General Electric Co. has sold its headquarters property in Fort Point for $252 million, a deal that yields a modest profit for the state and helps soften the blow following the company’s decision to scale back its once-bold Boston ambitions of just three years ago.
The sale to Alexandria Real Estate Equities and National Development closed Thursday, and will allow a state agency that partly owns the site, MassDevelopment, to recoup the $87 million in public funds sunk into the property so far, as well as an additional $11 million in profit.
The sale price ensures the state did not lose money on its most prominent corporate relocation prize in recent memory. GE made splashy promises in 2016 that included a headquarters complex with two renovated brick warehouses and anchored by a distinctive 12-story waterfront tower, and 800 new jobs. The reality turned out to be less celebratory, with GE recently paring back its Boston construction and hiring plans after it underwent a major retrenchment.
“Thank God the real estate market went up,” said Mark Williams, a finance professor at Boston University.
When GE moved to Boston, “We were just calculating the upside” three years ago, “and we weren’t really focused on the downside,” Williams said.
When they put the 2.7-acre property on the market in February, MassDevelopment and GE entered into an arrangement to divide the proceeds: the state would first be made whole for its investment, then GE would be repaid for its costs; any leftover money would then be split equally between the company and the state. The original offer to GE included up to $120 million in state aid, but MassDevelopment had only spent $87 million by the time GE decided to sell.
“In this case, the state is making money on its investment, and getting the GE headquarters at the same time,” said Jay Ash, Governor Charlie Baker’s former economic development secretary, and a point person on the original GE deal. “Not only are we getting all the money back, plus some, but we also got the prize. GE is still a company with significant depth.”
But it will be a smaller GE that moves from temporary offices into two refurbished brick buildings on the Necco Street site this fall, with just 250 headquarters employees, including most of its executive team. The company is on its third chief executive since announcing the move to Boston, and both current boss Larry Culp and his predecessor focused on divesting business lines such as its train engine and life sciences divisions to streamline the once sprawling company, and to respond to shareholders upset about GE’s declining stock price.
The original incentives package also included up to $25 million in potential property tax breaks for GE from the City of Boston. But the company had not taken advantage of those yet, and the tax breaks do not carry over to the new property owner.
The deal also means GE could have a life sciences company for a neighbor: Alexandria is best known for developing properties that serve that industry and has amassed a cluster of biotech offices and labs in Cambridge’s Kendall Square.
“You could not ask for a more savvy developer in terms of attracting pharma companies,” said John Boyd, a relocation consultant based in Princeton, N.J. “This is not bad news for Boston.”
GE has a 12-year lease on the refurbished Necco brick-and-beam buildings, which are being combined into one 95,000-square-foot structure. The rest of the property includes about one acre of developable land and permits for the 297,000-square-foot tower.
“We were thrilled with the really strong interest in the property,” said Ann Klee, a vice president at GE who helped manage the sale. “It’s a reflection of the tremendous growth in the Seaport and in Boston. That was always something we hoped we would be able to be a part of, and to help catalyze.”
Brian Kavoogian, president of Charles River Realty Investors, an arm of National Development, said the proximity to South Station justified paying a premium. Alexandria and National Development also recently purchased the Necco Street garage next door, for $81 million, with the hopes of chasing the GE site. The six-story garage offers roughly 600 spaces, he said, while the GE property is permitted for only 30.
“We think this is one of the best sites in all of Greater Boston. It’s a high price, [but] we feel it’s rational in the context,” Kavoogian said. “We’ve had our eye on this Fort Point area for quite a while.”
The real estate partners are in the early stages of considering possible redevelopment opportunities for the garage property, Kavoogian said, but any project there would still contain a significant amount of parking.
Meanwhile, Kavoogian said National Development and Alexandria also “looked very hard” at the 6½-acre piece of land next door, a parking lot that is part of Procter & Gamble’s Gillette campus. Related Beal ended up winning that competition.
Given Alexandria’s expertise, Kavoogian said it’s likely the proposed building at the GE site will be for life sciences, but could also be a more traditional corporate office building. Alexandria is separately moving ahead with a life sciences building on nearby A Street, closer to West Broadway.
Kavoogian said the buyers will make only modest changes to GE’s plans for the new building, and submit them to the Boston Planning & Development Agency.
Alexandria’s big bet on the property underscores the potential for an emerging life sciences cluster in the Seaport area. Developers and biotechs have been looking for other locations to accommodate some of the overflow.
The deal also highlights how much property values in Fort Point, and the broader Seaport area, have climbed since state and city officials convinced GE to move there more than three years ago.
“We always knew, at the end of the day, that the backstop was this very valuable property,” said Ash, now the chief executive of the Massachusetts Competitive Partnership, a group of high-powered CEOs.
Even at its reduced size, GE promises to live up to another commitment it made when it moved to Boston: $50 million in philanthropic donations, of which the GE foundation has already spent $15 million.
“We’re going to be here for decades,” Klee said. “We wanted to be good citizens. . . . We wanted to honor the spirit and the letter of the incentives package.”