Developers of Arsenal Yards Want Deal With Town to Cap Property Taxes

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A view from the interior of the renovated mall with the movie theater shown on the bottom floor of the far building. Previously it was on the second floor of the building.

An image showing what the renovated Arsenal Mall would look like. 

The developers behind the renovation of the Arsenal Mall have asked Town officials for something that has never been given in Watertown – a cap on the amount of property taxes.

Bill McQuillan, principal of Boylston Properties, sent Town Council President Mark Sideris a letter last week requesting a “tax certainty” deal with the town. On Tuesday night, the Town Council referred the request to two subcommittees – Budget and Fiscal Oversight and Economic Development and Planning. Representatives from Boyslton and The Wilder Cos. said they need the certainty to get the funding required to pay for the $400 million project.

As retailers struggle to compete with the surge of e-commerce, those stores that continue to make a profit the ones that operate well both online and at brick-and-mortar stores, said Tom Wilder of the Wilder Cos., which will manage the development.

“Retailers who have figured how to do that know that and use leverage,” Wilder said.

They can set deals where they don’t have to cover their share of property tax increases.

“If we are paying real estate taxes at X dollars per square feet, they say, we don’t care, here’s what we are paying,” McQuillan said.

Because of this, McQuillan said, Boylston and Wilder Cos. (which will operate the new development – Arsenal Yards) need to ensure that taxes won’t jump up to a point where the development is no longer profitable. This certainty is needed to get the funding from the groups that will finance the project, which will be between $300 and $400 million depending on whether Boylston builds the large residential tower or sells it to another company to develop and who finances the new proposed Hampton Inn Suites.

“When we built the Residence Inn we had a cadre of investors who own private funds,” McQuillan said. “We can’t do that at the mall.”

McQuillan expects investors will include equity players – such as pension funds and insurance companies – and commercial real estate construction lenders.

“They become critical in the decision process,” McQuillan said. “They are risk averse and real estate savvy.”

McQuillan said, assuming he gets approval on the first phase, a tax certainty deal would be needed by the summer so construction can begin in the fall, as scheduled.

Exactly what the the deal would look like is not clear. McQuillan said other communities have TIFs (tax incremental financing) deals to use future property taxes increases to pay for economic development projects, or use Chapter 121A deals under Massachusetts law to upgrade blighted areas.

Town Council Vice President Vincent Piccirilli said neither one of those provide a tax certainty, and he added it would be an unprecedented move by the town.

“The Town of Watertown has never offered tax breaks to any property owners,” Piccirilli said.

McQuillan argues that the project is the biggest in town and would be the most public one, being on the eastern gateway of town and looking to draw people to the complex.

Right now the owners pay about $1.7 million on the Arsenal Mall (including Golfsmith but not Home Depot) along with the Harvard Vanguard offices. McQuillan said he suggested setting the taxes at $4 million a year starting when the construction is complete in 2020.

“After that there would be an annual increase,” McQuillan said. “I suggested two percent.”

East End Town Councilor Angeline Kounelis has opposed the project from the start because it creates such a dense development with a 12 story tower and six story buildings on Arsenal Street. She said the project was sold to the town with the promise of large property tax increases.

“Now the developer is pleading hardship and asking the community to give him a tax break,” Kounelis said. “East End residents have had exorbitant tax increases, and are still looking for relief – they have been for years.”

Kounelis said she is dubious about the sudden need for a change in tax assessments.

“Any prudent developers do homework and look at the crystal ball,” Kounelis said. “They look at trends. These trends do not come overnight.”

Councilor Lisa Feltner said that she will wait until she knows more and gets input from Town Manager Michael Driscoll. However, she is still concerned about what the deal would mean for the town.

“What’s the certainty for the town?” Feltner said. “As an elected official I have to have to put the town’s interest number one.”

22 thoughts on “Developers of Arsenal Yards Want Deal With Town to Cap Property Taxes

  1. There is nothing in this for the Town. The developer is trying to treat us like we are Mayberry RFD and clueless. I hope the Town officials don’t give away the store, again. There are costs for doing business and Boylston is well aware of them. It’s not the Town’s problem if they can’t obtain finances – and rest assured – they will. They just want more profit. I don’t fault them for being strategic in business dealings but we and the Town also need to be strategic. Citizen’s please we are already suffering from over development and significant traffic impacts, the TMA is on a slow roll and not being delivered as billed, and when Brighton Landing is complete and the commuter rail starts – Arsenal Street will be even more impacted. The developer sold the Town on this based on our need for the property taxes for schools, etc. Now there’s a roll back. Really?

