Work has stopped on one of the highest-profile construction projects in the city. And it’s up to the city to help get it restarted.
The Boston Planning & Development Agency board is set to vote Thursday on changes to the partially built Winthrop Center tower on Federal Street, revisions that would make it slightly smaller and allow planned condominiums to instead be rental apartments. The developer says the changes are essential to resuming work on the project.
Financing for the $1.3 billion office and residential tower fell through at the start of the coronavirus pandemic, according to developer Millennium Partners, and it can’t find a lender willing to back high-end condos during the virus-induced recession. Construction, which began 18 months go, restarted for a short period when the city lifted its temporary building ban in May, but has now effectively sputtered, leaving a foundation — and little else — on a key site in the heart of downtown Boston.
Millennium has cooked up a new plan its says should make it easier to obtain financing. It includes paring back the residential portion of the project by about 100,000 square feet — which will save about $100 million — and building apartments instead of condos. Joe Larkin, who is spearheading the project for Millennium, said that plan should jump-start the project, but it needs the BPDA’s OK.
“We really appreciate the city’s effort and the public’s effort to review our request,” Larkin said. “We’re hopeful that the BPDA board approves this change.”
City officials on Wednesday sounded inclined to do so.
The BPDA hired accounting firm Ernst & Young to review Millennium’s proposal, and after talking with institutional investors and other developers, the firm reported that financing has indeed dried up for high-end condos, but a rental project should be feasible. The report wasn’t yet finalized Wednesday, but should be by Thursday’s meeting, said BPDA director Brian Golden.
“The world has changed and this project is going to have to change with it,” Golden said.
Months into in this broad economic crisis, Millennium’s troubles appear to be somewhat unique locally. Most other major projects underway in the city resumed construction after the city building ban ended, and are pushing ahead. A few, most notably a $700 million mixed-use complex above the Massachusetts Turnpike in the Back Bay, have even launched since the pandemic struck. For Millennium, though, the timing couldn’t have been worse.
The veteran downtown developer — which sold roughly $1 billion worth of condos at its Millennium Tower when it opened at Downtown Crossing in 2016 — had spent more than $350 million of its own money to buy and raze the shuttered Winthrop Square Garage, devise plans for what will be downtown’s tallest tower, and even dig its foundation. Before the pandemic, it was in the process of raising $800 million in loans to finish the job, and while most of its financing held together, Larkin said, investors in the condo portion of the tower pulled out.
Since then, Millennium has been talking regularly with new investors, and Larkin said he’s confident that a rental project will be easier to finance. It hopes to close on loans and re-start construction by September.
“If we’re fortunate to get this approval, it puts us on the pathway,” Larkin said. “It’s a thing we need to do that puts us on the pathway to get this financing.”
But it’s not without costs.
In 2016, when Millennium won development rights for the city-owned garage, it offered to pay $153 million, far more than the other five developers vying for the site. That money was a major reason Millennium won the bidding, and a big reason Mayor Martin J. Walsh pushed hard to change state laws governing shadows on Boston Common to allow the project to reach its 691-foot height. The developer paid the city about two-thirds of that money — $102 million — when it took over the site in 2018. The final payment amount — which has fluctuated a bit as the tower’s proposed size shifted during design — was tied to the sale of condos, and is due when those deals close. The money still be due, the city and Millennium promise, even if those condos become rentals. But it will be paid over 10 years, instead of all at once.
The switch may also reduce Millennium’s required contribution for affordable housing. Under the city’s Inclusionary Development Program, Millennium was due to pay $48 million for its condos, which the firm had earmarked toward an affordable high-rise it’s planning in Chinatown. Rentals require less in housing payments, with Millennium now owing just $22 million under the revised plan.
It’s not ideal, Golden said, and blows a hole in the financing for that affordable project in Chinatown. But at the moment, he acknowledged, the city doesn’t have much choice.
“We’d all love this to go according to plan. But it’s not,” he said. “The choice was to accommodate the new reality, or get a hole in the ground.”
Some worry that’s what will happen anyway, despite the tweaks. Millennium hasn’t yet signed any tenants for the tower’s 772,000 square feet of office space, in an office market that is rapidly softening. And Ernst & Young’s report will suggest that even with the switch to rental, finding financing is not a certainty, BPDA officials said.
Karen Firestone, an investment manager who served on the BPDA’s neighborhood advisory committee for the tower, notes it was Millennium that came to the rescue in the last recession after Vornado Realty Trust started, then stopped, its would-be tower in Downtown Crossing and left a gaping hole in the ground where Filene’s Basement used to be. While she was hopeful the new financing plan would work, she worries about what might happen if it doesn’t.
“I’m concerned,” said Firestone, whose office sits across the street from the now-quiet construction site. “This project is at a standstill. It could sit there for years, just like that hole where Millennium Tower sits now. This could be the same.”