Tax Incentives Play Major Role in Financing Project
By Christopher R. Vaccaro
Special to Banker & Tradesman

“. . . those who a good deed offer shall reap three times over the good deed that they offer”

Ifeanyi Menkiti published this verse in 2007 as part of his poem “They will Rise.” At the time, the Nigerian immigrant, poet, philosopher, and Wellesley College professor probably was not thinking about commercial real estate investment.

However, his verse became prophetic for a real estate project that began with his 2015 purchase of a vacant historic building at 6-8 Chatham St. in Worcester. Dr. Menkiti passed away in 2019 and did not live to see the completion of the project, but his dream of redeveloping that property reaped three significant tax benefits for The Menkiti Group, his son Bo’s real estate development firm.

The Menkiti Group completed the Chatham Lofts project and opened it for leasing last December. The project contains 24 luxury rental units with a fitness center, community room, and parking. It leased-up quickly, with several units occupied by members of the Worcester Red Sox minor league baseball club.

HDIP, Historic Credits and More

The Menkiti Group utilized three tax incentives in creating Chatham Lofts. The first was obtained through the Massachusetts Housing Development Incentive Program (HDIP), which is available in “Gateway Cities,” such as Worcester, that have 35,000 to 250,000 residents and median household incomes and college graduation rates below the state average.

Chatham Lofts is within an “HD zone” approved under the HDIP by the Massachusetts Department of Housing and Community Development (DHCD) for multi-unit, market-rate housing. As a result, The Menkiti Group secured a 10-year exemption of 60 percent of the increased value from its rehabilitation of the property. In addition to reduced real estate taxes, projects certified by DHCD qualify for state income tax credits of up to 25 percent of construction costs.

Federal and state historic tax credits were the second tax incentive that made Chatham Lofts possible. The Menkiti Group employed sensitive restoration processes so that the National Park Service and Massachusetts Historical Commission listed the property on the National Register of Historic Places. As a result, many project costs were “qualified rehabilitation expenditures,” for which The Menkiti Group earned a federal tax credit of $1.6 million and state tax credits of $1.35 million.

The third tax incentive came from the federal Tax Cuts and Jobs Act of 2017, which established “opportunity zones” with reduced federal capital gains taxes. Chatham Lofts is within one of the 138 designated opportunity zones in Massachusetts.Opportunity zone tax benefits are complicated, but if properly utilized, investors can enjoy deferred capital gains taxes, a 10 percent step-up in basis if the investor holds the investment for at least five years before December 21, 2026, and a 100-percent step up in basis if the investor holds the investment for at least 10 years (but not beyond 2047).

A Potential Triple-Play in Tax Deferrals

Consider a hypothetical taxpayer who sold investment property in 2020, realizing a $1 million capital gain, and then within 180 days reinvested the $1 million into a “Qualified Opportunity Fund” (QOF) developing investment property in an opportunity zone. By reinvesting in the QOF, the taxpayer can defer paying federal taxes on the gain until the sale of the QOF investment, or Dec. 31, 2026, whichever occurs first.

Also, because the QOF investment was made before 2022, if the taxpayer holds the investment for at least five years, the taxpayer enjoys a 10 percent step-up in basis. Finally, if the taxpayer holds the QOF investment for at least 10 years (but not beyond 2047), the taxpayer pays no federal capital gains tax on the appreciation of the investment beyond the deferred capital gain!

The opportunity zone program has sunset provisions. The 10-percent step up in basis is unavailable for QOF investments made after 2021, and no tax benefits are available for reinvested capital gains realized after 2026. However, the Chatham Lofts development was completed in 2021, so it can enjoy all of the tax advantages of opportunity zone investments described above.

Bo Menkiti sums up his firm’s mission best: “We believe every neighborhood has something that makes it great, and that core belief has been clearly illuminated through our experience in Worcester. We approach every neighborhood with the goal of highlighting existing assets and shining a light on the potential within, and financing tools such as historic tax credits, DHCD’s HDIP, and the Opportunity Zone program allow us to do so. These tax incentives are necessary to make these impactful projects possible. My father saw the great potential that exists in Worcester, and we are honored to continue his legacy, one that serves as a guiding light for our purpose and mission in the city today.”

