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Northeastern University case revolves around public land

Northeastern dorm occupies land set aside for community benefit

Jule Pattison-Gordon
Northeastern University case revolves around public land
Northeastern’s dormitory (left) and parking garage (upper left) take up most of the land on Parcel 18. (Photo: Photo: Googlemaps)

A group of minority businesses and nonprofits is charging that Northeastern University cheated them out of multi-million dollar developments on one of Roxbury’s most valuable parcels of land in an explosive lawsuit making its way through Suffolk Superior Court.

Lawyers representing Columbia Plaza Associates, a group of 25 black and Latino businesses and nonprofit entities, faced off against Northeastern in seven days of hearings at Suffolk Superior Court earlier this month.

The dispute centers on Parcel 18, where CPA owns the development rights, while NU owns most of the land. The city and state assembled the parcel from public land in the 1980s and awarded CPA the rights to build under the city’s parcel-to-parcel linkage program. In 1999, CPA and NU signed an agreement to work together to create a 925-car parking garage. It opened in 2001. The agreement also included language later used by Northeastern to justify creation of a 22-story dormitory, which opened in 2009.

Thus far, NU has reaped the majority of the profit from both facilities — developments that the plaintiffs value at more than $300 million for the dormitory and $100 million for the garage. Meanwhile, CPA has received only $320,000. NU rejects claims that they violated the 1999 agreement to reach this outcome.

Plaintiffs Kevin Cohee, chair and CEO of One United Bank, and John Cruz, president and CEO of Cruz Construction, were interviewed by the Banner, as were Bob Cooper, One United Bank’s senior vice president and general counsel, and CPA’s attorney Henry Owens.

An attorney for Northeastern said he was not authorized to speak with the Banner about the suit.

“Either the dorm or the garage would be a very big enterprise in the hands of minorities in the city,” Cohee said. “It would be a major victory for the minority communities of Boston if we’re able to get control of this.”

Judge Janet Saunders heard the case from October 11 to 18 and her ruling is due in December.

Linkage program

In the 1980s, operating under the Linkage Program, officials assembled city, state and MBTA-owned land to create Parcel 18. The program linked the development of city-owned land in downtown Boston with the development of parcels in the city’s residential neighborhoods, thus invigorating the local economy and job market through siting new retail, office and residential development. Development rights gave minority groups a say in what would be located there.

Profits from the development of Parcel 18 were expected to ripple out into the communities as businesses hired local residents and those with barriers to employment, such as low educational attainment or prior criminal justice involvement, Cohee said. With this new income and new places to spend it, local employees would turn into local consumers and the wealth would cycle throughout the community.

“This was our big chance to use the private sector to start an economy,” Cohee said. “They selected vital business from black, Latino and Asian communities they were going to bolster up.”

The Asian members later sold their membership in the group.

Renaissance garage

Plaintiffs allege that Northeastern acted — without CPA’s knowledge — to arrange a garage lease deal that benefited the university exclusively, rather than negotiating for their mutual benefit.

In 1999, CPA and Northeastern entered into a joint venture to develop a portion of Parcel 18 into a garage.

The terms of the joint venture agreement stated that CPA would contribute its development rights, while Northeastern would front the capital to purchase the land from the Boston Redevelopment Authority on behalf of both parties, and pay CPA $320,000 initially, and an in-kind payment of $100,000 at some future point. Additionally, NU would develop the parking facility and rent it to an outside facility manager.

Profits generated would accrue to Northeastern until its investment was reimbursed, plus a little extra (a priority return of 10 percent annually on the amount contributed). At the point when Northeastern’s initial investment was paid off, the parties would split net profits equally.

But fifteen years later, that pay-off date has yet to materialize.

In their agreement, the parties authorized Northeastern to manage the joint venture. Using this authority to represent the parties, Lawrence F. Mucciolo, then-senior vice president for administration and finance at Northeastern, signed a 1999 ground lease establishing the joint venture as lessor and Northeastern University — an entity independent of the venture — as lessee. On this document, Mucciolo signed both as the joint venture’s representative and NU’s independent representative.

Under the terms of the lease, the university pays the joint venture an annual rent of $100 for the next 60 years — terms that make it impossible to reimburse NU the millions of dollars in development costs. Meanwhile, the university as garage operator is free to capture revenue from running the facility.

NU asserts that CPA was aware of the terms of the lease and approved it, while CPA members say they first laid eyes on it during the course of a 2013 lawsuit. CPA also claims that the deal violates NU’s responsibility to make a good faith attempt to act in both parties’ best interest.

Based on estimates of the material value of the garage, plaintiffs assert that they have lost out on $100 million.

Dorm

Another bone of contention: profit share from Northeastern’s dormitory, built in 2009.

The garage deal included a provision for a second joint venture to develop another part of the parcel, with future profits split between the partners. The garage deal also stated the university would pay CPA an additional $100,000 to be delivered not as cash, but rather in the form of CPA’s original capital contribution into this future enterprise.

However, the details of that joint venture project were never set in stone. CPA interprets the garage deal as establishing that, at a later time, the joint venture would be created and details finalized. NU argues that they only agreed to discuss the enterprise.

This distinction is key because NU has since built a 22-story, 1,100-bed dorm on that land, while the joint venture was never formed.

Cohee said the CPA had presumed NU was holding off on negotiating fair net profit division until construction was completed and the university could accurately represent the extent of development costs.

NU has argued that because its financial obligation is to a nonexistent entity, not to CPA directly, the university does not have to pay the $100,000 or share profits. Meanwhile, CPA attorney Owens argues that the reason Northeastern did not create the entity was to avoid making payment. The provision tentatively placed CPA’s share of the dorm profit at 30 percent, and CPA’s Cohee estimates his group would be due at least $100 million from the development of the dormitory.

During the final day in court, Vincent Lembo, senior counsel and vice president for Northeastern and secretary to the board of trustees, acknowledged that Northeastern had made no attempts to form the joint venture during the stipulated six-month time frame, or to extend that deadline. NU also avoided CPA attempts to establish the joint venture by not responding to requests to meet or provide a draft joint venture agreement, Cohee said.

“They [NU] simply did nothing and have kept all the proceeds of the dorm site,” Cohee said.

During a 2015 hearing on the matter, Suffolk Superior Court Judge Douglas Wilkins noted that the language of the agreement never envisioned a reality in which the joint venture was not formed.

Validity debate

The agreement stipulated that the land would be used for Northeastern institutional purposes should a commercial development not be feasible there. In that case, Northeastern would pay joint venture parties the fair market rental value of the building. Because Northeastern did, in fact, erect such an institutional structure, CPA says this may trigger an obligation to pay the market rental value.

Additionally, while NU purchased that land in foreclosure, CPA still owns the development rights to the entire parcel, CPA attorney Cooper told the Banner. As such, CPA members say Northeastern had no right to construct the dorm without CPA approval and involvement. In avoiding formation of a joint venture, NU also avoided securing such CPA participation.

Hotel

NU seeks to build a hotel on a parcel subsection, though plans remain on hold because CPA has not given Northeastern the development rights it needs to move forward. Originally, the hotel was envisioned for the area where the dorm now resides, and NU represented to the BRA that CPA agreed to switch the locations. CPA said no approval was given and that in discussions on the hotel, NU has presumed mistakenly that a few members of CPA speak for the whole.

Next

Lawyers are preparing their case briefings for submission within the next five weeks and will be receiving court transcripts. Owens said Judge Saunders’ decision is due in December.