  2. Bill McQuillan is trying to get a free ride on the backs of other Watertown taxpayers. Just say no.

  3. No way. If they don’t want to pay their fair share of doing business in Watertown then I certainly don’t want want them in our town. I’m glad we’ve found out now what kind of neighbors they’ll be.

  4. Mr. McQuillan et al. knew what they were getting into from the start. And now asking for a tax break??? How about the homeowners who are getting slammed every year with huge tax increases??? Give us a break.

    One way to start is with the residential exemption. Some years ago the town received permission to raise residential exemptions from 20% to as much as 30%. So the council in their infinite wisdom raised the residential exemption a whopping 2%. How very gracious of them.

    In November 2016 the state legislature raised the residential exemption to 35% (M.G.L
    Ch 59 Sec. 5C) because even they realized that the homeowner tax increases were getting out of hand.

    So counselors lets get real this year and give residential homeowner a substantial increase and stop spoon feeding the increases like Gerber baby food.

  5. It would be nice if the town issued a report of what they project the taxes should be. Since the town has not done this to date, the town should hire an independent analysis to do this. Then we would have something to compare Mc Quillan’s proposal with.

  6. FYI anyone can analyze the taxes over time via the document:
    It is in excel, check it out as it starts in 1981 and goes to 2017.
    I charted only commercial and it looks like the trend line pretty stable after 1989(Was Mr Driscoll hired then lol!:>). A difference of peak and low point of those 27 years was 11$ difference. It was between 17-28$ in all those years. Going up and back down in about 2004 and then back up again in 2008(correlating with the big recession) and starting back down again in 2016. I can not cut and paste my screen shot here but if I was doing business one would think that this would be one of the things to look at in the beginning and put that into the cost of doing business…similar to what we all do really.

  7. Thank you Charlie for writing this article and keeping us all informed about what is happening regarding developments in Watertown. I’d also like to mention that, at the most recent Town Council meeting, the issue was passed down for discussion to the Committee on Economic Development and Planning. If people are concerned about this issue, it is very important that they try to attend these meetings.

  8. This town has been the target of greedy developers for years who threatened to leave if they did not get their way! Time for the town to say “Bye-bye”.

    • Be careful what you wish for Kathy: Bye-bye Arsenal Yards also means hello to someone else. Just as a homeowner can sell their home to whomever they desire, at whatever price the market will bear, so too can Boylston Properties. Maybe they coud choose to sell the property to a non tax generating facility like a nearby College or University, and we get nothig in return?? Or, perhaps a giant Walmart or Super Stop and Shop would be easier on the eyes than mixed use? Something is going on that property folks. The laws of supply and demand are irrefutable.

  9. Boylston Properties appreciates your sharing your thoughts on this, and we would like to correct some impressions and make clear how Arsenal Yards will be highly beneficial to the town of Watertown. The current Arsenal Project’s income has dropped 77 percent since 2013, but even with that decline has generated increasing taxes to the town, $1.7 million this year. It is anticipated that the total tax contribution of Arsenal Yards to Watertown upon completion in 2020 will be more than $4 million per year, or at least 235% of the $1.7 million it is paying today, even with a reasonable agreement on tax certainty, all of which will return to the town improved roads, schools and much more. Arsenal Yards is simply put, an investment in Watertown.

    Regarding our request to the Town Council, our team is not searching for a “tax break;” rather, in order to build this project in today’s world we need to provide institutional investors (the insurance companies and pension funds that are necessary on projects of this size) and lenders in Arsenal Yards with a certainty around how much their taxes will rise each year. Briefly, here’s why:

    It is a period of seismic uncertainty and change in the retail landscape, both nationwide and locally, as street-front retail stores yield sales to digital commerce. Across America, more retail stores have closed in the first quarter of 2017 than in the same period in 2008, the worst year on record. As retail sales continue to shift online, traditional storefront retail becomes more of a risk. Offering predictability on taxes gives investors the confidence and ability to make accurate financial projections that offset the risk of their $300 million investment – again, an investment in Watertown.