Download the article as seen in Banker & Tradesman on June 27, 2022. Learn more about Christopher R. Vaccaro.

Lack of Notification Used as Basis for Appeal
By Christopher R. Vaccaro
Special to Banker & Tradesman

An Edgartown hotel’s relocation of its outdoor pool bar is stirring up a hornet’s nest of litigation on Martha’s Vineyard.

The Harbor View Hotel has served vacationers since 1891. Under zoning law, the hotel is a legal nonconforming commercial use in a residential district. The Edgartown Zoning Board of Appeals originally granted the hotel a special permit to serve food and beverages at an outdoor pool bar in 1992.

Years later, the hotel applied for a special permit to relocate the pool bar. The hotel received this special permit in May 2019 and started work in June, after expiration of the 20-day appeal period for special permits and zoning variances.

Neighbors Fight on Two Fronts

Upon becoming aware of the work in progress, the hotel’s neighbors filed two lawsuits against the hotel and the ZBA in Dukes County Superior Court to annul the special permit. The neighbors claimed that they were not notified of the ZBA hearing.

The Massachusetts Zoning Act allows “persons aggrieved” – persons likely to suffer harm because of a zoning decision – to appeal the decision on the merits within 20 days after the decision is filed with the municipal clerk. It also gives abutters a 90-day appeal period if the municipality fails to properly notify them of the zoning hearing. The hotel’s neighbors filed their lawsuits within the 90-day period.

The ZBA and the hotel sought dismissal of both lawsuits, relying on the zoning administrator’s sworn statement that she mailed notices of the ZBA hearing to the neighbors. The neighbors produced their own sworn statements that they never received the notices. The Superior Court judge accepted the zoning administrator’s statement, discredited the neighbors’ statements, and dismissed the lawsuits in November 2019.

Meanwhile, the neighbors requested that the Edgartown building inspector shut down the new pool bar, claiming that it was outside the pool area and not authorized to serve food and beverages. The building inspector denied their request and the ZBA upheld that denial, whereupon the neighbors filed a third lawsuit. The Superior Court dismissed that lawsuit in April 2020, concluding that it was an improper effort to appeal the court’s dismissal of the prior lawsuits.

The neighbors appealed the Superior Court’s decisions, and applied more pressure on the hotel. Because of construction delays caused by a fire and the COVID pandemic, the hotel applied to the ZBA for a modification of a different special permit, involving the hotel’s guest rooms, ballroom and spa. The ZBA referred that application to the Martha’s Vineyard Commission (MVC), a regional planning commission. The MVC voted to hold a public hearing on the hotel’s application.

Dispute Moves to Regional Commission

The MVC opened the public hearing in January 2021. The neighbors contested the hotel’s application, citing potential negative impacts from noise, traffic, parking and other matters. Months later, the MVC approved the hotel’s application, but imposed several conditions, including requirements that the hotel seek MVC approval of any increases to hotel sleeping accommodations and outdoor seating, establish a “long-term neighborhood preservation committee,” and make affordable housing mitigation payments totaling $535,080. The hotel appealed the MVC’s conditions to the Superior Court, where the case is still pending.

Last November, in Allegaert v. Harbor View Hotel Owner LLC, the Appeals Court issued its decision on the neighbors’ appeal of the special permit for the pool bar and the building inspector’s denial of their enforcement request. The appeals court noted that the Zoning Act only requires that notices of hearings be mailed to abutters, not that abutters actually receive the notices. However, in this case, 11 neighbors alleged that they had not received notices, providing an adequate basis to infer that notices were not mailed. The Appeals Court ruled that the Superior Court’s dismissal of the challenge to the special permit was unwarranted.

The Appeals Court next considered the building inspector’s denial of the neighbors’ enforcement request. The Appeals Court ruled that the special permit allowed the service of food and beverages from the new pool bar, but it did not allow service in a nearby patio area. Accordingly, it vacated the Superior Court judgment to the extent that it dismissed the neighbors’ challenge to service in the patio area.

