A newly unredacted version of Alexandria Real Estate’s initial proposal for the Mercer Megablock shows that the winning bidder to buy the three-property parcel initially proposed a ground lease—not a sale—that would have included a $31 million initial payment, followed by annual rent payments that would have started at $2.6 million a year. Renting the land out under a long-term ground lease would have kept the 3-acre parcel in public ownership, but could have been less lucrative for the city, which ultimately sold the land to Alexandria outright for $138 million, plus a $5 million payment for future homelessness programs.
The original request for proposals for the site made it clear that the city “has a strong preference to structure the transaction for the site as an unsubordinated long-term ground lease” but would consider a sale. “The value differential that we saw was really, really large between what was being offered on the lease relative to the cash up front,” city budget director Ben Noble says.
Alexandria’s initial proposal estimated the net present value of a ground lease—that is, the amount those annual payments would be worth in 2019 dollars by the end of the lease term—at $69 million, for a total value along with the initial payment of $100 million. This was a bit more than Alexandria’s initial proposal to buy the land outright for about $98 million. Since Alexandria’s offer to buy increased nearly 40 percent, however, it seems likely that their best and final offer for a ground lease would have increased, too, raising the total value of the bid to a level similar to what the city will get from the sale. It’s unclear whether Alexandria’s best and final offer included a ground lease option; I’ve requested a copy of this offer from the city.
Alexandria’s unredacted proposal, which is being published here for the first time, includes a number of details that have not been previously known about the real-estate firm’s plans for the three megablock properties.
The document Alexandria originally provided to the city included extensive redactions that concealed all of the information about the ground lease proposal. The company also blacked out details about what will go in the planned commercial space (including a business incubator and conference center), the address of a project in San Francisco that the company is currently building (88 Bluxome), the amount of open space that’s included in an Alexandria project in Cambridge (2.2 acres), and the height of each floor in its proposed life sciences buildings (13 feet).
My request for the documents, filed on August 7, led to a considerable amount of back-and-forth with the mayor’s office, which responded to my questions selectively and incompletely. (I still have several unanswered questions, for example, about the way the mayor’s office handled both Alexandria’s “proposed redactions” and my request.) Initially, the city informed me that if I wanted the unredacted documents, the mayor’s office would exercise their discretionary option to inform Alexandria so that the company could seek an injunction to keep them secret, exposing me to the potential for “lengthy litigation.”
The project will include 730 parking spaces—more parking than most of the other proposals, except for one (from Touchstone) which called for a massive underground parking lot for 1,000 cars. Tishman Speyer’s proposal included just 50 parking spots.
The city did not respond to followup questions. Instead, more than two weeks after I made my initial request, the budget office informed me that an email from me that included the phrase, “I am interested in seeing the materials redacted in Alexandria’s proposal,” followed by a list of questions asking what the implications would be if I did make a formal request for the redacted information, constituted a formal request that would trigger the third-party notice to Alexandria. Continue reading “Unredacted Documents Reveal Initial Megablock Proposal Was for Ground Lease, Not Sale”