    We believe that there can be a bright future for well-located properties such as Arsenal Yards here in Watertown where the plan is to transform the tired and outdated Arsenal Project into a new 21st century living and working destination that will reap significant financial benefits for Watertown.

    Bill McQuillan
    Principal, Boylston Properties/Arsenal Yards

    • Bill, no matter how you try to sell it, it is still a tax break you are asking for. You are asking for preferential treatment over all other Watertown taxpayers. Why do you think that would be acceptable?

  10. Respectfully Mr McQuillan – I care very little for your assertion that the project will generate 235% more than the existing property. Clearly this was a showy number designed to make us feel like you are doing us a big favor. I care about what your project will COST Watertown – in other words I care our net revenue from your project. Many of us in town have repeatedly asked for credible estimates of what each development will cost us in terms of infrastructure, police, fire, schools, etc. Time and again we are told that each one will increase revenue for the town, yet our taxes go up more and more. Cover your project’s costs (both direct and indirect) to the town, and guarantee good growth and then you’ll be a good neighbor.

    Very simply you should be treated the same as other businesses and residents of Watertown who do not get a tax cap. That is fair.

    Lastly, for a person with your track record of success to leave a project this large to precariously hinge on this lack of certainty is simply not believable. You are trying to leverage the town and pass the savings on to your investors and to that I say… there are other developers, there is only one Watertown.

  11. Mr. McQ, I agree with the prior post and with all due respect, everyone knows brick and mortar retail has been in decline for quite some time. Watertown was established in 1630. We don’t need you to save us. We have staying power. We don’t need your company to propel us forward. You need our community. Get with us and be a good neighbor and pay your fair share. You seem like an incredibly astute businessman and if we tried to flim flam you the way you are trying to flim flam us, you would have no part of it. Your arguments are self serving. We see through you. Don’t underestimate or diminish us.

  12. We may not need Bill McQuillan’s company but there are many that WANT his company in that space. Some of us are worried about what else could end up there that doesn’t produce desperately needed tax revenue. As sure as the sun rises someone is going to develop this property. I’m not saying Boylston Proprieties is perfect. But, what neighbor is? I MUCH prefer them over some publicly traded REIT that’s for suew. I’m a risk averse person. Search Vernado Realty Trust and see what you get! Am I the only one that remembers the big HOLE where Filenes and Jordan Marsh used to be? Do folks really think that can’t happen again??
    This is not an us vs them proposition folks. We should want this development to be a success for everyone! Boylston Properties simply asked the town to consider something. Town officials have to weigh the risks vs rewards of this request. Let’s not lose our ability top be open minded, and neighborly like so many claim to be. It’s very easy to forget there are real people and jobs behind these names and we shouldn’t talk with each other online any different and with less civility then we would in person. It would indeed be the towns loss if one of the largest mall developers moved in and we didn’t have a developer with local ties who has had success in Wellesley, Brighton, Fenway and other places to his credit. Search some of the names below and ask yourself who you would prefer as your neighbor. Many have them have eyes on the Boston area and those with a stock price and shareholders to answer to will get every last nickel out of that property.
    1. Westfield Group $58B, 119 malls
    2. Simon Property Group SPG $51B, 393 malls
    3. General Growth Properties GGP $20B, 124 malls
    4. DDR Corp $5.6B,
    5. Kimco Realty Corp $9.46B,
    6. Federation Limited $30B
    7. Macerich $9B, 62 malls
    8. CBL & Associates
    9. THe Inland Real Estate Group of Cos
    10. Regency Centers
    11. Weingarten Realty
    12. THe Cordish Co.
    13. The Cafaro Co.
    14. Vornado Realty Trust
    15. Gargen Commercial Properties

    Something to think about…

  13. I upgrade my house or homes in my neighborhood increase in value and my taxes go up because my home’s value increases. Is commercial property taxed by the same method? If so, I do not know why a tax break or even a cap on taxes is necessary. I do not plan a developer for trying but if they get a tax break (or cap) why can’t I.

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