The Appeals Court’s decision allows the neighbors to continue their lawsuits in Superior Court over the relocated pool bar. The takeaway from that decision is that parties seeking zoning relief should make sure that notices of hearings are properly given, lest abutters take advantage of extended appeal periods to contest the zoning relief.

Download the article as seen in Banker & Tradesman on May 30, 2022. Learn more about Christopher R. Vaccaro.

Hospitality is often thought of as a matter of “heads in beds” – a refuge for the weary business traveler at the end of the day. What if we could create a hotel-like operation for businesses themselves, one that would host, energize, and engage them on multiple fronts throughout the workday? That is exactly what CIC, a Cambridge Mass.-based global flexible workplace company and creator of innovation campuses, has done. Notably, CIC’s new CFO, Camilla Jensen – the co-author of this article – is a former Marriott senior executive. Jensen’s hiring makes explicit what has been implicit from the time of the company’s founding: in many ways, CIC is like a hotel for emerging companies and entrepreneurs, a hotel called an “innovation campus.”

In the post-pandemic world, new and different types of companies are increasingly considering a shift from traditional leased space to more flexible and adaptable space. The shift appears even more significant as companies of all sizes and maturities are catching on to the value proposition inherent in the flexible workplace and public space environments CIC provides. CIC’s model fosters the strong desire for in-person connection and collaboration that creative and intelligent people possess.

Would you like to gather with other bright minds and have a beer at Venture Café while listening to a startup pitch and then bounce ideas off one another? You got it. Need to have a meeting with an investor? No problem. You can book a conference room at CIC, decked out with the latest technology to make your presentation sparkle, not to mention hybrid meeting capabilities. Feeling peckish? Snacks and drinks are readily available in the common kitchens, including a variety of teas and healthy options. All included.

A workplace with the option to scale up or down on demand, and even into new locations in cities around the globe as the need arises, is a new paradigm. CIC clients may find themselves in cities in the US, Europe, or Japan – each campus with a wide variety of spaces available, all-inclusive amenities, high-touch client service, and 30-day terms. CIC can accommodate multiple sizes and types of setups, from hybrid, fully in-person, and coworking space to private and shared lab space for innovative life sciences companies. In addition, CIC provides strong community-building offerings for both big and small organizations. As new needs for flexibility and collaboration morph into the new normal for how we work, the winners of this pivotal shift in the industry will be companies that create a value proposition that goes beyond brick and mortar.

Jensen joined CIC earlier this year after a 16-year career at Marriott. “I was intrigued by the obvious parallels to the classic hospitality industry inherent in CIC,” she said, noting that the flexible workplace industry is still in its infancy and akin to the hotel industry of 20+ years ago. In the post-pandemic work environment, the way we collaborate, and work together appears changed forever. There continues to be a strong desire to collaborate face-to-face, but with greater emphasis on flexibility and hybrid options.

Jensen added, “When I saw the unique approach deployed by CIC compared to the traditional shared office space model, and even other operators in shared space, I did not hesitate to join the company. CIC has created an offering that positions it much like a boutique hotel providing location, quality, and experience…much more than just a building and a desk.”

As other members of NEREJ’s hospitality advisory board would tell you, the feasibility of a hotel depends upon its demand generators. CIC creates demand in part by co-locating its innovation campuses in proximity to, and often in collaboration with, the world’s premier universities and prominent movers and shakers that are churning out the entrepreneurial, innovative thinkers drawn to its model. Hotel brands seek to build guest loyalty, as does CIC by creating innovation communities that provide opportunities for exceptional entrepreneurial clients to collaborate, network, and share resources, which helps them grow faster and better.

While hosting innovative, creative, and collaborative businesses is CIC’s model, the system could not succeed without the people in place to implement it. Turn to any one of CIC’s social media channels (@CICNOW on Instagram or Cambridge Innovation Center on LinkedIn) to find innumerable posts by various CIC-ers celebrating the achievements and adventures of CIC’s clients and staff. Hospitality is, after all, about being hospitable. If you look carefully enough around any CIC campus you’ll readily spot the concierge, front desk, housekeeping, engineer and food and beverage. The most successful hotel companies are those that recruit, retain, and promote the right people for the right jobs. CIC’s employees are engaged in the company and dedicated to its mission to fix the world through innovation. They contribute to its creativity and they feel valued. As the long-time general manager of a landmark Boston hotel once remarked, “We want our people to get up and ‘skip to work’ every day.” Those people are integral to the guest experience not only through the level of service they provide, but also by the attitude they project, and happiness is often contagious.

