Piecing together the puzzling array of state property
Peter O’Connor might have the toughest real estate job in Boston. As chief of development for the state’s transportation agencies, he must coordinate the redevelopment of scores of state-owned parcels from Boston to the Berkshires. To do so, he must weave through a maze of competing political interests and constituencies, all while dealing with fluctuations in the economy. He sat down with Globe reporter Casey Ross to discuss his recent appointment to the position and the challenges that lie ahead.
Why take this on? It involves dealing with a lot of real estate owned by an array of agencies that don’t get along.
It’s exactly that sort of thing that gets me jazzed up, to find opportunities where there are public assets that aren’t being utilized where you can combine them with private investments to make something happen that wouldn’t happen on its own. To me, these deals are like putting together a puzzle. If you get turned on by putting together puzzles, there’s no explaining why, you just do. To me, that’s just a lot more interesting than being in the private sector and buying and selling skyscrapers. I could do that. I’ve put together real estate deals like that. But to me, in doing that, there’s no impact that I’m having other than doing a transaction.
How do you approach putting together deals in this economic environment, when so little development is happening?
It’s hard, but that’s the task. It’s easy to be in economic development when developers are knocking down your door to try to give you money to do development. To me, that’s not as rewarding as, in a time like this, trying to find opportunities where we can unlock some private equity and actually get a project started in a down economy. That has a tremendous impact on people. It puts people back to work, maybe it creates housing. To me, that’s a lot of fun. It’s very gratifying. This is the time when people like me really have to try to make things happen.
What are the next couple of projects that the public will see coming out of the ground?
I think something will happen soon on Parcel 9 [a small lot near the Haymarket MBTA station in Boston]. And we’ve been working really hard with the Red Sox and [developer] John Rosenthal on his [Fenway Center] project. There are a couple of unique pieces to that project that are not traditionally financed that make it what I call a “live one.’’ If we tweak some of the pieces, we can expect to see that project get started way ahead of a turnaround in the real estate market. We’ve also directed federal stimulus money to Assembly Square in Somerville [a 66-acre housing, office, and retail project]. We have a promise from the private investor that they’re going to start building there shortly after we finish the infrastructure, so I think you’re going to see something happen there really soon.
How do you go about changing the culture of all these transportation agencies to achieve greater coordination when they have always operated independently?
Slowly. I think when people are used to doing something in a certain way, you don’t just come in and pronounce that we’re going to do it a different way. But on the other hand, you have to keep on message and keep pushing. I’ve worked in government bureaucracies off and on for 25 years, and one of the things I always look for is, you see something being done in a way that impedes economic development and I’ll say, “Well why do you do it that way?’’ And often you’ll hear, “Because that’s the way we’ve always done it.’’ That’s not a good enough answer. So then you have to pull back and say, “What are you trying to do and why isn’t it working?’’ It’s a slow process. You have to be very determined and clear about what you’re trying to do, and just sort of keep at it.
How do you increase the transparency of the decision-making process surrounding the state’s real estate?
I’m trying to implement a process that’s understandable and describable to people. I don’t know if it’s any more transparent, but I think it’s a little more open. Instead of having only one person decide or having a selection process that’s not that clear, I’m putting together an evaluation panel for each development. . . . We have the developers come in, and say, “Here’s the staff you are going to convince that yours is the best project,’’ and then we will try to arrive at a consensus. And then I, as the real estate guy, will make a recommendation describing in a memo why we’re advising the board to pick this particular development.
The Massachusetts Turnpike Authority has not been successful in recent years encouraging development on so called air-rights parcels that straddle the turnpike in Boston. The stalled Columbus Center project is one example of the difficulty of those projects. How will you approach development of the air-rights parcels?
The turnpike needs a win here. There’s been a lot of planning and development agreements and things related to air rights, but nothing has been built. So, I think we need to put a fresh eye on that and say, “Why haven’t they been built?’’ I think there was a feeling these air rights inherently had value like real estate, but I don’t know that anyone’s ever proven that point. One of the things I’d like to do with [Fenway Center] is create a partnership with a private sector to, in a way, take some of the upfront cost out of the development to try to actually get one built where the turnpike would share in the upside. The thing that keeps these projects from being built is the constantly changing estimates of what the deck [over the turnpike] will cost. Until you build one, you don’t really know. So what would advance the ball is, if we can find one that’s doable, and then actually go ahead and get the thing built. Then, we would know - here are the problems we ran into in building over the turnpike.
How would this public-private partnership work?
What I’m saying is maybe I’d be willing with air-rights projects, which have unproven value, to use that as sort of patient capital and say, “Let’s go ahead and build the project.’’ If the project is a success, and there is net operating income, then I take a piece of that. This idea of “I’m the landlord, you’re the tenant on a 99-year lease and I want my rent’’... it just doesn’t work. It doesn’t pencil out. Maybe they did at one time. Somebody thought Columbus Center did at one time, but then things change and it doesn’t. I’m saying maybe the way to go forward on air rights is to say, “I don’t know how much these air rights are worth right now, but we’re going to find out, and I’ll get my value if the project is a success.’’ What makes that appealing especially now is that it takes an expense out of the equation on the upfront side, and what we want to do is get people building stuff now. That’s one of our policy objectives.