City and convention center officials are considering property tax breaks to help build a massive hotel complex across from the Boston Convention & Exhibition Center, even as the area has emerged as one of the hottest urban real estate markets on the East Coast.
Mayor Martin J. Walsh said officials are “in discussions” about providing a public subsidy for the South Boston waterfront project, which would have at least 1,200 rooms and cost roughly $800 million to build.
“Everything is on the table,” the mayor said Thursday night. “If it’s going to help grow the area, I’m certainly not going to walk away from it.”
That approach troubles Greg Sullivan, research director at the Pioneer Institute, a conservative think tank in Boston.
“If the convention center expansion can’t attract a major hotel company to build a hotel directly across the street from the convention center on its own merits,” he said, “then what is the point?”
Because the process of selecting a developer remains in the early stages, Walsh and others involved said it is too soon to negotiate the size of any subsidy the city would provide.
The Massachusetts Convention Center Authority wants the hotel built in conjunction with the center’s $1 billion expansion. But the future of that expansion became uncertain when Governor Charlie Baker’s administration put a hold on the issuing of bonds, expressing caution about spending money on the project amid a large budget deficit.
Convention Center Authority chief James Rooney’s uncertain tenure is also complicating matters. Rooney, the expansion project’s biggest cheerleader, could be gone soon: He is considered a top contender to take over as chief executive of the Greater Boston Chamber of Commerce this spring.
Expansion proponents remain hopeful that Baker will soon authorize the bonds. But if it gets shelved, officials say they would probably scratch the current hotel bidding and restart the process for a smaller hotel.
Baker spokesman Tim Buckley said the administration is not considering additional state funds for the hotel, and the administration recently shared that view with the convention center leadership.
Last month, three development teams submitted a total of six proposals for the hotel project. An eight-member panel with representatives from the convention center and the Massachusetts Port Authority is expected to select a winner by this summer, in time for the hotel project to break ground in 2016 and open in 2019.
The hotel would be built on two Massport-owned parcels totaling five acres along Summer Street and separated by D Street, to be connected with a pedestrian bridge. The complex would be on par with Boston’s largest hotel, the 1,220-room Sheraton in the Back Bay.
Massport chief executive Thomas Glynn said he remains optimistic about keeping any public subsidies to a minimum. He declined to say how much of a property tax subsidy the development teams are seeking as part of their bids, or if all of the bids rely on a subsidy. Proposals with smaller subsidy requests will get better scores in the bid review.
“Our job is to get the best deal for the public sector,” Glynn said. “We want the private sector to step up as much as possible.”
Ronald Rakow, Walsh’s assessing commissioner and the city’s representative on the convention center board, said the discussions that the mayor referenced relate to Massport’s hotel bid process.
City officials, he said, have had no conversations in the past few months about a subsidy for the new hotel.
Rooney said 20 of the convention center-affiliated hotels built in the past 15 years in the United States have had some form of government assistance. One of the reasons he cited: Hotel operators are largely out of the development business now, and the investors involved in these projects want a quick return on their investments.
Rooney said he will not go to the city with a formal tax-break request until he knows how much the chosen developer would need to build the hotel. He said he expects talks with city officials will begin in May.
“I have not had a discussion with the city of Boston around any specific numbers,” Rooney said. “[But] we generally have spoken about the way these things get built.”
The Pioneer Institute has waged a war against any convention center hotel subsidy for at least a year, arguing that if the convention center is successful, the activity there should be enough to spur private construction without public help.
“My concern with this procurement is that lurking in the shadows is the motivation to provide a subsidy to the developer,” said Pioneer’s Sullivan, a former state inspector general.
It is not unusual for tax breaks to be given to hotel projects in Boston, and some early participants in the waterfront’s current boom received property tax relief.
Typically, these breaks consist of a transition period in which the full property tax is deferred for many years, and the amount paid to the city rises over that time. These packages are usually worth millions of dollars.
In the case of the 790-room Westin hotel that opened next to the convention center in 2006, that transition period lasted for six years, including two years of construction. A project that includes an Aloft and an Element hotel, with roughly 500 rooms, underway on D Street, has a seven-year transition period.
These days, there is more construction in the Seaport neighborhood than any other part of the city, with cranes in nearly every direction and real estate prices soaring.
Major Boston-area employers have either moved in or are building flashy new offices there.
Aside from property tax breaks, there are other ways to help spur construction. Massport is allowing the hotel developer to use the site rent-free for two years over the course of a 95-year lease. The minimum annual rent payment would then ratchet upward to $1.8 million at the 14-year point after the hotel opens.
Glynn said the system essentially allows Massport to recoup the lost rent in the early years by charging more during most of the later years in the lease. Massport created a similar system of escalating rents for the Renaissance hotel that opened on Congress Street in 2008, Glynn said.
The bidders for the convention center hotel project also have another incentive: The convention center authority will guarantee that a certain number of room nights will be filled at the hotel.
And Massport plans to build a parking garage next to the hotel with at least 1,500 spaces, alleviating a parking requirement for the hotel developer. The garage would be available to the hotel for its use but also to others in the waterfront area.
Representatives for the bidding teams did not return calls or declined to comment about the subsidies they might be seeking. The three development teams are: Fallon Co. and Capstone Development; New Boston Hospitality, a group that includes the Davis Cos. and Congress Group; and RIDA Development, Accordia Partners, and Ares Management. The hotel brands under consideration include Hilton, Hyatt, Marriott, and Omni.