During the height of COVID, many real estate industry analysts opined that the pandemic would put an end to the shared workplace. At the time, it seemed easy to pay heed to the doomsayers. The numbers, however, have proven them wrong. While the early days of the pandemic were disheartening for any business, there were multiple signs of brand loyalty that signaled that shared workspace would indeed bounce back and grow. During the height of the pandemic, nearly two thirds of CIC’s pre-COVID clients chose to retain their membership. After announcing strong vaccination policies at its U.S. innovation campuses, CIC experienced a near 10% increase in U.S. revenues over the 10 weeks following the announcement. In March of 2022, CIC’s Massachusetts sales team fielded more inquiries for new space than at any other time in the company’s history. Campus tours in January 2022 increased by 43.5% as compared to December 2021. Most remarkably, occupancy in CIC’s Massachusetts campus is on pace to exceed pre-COVID levels. During the pandemic, the company also expanded around the world, launching locations in Japan and Poland.

What does the future hold for innovation, collaboration, and workplace environments? We can only speculate, but we are confident that we’ll see it first at CIC.

Ken MacKenzie is partner of Dalton & Finegold, LLP and a member of the International Hospitality Consultants (ISHC).

Formerly MacKenzie was the co-leader of the hospitality and recreation group at Goulston & Storrs. MacKenzie represents institutional investors, private equity funds, investment managers, pension funds, university endowments, REITs, major lending institutions and developers in the acquisition, financing and disposition of all classes of real estate assets both nationally and internationally.

MacKenzie specializes in transactions involving hospitality assets and has significant experience in large-scale joint-ventured deals, often involving non-profit institutions such as universities or hospitals. He frequently assists clients in structuring their responses to RFPs for complex mixed-use projects.

MacKenzie received his A.B. from Dartmouth College and his J.D. from Boston University School of Law, where he graduated magna cum laude. MacKenzie is admitted to practice law in the state of Massachusetts.

Camilla Jensen is the chief financial officer at CIC. She is an experienced leader focused on driving results at the intersection of vision, strategy and financial acumen. Having spent 16 years at Marriott International, Jensen held multiple roles with responsibilities including finance, asset management, crisis management, negotiating workout agreements and optimizing the merger synergies between Marriott and Starwood. In addition to her expertise in the hospitality industry, Camilla also brings an international perspective, having grown up in the Danish/German border region and working throughout Europe, the Americas and in select countries in Africa and Asia over the course of her career. She has an MBA from American University in Washington DC and a Master of International Business and Languages from Odense University in Denmark.

View the article on the NEREJ website, published May 20, 2022.

*Article posted with permission of New England Real Estate Journal

ANDOVER, MASSACHUSETTS – June 2, 2022 – Dalton & Finegold, a Massachusetts based law firm specializing in real estate law, estate planning, and litigation, welcomes Attorney Ashley Evirs as partner, joining the firm’s growing Estate Planning team. Evirs specializes in all facets of estate planning, estate and trust administration, and long-term care planning.

Ashley Evirs brings over 10 years of experience customizing estate plans designed to avoid probate, minimize estate taxes, and provide asset protection. She is an active member of the Massachusetts Chapter of the National Academy of Elder Law Attorneys and a Wealth Council Member. She received her undergraduate degree from University of Delaware and completed her law degree at Roger Williams University School of Law.

Evirs advises clients on available estate planning strategies, sets up Irrevocable Trusts for protection purposes, and locates planning deficiencies. She is highly skilled with elder law matters including long term care planning, asset protection planning, and providing counsel through the MassHealth/Medicaid long term care application. Additionally, she specializes in counseling clients through the loss of a loved one by handling probate actions, navigating resolutions for family disputes, acting as Trustee for clients, representing Trustee’s to counsel, and guiding the administration process, as well as preparing and filing state and federal estate tax returns. She often speaks at retirement and assisted living facilities throughout the metrowest and south coast areas. Evirs will practice out of the Boston and Lakeville offices primarily, traveling to the other Dalton & Finegold offices as needed.

