development rights, but the board is under no such obligation. In the late 1990s, for example, several companies forced to relocate to make way for the new convention center were awarded new sites in the park without competition. The city began lease negotiations with Fallon in October 2011.

But some time in early 2012 Vertex decided to put its manufacturing operations in an existing, for-rent building in the marine industrial park, leaving Fallon with a partially negotiated agreement for a waterfront property, but no project to put there.

In June 2012, Joe Fallon discussed the possibility of developing V-1 without Vertex as a tenant with the BRA’s head of economic development, Brenda McKenzie, city e-mail records show.

Fallon’s revived proposal came just minutes before adjournment of the July 12, 2012, board meeting of the Economic Development and Industrial Corporation on the ninth floor of city hall. Fallon officials did not present their case, leaving BRA deputy director Dennis Davis to describe their plan in the most general terms.

“The Fallon Company has approached the BRA to pursue some of the existing demands that are out there in the commercial real estate community for new build-to-suit opportunities,” he said.

Without any discussion, the five-member board — four of them appointed by Menino — voted unanimously in favor of the motion to designate Fallon to develop V-1.

Under the plan, Fallon was supposed to make a $50,000 nonrefundable deposit to lock in the deal. But, in a break with the practice followed for other developers, Fallon’s deposit was not due until after a lease was finalized. No deposit was paid before the date the BRA says he abandoned the site.

In the three months after he was assigned as developer of the V-1 parcel, Fallon and city officials hammered out a tentative 35-year lease and zoning agreement specifying what Fallon would be allowed to build in that slice of the industrial park.

Drafts of the proposed agreement show that Fallon was looking for maximum flexibility. The proposed building under his revived plan began at 40,000-80,000 square feet but ballooned to 150,000 square feet as the negotiations continued. At one point, Fallon officials suggested that the building could house a “radio or television studio . . . as well as other lawful uses.”

And Fallon’s lawyers were careful to avoid restrictions in the proposed lease, at one point cautioning BRA officials to strike language left over from when Vertex was going to use the site that could have limited tenants to “life science and biomedical users.”

BRA officials say that Fallon never asked to build restaurants or other commercial facilities on V-1, instead focusing on luring Comcast Cable or other company offices to the property.

“It was never going to be a restaurant,” said BRA spokeswoman Susan Elsbree. “We would never consider that a viable use.”

But the tentative agreement between Fallon and the city would have permitted “general industrial uses” on V-1, a category which includes retail shops and restaurants, prompting one BRA attorney to ask what Boston was getting in return. In September 2012, Hugo Solis asked Fallon’s attorney “what consideration [Fallon] is providing for such a valuable change in use.” The Fallon attorney replied that another BRA official had proposed the idea.

The potential profitability of waterfront dining was clear from nearby Liberty Wharf, home to four restaurants. In spring 2011, big crowds and rave reviews greeted the opening of the project which Cresset Development sold in December 2012 for $66 million — $26 million over its development costs.

Then, on September 27, 2012, two days after a Fallon lawyer said he was “eager” to move forward with the project, the e-mails on file at the BRA simply stop.

When the Globe first asked BRA officials in December about the agency’s no-bid designation of Fallon for the V-1 site, they initially justified it as an appropriate accommodation to the waterfront’s most important new tenant, even though the vote came weeks after a city of Boston press release announced Vertex was going elsewhere.

Later, BRA officials clarified that the vote was to give Fallon another shot to find tenants for the site. But by December, they said, Fallon had notified them that the firm couldn’t do it. The BRA could provide nothing in writing that substantiated this.

“They were asking us to consider other uses. We were in the process of vetting it and reviewing it” when the deal collapsed, said BRA director Meade, who said that he would have considered another developer’s ideas for the same site at any time if someone had come along. Now, he said, BRA will probably hold an open bid for development ideas for V-1.

Menino said V-1 may be hard to develop because the Ted Williams Tunnel was built beneath it, which could increase development costs.“If this was a good parcel there would be 44 developers trying to get it,” he said. “But no one’s jumping at it. Fallon doesn’t want it.”

Massport, which owns large tracts of waterfront property of their own, has a written policy requiring bids except in very specific cases. It has proved an easy way to avoid the appearance of insider deals: put the properties out to bid so that all potential developers get a shot.

“It’s a way of saying we’re open for business and we insist on a transparent process,” said Doolin of the Massport development office.

Sean P. Murphy can be reached at smurphy@globe.com. Follow him on Twitter at spmurphyboston.
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