For the past year, the Boston Redevelopment Authority has been demanding that Madison Properties, the owner of a South Boston parcel sitting across the street from the Boston Convention and Exhibition Center, build a hotel. The BRA has dug in on its hotel demands, even though the city knows the hotel it wants can’t be built. Now, with the state convention center authority snapping up land in advance of a major expansion, the city’s hard-line stance places an absurd demand on Madison: build an impossible hotel, and compete with a pair of state-subsidized developments while you’re at it.
For the past six years, Madison has been trying to make a hotel work on a bratwurst-shaped piece of land known as the Sausage Parcel. Its efforts have failed because no one can put a profitable high-rise hotel on the narrow, curving site.
When first conceived, the Sausage Parcel was never even meant to be buildable. The Congress Street parcel is a remainder from the construction of an adjacent Big Dig vent. The parcel is far too narrow to fit the ballrooms, meeting space, and other amenities that allow hotels to charge healthy room rates, and at a budget price point the hotel is a sure money-loser. The Sausage Parcel remains vacant because banks won’t fund projects that can’t make money. According to a report the convention center recently prepared for the BRA, a hotel on the Sausage Parcel is only possible with a massive government subsidy.
The financial obstacles facing a hotel on the Sausage Parcel are an extreme version of the hurdles facing any hotel developer targeting convention business in South Boston. The convention center is surrounded by vacant lots because hotels in the area are bound to be unprofitable; a hotel that charges typical convention rates — say, $200 a night — doesn’t generate enough revenue to justify the cost of building a brand-new tower in Boston. Except for small, exorbitantly priced boutiques on the waterfront, no developer is going to build a market-rate hotel in the Seaport.
That’s a problem for the state-owned convention center, which faces a major shortage of nearby hotel rooms. So, having waited years for a development market that hasn’t arrived, the state is now moving to subsidize hotel construction in a big way.
The Legislature recently gave the convention center authority permission to spend up to $100 million to lay the groundwork for what will ultimately become a $2 billion expansion. Hotel construction will be a major component. The state wants to create up to 2,700 new hotel rooms around the South Boston facility — including 1,500 rooms in the same mid-priced market a Sausage Parcel hotel would operate in.
The public will kick in a lot of money: The convention center is preparing to spend $200 million subsidizing a huge new headquarters hotel along Summer Street. And last week, the convention center took the first step toward subsidizing mid-priced hotels, dropping $33 million to acquire a 5.5-acre parcel along D Street. The convention center will lure as many as 500 hotel rooms to D Street by shouldering the costs of buying land and constructing on-site parking; the convention center will then hand out two ground leases that give a pair of hotel operators a low-cost way of setting up shop, while cutting the convention center in on hotel profits.
D Street will give the convention center some of the hotel rooms it desperately needs. But it’s a disaster for Madison Properties, which is stuck with permits to build a 500-room dead-end hotel tower. For the past year, the BRA has refused Madison’s bid to scrap its hotel plans in favor of a 400-unit apartment tower. The city has ignored the project’s economics and clung to old studies that envisioned the Sausage Parcel is a hotel site.
The convention center’s hotel play on D Street, which will replace a planned 600-unit apartment development, should cause the city to reconsider. It can’t credibly allow the convention center to build subsidized hotels on a D Street apartment site while it resists Madison’s efforts to build apartments on a site permitted for a market-rate hotel — especially when the market-rate hotel has no market.
Paul McMorrow is an associate editor at CommonWealth magazine. His column appears regularly in the Globe.