On GE, Baker and Walsh were smart — but also got lucky
Governor Charlie Baker and Boston Mayor Marty Walsh bet big on General Electric — and just won again.
Not only did GE relocate its headquarters to Boston from Connecticut in 2016, now it won’t cost taxpayers a dime. A scenario, ahem , that I laid out as a possibility back in October when GE abruptly switched CEOs amid another restructuring.
Oh, ye of little faith.
How’s this possible? The city and state wooed the industrial conglomerate with a $145 million incentive package, but the bulk of the money came from the state to buy and renovate two old Necco candy warehouses along the Fort Port Channel that would make up the company’s new headquarters.
For the state, the deal was as much a bet on GE as it was on South Boston real estate. The only way the Commonwealth could lose is if it sold the property at a loss in a bad market.
When all is said and done, here’s another prediction: The Commonwealth will turn a profit from the GE move. You read it here first.
Here’s how: When GE recently decided it would need only the Necco buildings and dropped plans for an adjacent 12-story tower, that set off a reexamination of its incentive package.
The state, through the quasi-public agency MassDevelopment, had already spent about $87 million buying and renovating the Necco buildings. GE, which has been downsizing, planned to sell the land it had set aside for the second phase of its headquarters.
But herein lies the genius of the new agreement inked Thursday between GE and the Commonwealth: The two will jointly market their properties in the hopes that a bigger footprint — 2.7 acres — will draw a bigger offer. One more sweetener: GE is committing to a 10-year lease at the Necco buildings, which is one less tenant the new owner will need to find.
When the properties are sold, GE will use the proceeds to first reimburse the state for $87 million and then itself for any investment it has made into the project. The net profit will then be split between GE and the state.
You can bet there will be interested buyers. I’ve heard GE has received several unsolicited inquiries in recent months. GE purchased its land from Procter & Gamble, which owns Gillette, for $25.6 million in 2016.
How much could it be worth now? Gillette is close to selling about 6.5 acres near the GE site; real estate specialists have told the Globe the land could go for $200 million or more.
That could mean, according to my math, the Necco buildings and GE land are worth a lot more than in 2016. Think about it. They were dilapidated buildings, and now they’re Class A office space sitting next to a shovel-ready parcel.
So is there any bad news from the latest twist in the GE saga? Well, yes. The storied company is going through perhaps its most painful chapter on its third CEO since 2016 and has been forced to shrink and sell off units as it figures out the right mix of businesses that will make it money. The period has been painful for the thousands of employees who have lost their jobs and the investors who have lost billions of dollars as the stock has tanked.
And it’s the reason why GE has to become a real estate flipper. GE, which had hoped to create 800 jobs at its headquarters, won’t come anywhere close to hitting that target. The company anticipates headquarters head count will hover around 250 employees when it moves into the former Necco buildings in August. That’s the same number of employees GE currently has at its temporary digs on Farnsworth Street in the Fort Point Channel neighborhood. (Keep in mind, GE remains a big employer with about 5,000 employees working in other divisions across Massachusetts, though that number could change as the company gets smaller.)
With a lower headquarters headcount, GE is also undoing its tax break package with the city of Boston. The company was set to receive as much as $25 million in property tax breaks had it created 800 jobs.
Like the state, Boston will probably come out ahead on GE. The company remains committed to $50 million in philanthropy it pledged in connection with its relocation. So far about $15 million has been given out to bolster math and science education in Boston Public Schools, support community health programs, and fight the opioid crisis in Massachusetts.
The city and state, of course, have already benefited tremendously from the fact that GE chose Boston as a place where it wanted to reinvent itself, surrounded by kids from MIT and Harvard, the doctors and scientists at teaching hospitals and biotech labs, and tech geniuses at Kendall Square. It was the best corporate relocation ad that they could never buy.
So in the high-stakes hunt for corporate headquarters, Baker and Walsh must be feeling good about how they played their hand. They were smart but also lucky the real estate market is still hot. And that’s how they got GE here without leaving taxpayers holding the bag.
The same can’t be said for New York Governor Andrew Cuomo and New York City Mayor Bill de Blasio. On Thursday, Amazon announced it would not bring a second headquarters to the Big Apple after all.
Turns out the nearly $3 billion in incentives for Amazon to create 25,000 jobs was too rich, even for New York taxpayers and especially for US Representative Alexandria Ocasio-Cortez of New York. The growing opposition spooked the tech giant.
How do you like them apples?