“Ashley Evirs is a highly regarded estate planning attorney who is known for providing exceptional guidance and individualized attention to every client. We are thrilled that Ashley is joining our growing Estate Planning team, bringing experience and expertise,” said Barry Finegold, Co-Founder and Managing Partner of Dalton & Finegold.

About Dalton & Finegold, LLP

Dalton & Finegold, LLP specializes in residential and commercial real estate law, estate planning, probate administration, business law, and litigation. Headquartered in Andover, Massachusetts, with offices in Boston, Amesbury, Concord, Marlborough, Manchester, and Nashua, we have been providing exceptional service to our clients for over 20 years. Learn more at dfllp.com.

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CONTACT: Anne Webster, COO | Phone: (978) 470-8400 | Email: awebster@dfllp.com

Leases Place Numerous Obligations on Landlords and Tenants
By Christopher R. Vaccaro
Special to Banker & Tradesman

Special issues arise in commercial lease negotiations when landlords commit to build leased premises from the ground up for retail tenants. Landlords and tenants must take care to properly document these arrangements.

The economics of “build to suit” leases are simple enough. Landlords agree to build “shell space” consisting of foundations, exterior walls, roofs, structural components and mechanical systems using their own funds or construction financing. Landlords expect to recover their costs, plus profit, from tenant rents over the lease term. Tenants take responsibility for “tenant finish work,” such as installations of floor and wall coverings, internal partition walls and tenant fixtures.

Landlords often agree to pay tenants an allowance toward the cost of tenant finish work, while again recovering that expense plus profit from future rents. Such allowances are usually determined on a dollar per square foot basis. Under these circumstances, tenants are expected to pay for the tenant’s work initially, with landlords obligated to pay the allowance to tenants when the tenants’ work is complete, potential mechanic’s liens are released, and tenants have accepted possession and opened for business.

Deadlines Matter as Plans Evolve

These leases must describe the plans and specifications defining the construction. If plans are incomplete when the lease is signed, the lease needs mechanisms to finalize them. Both the landlord and the tenant are expected to submit to each other draft plans, and each party must review the plans and respond with suggested changes within a specified amount of time. Parties that fail to timely comment on submitted plans are deemed to have accepted the plans as-is. Leases should also accommodate the need for changes to plans during construction, because of unforeseen circumstances. It is recommended that parties agree on each other’s general contractors in advance.

After plans and specifications are finalized, each party must secure permits for its work. The lease should require the landlord to secure permits and complete the landlord’s work by a specific delivery date, but allow extensions because of events beyond the landlord’s control, such as inclement weather, natural disasters, shortages of materials, pandemics and construction moratoria. However, many tenants insist upon absolute deadlines for landlords to complete construction, regardless of the occurrence of such events. Tenants often require specific remedies when landlords fail to timely complete their work, such as liquidated damages, rent abatements and lease termination rights.

As the landlord’s work nears completion, tenants need advance notice of the delivery date, so they can mobilize their contractors and other personnel to start installing tenant improvements and preparing the space for use. After tenants accept delivery of the premises, they should have a limited time to complete their build-out and open for business, after which they are required to pay rent, whether or not they are ready to open.

After landlords deliver the premises, tenants should have time to inspect the premises and prepare punch lists of incomplete items. When tenants fail to timely list incomplete items, they waive their rights to make claims about them later. After tenants submit the punch list to their landlords, landlords should quickly resolve deficiencies. Tenants usually require warranties against latent defects in the landlord’s work, as well as assignments of warranties given to landlords by their contractors.

End of Lease Requirements Spur Dispute

Commercial rents are usually based on the leased premises’ square footage. For new construction, the actual square-footage of the leased premises cannot be determined until construction is complete. Therefore, tenants typically reserve the right to re-measure the leased premises upon completion, and to adjust rents accordingly. Landlords should limit the time for remeasurements, and have the right to conduct their own remeasurements to validate tenants’ figures. Disagreements should be resolved by a disinterested party.

