This story ran on page A1 of the Boston Globe on 11/14/2001.
© Copyright 2001 Globe Newspaper Company.Despite likely OK today, Fan Pier project has uncertain future
By Michael Rosenwald, Globe Staff, 11/14/2001Two decades after it was proposed, the $1.2 billion Fan Pier project - the largest private development in Boston's history - is expected to clear its final regulatory hurdle today. But with the economy souring and investment capital evaporating, there won't be a groundbreaking any time soon, the developers say.
The two Boston developers working on the Pritzker family's mixed-use plan for the South Boston Waterfront said yesterday that they have no financing in sight. Nor is it clear when construction will begin, said Daniel O'Connell and Kyle Warwick of Spaulding & Slye Colliers.
''We're going to have to test the market to see what's feasible,'' said Warwick, who also said that Nicholas Pritzker, a scion of the Chicago family that owns the Hyatt Hotel chain, has spent nearly $10 million on the development process. ''We will keep testing the market.''
''With the kind of initiative and money that has been put into this already, you want to test the market to see if you can get to the next step,'' said O'Connell, vice president of Spaulding & Slye. ''You want to try and get it done if it's possible,'' he added later.
It will be arduous, at best, development specialists and financiers say.
Before Sept. 11, the sluggish economy had already forced lenders to tighten their belts, and the terrorist attacks on that day only made matters worse, especially for developers of office space and hotels.
The Fan Pier project, to be built on the Inner Harbor, is to consist of a 650-room Grand Hyatt Hotel, 1.3 million square feet of office space, and 675 luxury housing units, among other cultural and public uses.
''This is a big challenge, a real big challenge for them,'' said Riaz Cassum, senior managing director at Holliday Fenoglio Folwer LP, a firm that matches developers with lenders.
''The market is very cautious. I think it's going to be difficult in the short run to have a lot of people step up and be willing to do this.
''I think they've missed the good market. They've missed the best market we've had in 15 years,'' Cassum said.
Warwick, a principal at Spaulding & Slye, disagreed. He said the Pritzkers have not missed the market, and they remain committed to building as soon as is feasible.
''This is not a project that is going to sit on some shelf in Chicago for 20 years,'' he said.
The Pritzkers have been involved in trying to develop the land for more than two decades, and the project has been held up before, because of a lawsuit and other economic issues. But the project is seen as a key part of building a new neighborhood on what is mostly vacant land on the South Boston Waterfront. It's also an important component in the success of the nearby convention center, which is under construction but mired in its own problems.
Mayor Thomas M. Menino, who describes Fan Pier as ''the impetus for [South Boston] to take off,'' thinks the project will come off with few, if any, hitches. He expects a groundbreaking in 2002.
''I don't think they will have much of a problem,'' Menino said. ''All the doomsayers out there saying they are having problems - they'll sell location, location, location, and they'll be able to get their financing as quickly as possible.''
Mark Maloney, director of the Boston Redevelopment Authority, said, ''I really think we're going to see that project,'' adding that he hadn't seen any indication the developers are ''cutting corners or slowing down at all.''
To get the project built, the developers say, they will likely have to proceed in three stages, so as not to flood the market with space at a time when office and hotel vacancies are on the rise.
Deciding what to build first depends on the economic situation, or as Warwick put it, ''what the market tells us.''
They have a few options. One phase would be the hotel, 300 rental apartments, 150 condos, and about 500,000 square feet of office space.
Another phase would be two condo buildings with 90 to 100 units each.
And the last would be two office buildings totaling 800,000 square feet, along with a new home for the Institute for Contemporary Art.
''Those are the three ways in my mind to do it,'' Warwick said.
Warwick and O'Connell are encouraged by a number of signs from the varying markets the project fits into. While 11 percent of the office space in Boston currently is vacant, that number is still historically low, they say. Hotel occupancy numbers are increasing. And the luxury condo market - measured by the success of Trinity Place in Copley Square and the Residences at the Ritz-Carlton Towers - seems to be holding up.
More importantly, O'Connell said that Boston, with its diverse, seemingly resilient economy and difficult development process, remains one of the top cities in the country for real estate investment.
''We believe very strongly in the future of this marketplace,'' he said.
One issue the development team faces is that lenders almost certainly will require significant cash equity from the Pritzkers. Some observers say that could be difficult for the Pritzkers, because of recent heavy financial losses, perhaps in the hundreds of millions of dolars, from the failure of Superior Bank. A Chicago thrift that the family owns, it was seized by federal regulators in July.
Nicholas Pritzker, who insiders say sees this project as his legacy to the family, told the Globe in September that he is open to the possibility of acquiring a partner. Yesterday, his development team said that remains an option.
The future is anyone's guess, though.
''It's amazing that they go through all this planning, step up to the plate, and then the economy goes in the toilet,'' said Karl Case, an economics professor and real estate specialist at Wellesley College.
Case hopes they can get the project built.
''It takes a terrible eyesore that's just a pit and turns it into a beautiful place,'' he said. ''To have that kind of area would be extraordinary for the city. Right now, it's just a trash heap.''
Michael Rosenwald can be reached by e-mail at mrosenwald@globe.com.
This story ran on page A1 of the Boston Globe on 11/14/2001.
© Copyright 2001 Globe Newspaper Company.
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