The lessons of the failed Columbus Center project

Time for a new approach to air rights development

After a dozen years, 125 public meetings, and $100 million in sunk costs, the saga of the failed Columbus Center project, a mixed-use development slated to straddle the Massachusetts Turnpike in central Boston, has ended with barely a trace on the landscape.  As the Massachusetts Department of Transportation solicits new proposals to build on other air rights parcels over the Massachusetts Turnpike and the O’Neill Tunnel, there are important lessons to learn from the painful Columbus Center experience so that it’s not repeated.

No major air rights construction has commenced in Boston since Copley Place, which received considerable public funding, 30 years ago. That compels us to examine how we have stranded air rights development opportunities – and what we can do differently to avoid a continuing air rights development drought in the decades ahead. Columbus Center taught us, at great expense, that successful air rights development takes not only a strong real estate market and risk-tolerant private developers, but also a change in approach on the part of its public partners. 

Air rights development is different. In many cases, the increased cost and challenge of engineering, financing and constructing a structural deck to support buildings over an active transportation corridor neutralizes any “land” value at all.  MassDOT should view air rights development more as a long-term revenue-raiser and should devote more resources to making these projects work, for the eventual benefit of all involved.  The city of Boston, which has at least as much at stake, should be an active partner in this effort.

Columbus Center began in 1998 as Boston climbed out of the previous economic downturn.  Proposing to build a large project near three historic neighborhoods – the South End, Bay Village, and the Back Bay – was bound to be fraught with risk.  The resulting furor triggered a two-year-long air rights planning study led by the Boston Redevelopment Authority, and then an almost three-year-long public approval process for Columbus Center.  Several more years were consumed by air rights lease negotiations, the hunt for public and private financing, and final construction plans for the buildings and the complex civil engineering structure to support them over an active highway and rail corridor. 

The approved project would have leveraged enormous public benefits.  It would have covered the current gash of the Turnpike and railroad tracks with a hotel, 450 housing units (many of them affordable), a food market and other street retail, an acre of new open space, and a half mile of new sidewalks.  In 2007, the developer took a seemingly courageous step of beginning site work before financing was finalized. 

Then the world changed, slowly at first with a softening housing market and a tightening credit market, then suddenly in September of 2008.  Construction stopped, and the developer and its equity partners spent the next two years – the hardest ones of all – trying to put Humpty Dumpty back together again.  Finally, in late 2010, the developer, an affiliate of Winn Development Company, reached an agreement with MassDOT to give up, fund site restoration, and go home.

Save for a handful of implacable opponents, a failed project is good for nobody.  During a fitful economic recovery, it sends the wrong message about the city’s investment climate.  This particular failure is bad not only for the developer, but also for MassDOT, which will forgo air rights lease revenue; for the Boston Redevelopment Authority, which worked hard to shape the project before approving it; and indeed for the neighbors who, even if some didn’t love the project’s density, looked forward to its benefits.  The inherent risk of real estate development was magnified for Columbus Center by its reliance on the often fickle condominium market to support the cost of an expensive structural deck.  But the Columbus Center experience is not unique; proposals to build on Rose Kennedy Greenway ramp parcels have foundered too. 

In the 30 years since Copley Place began, attitudes toward the role of government in facilitating private development have changed.  Using public sector support to leverage major private investment in central cities used to be almost unquestioned because of the economic and other indirect public benefits of urban development.  More recently, we have come to view private development as a direct generator of public benefits – not just jobs and tax revenue but also new streets, sidewalks, and parks – yet we mostly let developers fend for themselves in navigating public approvals and assembling financing for their benefit-laden projects. 

Relying on private actors to provide public benefits raises the stakes for development feasibility.  It may have been feasible in a raging economy – though even that now seems doubtful for air rights projects– but we must recalibrate our expectations in a softer one. 

It would be easy to shrug and blame the economic slump for the flat-lining of Columbus Center and the irregular pulse of other Turnpike and Greenway air rights projects, but this is simplistic. 

The entire air rights enterprise may have started from a faulty premise.  The Turnpike Authority completed a landmark air rights study in 1993, in the heady days of privatization under the Weld administration, in the belief that air rights were a surplus public asset that could be harnessed to raise revenue.  We now know that, while projects can eventually generate lease revenue as they become profitable, it’s not a material amount in relation to the Commonwealth’s transportation budget.  Raising revenue to fill short-term public budget shortfalls should not be the primary motivation for development. 

Rather, history has proved that the most important public benefits of air rights development relate to smart growth and economic development.  We’re fortunate that Boston is a healthy city.  In addition to having a fiscally prudent mayor who has steadily improved its bond rating, the city’s livability – its extraordinary walkability and texture – is a key asset in competing for investment in a global innovation economy.  These qualities are undermined by the open wound of the Turnpike and adjacent railroad tracks, not to mention the jarring Greenway ramp parcels and a host of small, odd-shaped, vacant terra firma parcels along both the Turnpike and the Rose Kennedy Greenway that could facilitate assembly of feasible development parcels. 

These empty sites, close to transit and services, actually diminish the city’s amenity value for residents, visitors, and businesses.  Instead, they can be economic development assets that help meet the city’s growth needs and increase its investment appeal.  The city thus has as much or more to gain from their development as the Commonwealth – jobs, investment, tax revenue, repair of damaged urban tissue, and creation of new sidewalks, parks, and street life in its place. MassDOT should be commended for making these sites available for productive use. Here are three specific steps the City and the Commonwealth can take to maximize the opportunity these sites present:

  • MassDOT should adjust its expectations about the revenue potential of these difficult sites to reflect economic reality.  It should rely more on rent derived from the net profit of a stabilized real estate asset – percentage rent or a share of proceeds of future sales or refinancings – and less on initial land value, which can be illusory.  The Commonwealth will be around for a long time to realize patient returns.
  • Both the City and the Commonwealth should develop a package of public incentives to be made available to defray premium infrastructure costs to tip development projects into the realm of feasibility.  These incentives could include low-interest financing, direct infrastructure funding, a lower exactions or property tax burden, and a predictable permitting timeline.  They can be subject of course to showing of need, to a cost-benefit analysis to demonstrate that public benefits will be realized over a realistic time horizon, and, in appropriate circumstances, to so-called clawbacks requiring repayment of public funds if promised job or other benefits are not delivered.
  • MassDOT is focused on the Commonwealth’s transportation assets, as it should be, and is ill-equipped to undertake challenging economic development projects.  MassDOT should either augment its in-house air rights development capacity or consider outsourcing the effort to MassDevelopment, which has development expertise in its DNA.

Most of these steps do not require additional public expenditures, and even incentives can be calibrated to more than pay for themselves over time.  But they do require public officials to stick their necks out in an unforgiving political climate when restive voters clamor for instant results and leaner government.  Added to that, the benefits of development are general and diffuse, but its impacts tend to be specific and local – so while it may be generally favored, it’s often opposed by abutters and reflexively anti-development activists.  Those who favor economic development, whether out of enlightened self-interest or civic virtue, must work to alter the political micro-climate on this issue so that it’s politically tenable for public officials to make difficult decisions.

Meet the Author
At a restless public meeting several years ago, the Columbus Center developers were treated to sustained applause when they showed a video animation of how the project would heal the transportation scar that separates neighborhood from neighborhood.  If we really want private air rights developers to invest in promising public air rights in urban neighborhoods, we have to offer them more in return. 

Matthew J. Kiefer is a land use attorney at Goulston & Storrs.  He represented the developers of the Columbus Center project.