Leases should also address what tenant improvements must be removed or must remain in the premises at the end of the lease. For example, in Wilder Companies Inc. v. California Pizza Kitchen Inc., a Massachusetts Superior Court considered a restaurant lease that did not specifically require the tenant to remove its trade fixtures and restaurant equipment when the lease expired. The tenant left behind a pizza oven, walk-in refrigerator, ice chest, counters and seating booths. The landlord sued the tenant for the $50,000 cost of removing those fixtures, as well as holdover rent, but the court dismissed the landlord’s lawsuit.

In leases requiring significant construction, there is no room for ambiguities or assumptions that parties will act “reasonably” when conflicts arise. Landlords and tenants should make sure that their leases cover the issues described above in detail.

Download the article as seen in Banker & Tradesman on April 25, 2022. Learn more about Christopher R. Vaccaro.

Issues Include Permitting, Privacy and Environmental Clauses
By Christopher R. Vaccaro
Special to Banker & Tradesman

With its abundance of educational and healthcare institutions engaged in innovative research and development programs, Massachusetts is experiencing much real estate activity associated with life sciences. Landlords and tenants should consider several issues before making financial commitments to life science projects.

Permitting is a threshold issue for laboratory uses. Life science tenants should not sign leases without assurances that necessary governmental permits are obtainable. Tenants that fail to secure permits are not excused from lease obligations. The Massachusetts Biotechnology Council (MassBio) has laid groundwork in this area. It ranks Massachusetts municipalities based on the availability of lab sites. Communities earn “gold” ratings if they have sites pre-permitted for biotech uses, or buildings where biotech activities are under way. Communities can earn “platinum” ratings if they have shovel-ready permitted sites that have completed review under the Massachusetts Environmental Policy Act. The list of gold and platinum rated communities is easily accessible at MassBio’s website.

Planning for Growth

Life science firms should anticipate future growth. Flexible short-term licenses in shared laboratories can work for startups, but as firms develop marketable products and attract Series A funding, they will graduate into fixed-term leases of specially designed facilities. Life science firms must identify landlords with financial resources to build out space properly, and avoid long-term commitments to spaces they expect to outgrow.

Tenants should have lawyers review leases in advance, to avoid unpleasant surprises. A Massachusetts medical device manufacturer encountered such unpleasantry in SpineFrontier Inc. v. Cummings Properties LLC.

The tenant originally signed a one-year lease for 331 square feet. The lease automatically renewed for five years unless the tenant notified the landlord otherwise by constable, certified mail or courier service. The parties later amended the lease to expand the tenant’s premises and extend the lease term. Before the scheduled expiration, the tenant emailed its landlord a nonrenewal notice. The landlord claimed that the emailed notice was inadequate and the lease renewed for five years. It demanded $1.7 million in accelerated rent. The Massachusetts courts ruled that the emailed notice and the parties’ other communications were sufficient to terminate the lease, thus rescuing the tenant from disaster.

Most landlords offer standard lease forms that prohibit tenants from assigning the lease or subletting space. This is unworkable for life science tenants whose business plans involve sales of their businesses to pharmaceutical companies or collaboration with other firms and scientists. Landlords and tenants of laboratory space need to modify assignment and sublease clauses to accommodate such business plans.

Environmental Issues

Landlords usually reserve rights to enter the leased premises for numerous reasons, including inspections and repairs, and showing properties to lenders and investors. However, widespread access rights are inappropriate where tenants develop intellectual property or conduct laboratory activities involving hazardous materials. Tenants need to make sure that “clean rooms” and other areas are off-limits to landlords.

Environmental issues are of particular concern in “wet labs” where tenants handle biological or radioactive materials or chemical solvents. According to Kevin Malloy, a principal at Avison Young who specializes in life science real estate transactions, “Landlords look to push all risks involving hazardous materials to tenants. They are also concerned about tenant operations impacting property insurance levels. Local fire chiefs have an active role in shaping building hazmat policy especially in urban environments. They often require thorough code review and hazmat storage and use permits from tenants.”

