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State Street latest to get tax break on waterfront property

A rendering of the future State Street Corp. office building. A rendering of the future State Street Corp. office building. (ADD Inc.)
By Casey Ross
Globe Staff / June 12, 2012
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Boston officials plan to give State Street Corp. $11.5 million in tax cuts to construct an office building on the South Boston Waterfront, the latest deal by the city to help transform the once-shabby industrial district.

The proposal, announced Monday, would help finance construction of an 11-story building at the Channel Center complex off of A Street. The tax break, which needs approval from the Boston Redevelopment Authority, would be spread over 15 years.

The project would be a major boost for the complex and for the wider area, which would be expected to benefit from thousands of new employees dining at its restaurants and patronizing other businesses.

Development activity is beginning to increase on the waterfront, with both office and residential builders moving forward with large-scale projects as the economy recovers - some without help from the city.

State Street, one of the city’s largest financial services employers, has been negotiating the tax break for several months.

The new building, at 1 Channel Center, would cost about $225 million and contain about 525,000 square feet of space. It is scheduled to be completed by February 2014. The BRA will consider whether to approve the tax break at a meeting next month.

State Street is the latest of several large companies to win a tax break for new offices on the waterfront, where Boston officials are trying to create a so-called Innovation District with new businesses, retail stores, and residences.

Vertex Pharmaceuticals Inc. received more than $21.8 million in city and state tax incentives for a pair of large office buildings under construction at Fan Pier. In prior years, JP Morgan Chase & Co. and Manulife have also been given favorable tax treatment.

Such deals are often controversial, because they are typically given to large, profitable companies. State Street, for example, reported net income of $1.92 billion in 2011 and paid its chief executive, Joseph Hooley, total compensation of $16 million, according to documents filed with regulators.

Moreover, State Street was not proposing to build elsewhere if Boston did not provide the tax break, according to city officials. And development in the Innovation District appears to be moving forward in its own right.

“One concern is that big companies will come to expect these incentives even when their options for moving elsewhere are limited,’’ said Jim Stergios, executive director of the Pioneer Institute, an independent policy research firm in Boston. “And if the goal is really to create jobs, it is clear that what drives that is new start-ups, which are generally much smaller businesses.’’

But city officials say the tax breaks are necessary to spur investment on the waterfront and to keep large employers from moving operations out of the city. The deal with State Street would also spur construction of public parks at Channel Center and create some 1,200 construction jobs at a time of high unemployment in the building trades.

“State Street Bank & Trust Co. is Boston’s seventh-largest employer and keeping this economic giant in the city not only ensures that we are retaining jobs, but is a key to attracting new jobs and creating an economically successful and vibrant city,’’ Mayor Thomas M. Menino said in a statement Monday.

The concessions for State Street would reduce its tax bill on the building by about 20 percent, but the company would pay $43.4 million in new taxes over the course of its 15-year deal.

In a statement Monday, a spokeswoman said a new building would allow State Street to consolidate real estate holdings and house more employees in a single facility. The company has about 13,000 employees in Massachusetts, with 8,000 of them in Boston.

Samuel Tyler, president of the Boston Municipal Research Bureau, said the tax break is a fair price for the city to pay.

“It’s important for Boston to continue to be thought of as one of the top financial centers in the country,’’ Tyler said. “A cost of $11.5 million in a city with a $2.4 billion budget seems very reasonable if it keeps State Street in Boston and brings them to the waterfront.’’

Channel Center’s developer, Commonwealth Ventures, filed detailed plans for the office building last month, but State Street was not revealed as the tenant until Monday. The project would also include a nine-story parking garage and public parks. Commonwealth has also signed on a new development partner, AREA Property Partners of New York, for the project.

Commonwealth Ventures has already renovated former Boston Wharf Co. warehouses at the Channel Center, creating more than 200 residential units, restaurants, stores, and offices. The company purchased Channel Center in 2007 from Beacon Capital Partners for $21.5 million. Beacon had redeveloped about 30 percent of the property, but abandoned the effort when the area’s recovery proved to be slower than expected.

State Street would join Fidelity Investments and Manulife Financial as major financial companies on the waterfront. It currently occupies office space in prominent buildings across Boston and has several leases expiring in 2014. It has offices at Copley Place, the Prudential Building and the John Hancock Tower in the Back Bay, and Lafayette Corporate Center in the Financial District. Its lease at its namesake headquarters building at 1 Lincoln St. expires in 2023.

Casey Ross can be reached at cross@globe.com.

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