One of the biggest development projects in downtown Boston is facing a financing crunch. Nearly two years after breaking ground on Winthrop Center, the building’s developers say it needs to be downsized if it’s going to be finished.
Millennium Partners on Wednesday asked the Boston Planning & Development Agency for permission to shrink its tower — which would be the tallest building in the Financial District — by nearly 100,000 square feet, and to swap planned condominiums on its upper floors for apartments.
The changes, which will need BPDA approval, were triggered by a financing plan that fell apart amid the coronavirus pandemic that began in March. Since starting work at the site in late 2018, Millennium has spent more than $325 million — mostly its own money — on the 690-foot-tall tower, said Joe Larkin, who heads the firm’s Boston office. It was in the process of raising about $800 million in loans to pay for the rest when the economy cratered, and lenders backed away.
“COVID has really had a wide-reaching effect throughout the economy and the banking industry. We’re not immune to those things,” Larkin said Wednesday. “But we can adapt."
Winthrop Center is the first major project in Boston to be affected — publicly, at least — by the economic slowdown brought on by the public health crisis. Rumors of financing troubles swirled in development circles in recent weeks. While work resumed on the tower when Boston’s construction shutdown ended last month, activity was notably slower than at some other major construction sites downtown. Millennium executives had been working to redesign the project, talking with the city and lenders about how it might be salvaged.
The revised plan shows a building that is a bit smaller ― a 1.45 million square feet of space instead of 1.55 million ― the result of a secondary tower being cut from the back of the building. It would have 321 residential units, instead of 387, and those would likely be apartments, not condos. Plans for roughly 800,000 square feet of office space on the building’s lower floors, and a public “Great Hall” connecting Devonshire and Federal streets, remain the same.
The changes will reduce construction costs by about $80 million, Larkin said, and may make the project more appealing to investors who are wary of financing luxury condominiums in this climate. Approval won’t guarantee funding, he said, but it would definitely improve the odds.
“We’re very confident with these changes that the project will be financed and move forward,” he said.
Officials with the BPDA said they plan to closely scrutinize Millennium’s financing plan, and will hold public meetings on the changes. It’s not clear whether the BPDA board would vote on it in July or later. But city officials want the project to succeed.
The last time the real estate market crashed, in 2008, downtown Boston was left for years with a hole in the ground where Filene’s Basement had been, after a New York development firm halted work on a tower in its early stages. The site became an eyesore and a source of frustration for then-Mayor Thomas M. Menino, but the project was eventually taken over by Millennium, which built Millennium Tower there. Golden said he was hopeful the veteran downtown builders would also be able to figure out Winthrop Center’s complications.
“It’s not in the city’s interest that we have a big hole in the ground there,” he said. “We don’t want to risk that.”
The Walsh administration has other reasons to hope Winthrop Center is finished. Millennium still owes the city more than $50 million for its $150 million-plus purchase of the shuttered city garage that long occupied the site. The precise amount was tied to the square footage of condos sold in the tower, and has varied as the project evolved through planning, but both Larkin and Golden said that deal will be rewritten to account for apartments instead.
“We’re still paying the city the $50 million, whether its rental or for-sale,” he said. “We’re working that out.”
Also to be worked out: affordable housing. To meet the city’s affordable-housing requirement for Winthrop Center, Millennium is partnering with a Chinatown-based housing nonprofit to build a high-rise on Tremont Street aimed at lower- and middle-income residents. Golden said he wants to ensure that project, too, moves forward.
“That project is one of our favorites,” he said. “It’s one of the best things we’ve approved in recent history and we’re committed to making that work.”
Larkin said he’s confident that Millennium will finance, build, and fill Winthrop Center — which is still on track to open in 2022 — and meet all the project’s obligations. But there are no guarantees.
The tower has yet to sign an office tenant, and faces competition from other new towers with space to rent. Some experts predict demand for pricey downtown housing — be it condos or rental — will slide if people opt for more spacious suburbs.
Still, Larkin said, developers are used to ups and downs with projects that often take years before they come to fruition. This one’s no different.
“It would be nice if this was all one easy straight line," he said. “But we always expect challenges.”