The condition of the premises at lease expirations is critical. Landlords cannot afford to remove vacant space from the rental market while cleaning up after prior tenants. In Prospect Hill Acquisition, LLC v. Tyco Electronics Corp., the lease required the tenant to remove “all equipment, ducts, fixtures, materials or other property that are or might be contaminated” when the lease expired. The landlord refused to accept the premises at lease expiration, because cyanide was found in the concrete floor. The landlord required that the tenant remove the contaminated flooring, while charging the tenant triple rent as a holdover tenant

A federal appeals court ruled that the phrase “equipment, ducts, fixtures, materials or other property” in the lease referred to moveable objects, not the concrete floor, and the lease did not obligate the tenant to remove it.

Commercial real estate experts learned during the COVID pandemic that the office and restaurant leasing markets are less stable than hoped, and demand for laboratory space presents opportunities. When exploring these opportunities, all participants should educate themselves on special issues affecting the life science industry.

Download the article as seen in Banker & Tradesman on February 28, 2022. Learn more about Christopher R. Vaccaro.

GE’s Legacy Shapes Future of Pittsfield Property
By Christopher R. Vaccaro
Special to Banker & Tradesman

Massachusetts law defines “gateway municipalities” as cities and towns with populations between 35,000 and 250,000, where median household incomes and rates of residents with bachelor’s degrees are below the state average. Commonly called “Gateway Cities,” these communities often face economic challenges because of lost manufacturing jobs, but they also offer the advantage of lower real estate costs than tonier communities.

Pittsfield is a one such community nestled in the scenic Berkshires of western Massachusetts. Hiking, camping and skiing are available for outdoor recreation. Pittsfield also offers theater productions at the Barrington Stage and Colonial Theater, and the city is near the Jacob’s Pillow dance festival in Becket, the Tanglewood Music Center in Lenox and the Williamstown Theatre festival.

According to Pittsfield’s business development manager Michael Coakley, “Employers and employees alike have found that Pittsfield, the economic hub of the Berkshires, is a great place to live, work and raise a family with year-round outdoor recreational activities, world-class cultural attractions and easy access to Boston and New York City. Pittsfield’s manufacturers and innovative companies thrive with lower costs of living and doing business, than in the more urban areas.”

A Toxic Legacy Remediated

Despite these desirable attributes, Pittsfield suffered economically and environmentally from its status as a company town for General Electric Co. GE curtailed its manufacturing activities in Pittsfield, but not before discharging toxic PCBs from its transformer plant into the Housatonic River and the surrounding area for decades.

In 1999, the Environmental Protection Agency pressured GE to accept a consent decree, later approved by the U.S. District Court in Massachusetts. Under this consent decree, GE committed to remediating groundwater and soil contamination at its plant site and elsewhere, removing contaminated sediments from nearby wetlands, capping toxic landfills, installing groundwater monitoring systems and cleaning up the Housatonic River downstream from its plant. The commonwealth of Massachusetts, state of Connecticut and city of Pittsfield were also parties to the consent decree. More than two decades later, GE is still remediating PCB contamination caused by its activities.

The consent decree also required GE to provide financial support to the city and the Pittsfield Economic Development Authority (PEDA), a corporate body authorized by the Massachusetts legislature to acquire GE’s properties and prepare them for redevelopment and reuse. GE entered into a Definitive Economic Development Agreement with PEDA and the city, under which GE remediated contamination and demolished buildings on 52 acres of its plant site near Pittsfield’s center, then transferred that property to PEDA. GE also agreed to make a $15.3 million redevelopment fund available to PEDA for reconstruction and economic incentive packages for owner-occupants, and a $10 million gift to the city.

Six Shovel-Ready Lots Available

PEDA used the 52 acres and GE funding to create the William Stanley Business Park (WSBP) as a commercial development zoned for industrial and manufacturing uses. The site has freight rail access, with rail lines running north, south, east, and west. Current WSBP occupants include the Berkshire Innovation Center (BIC), Electro Magnetic Applications, MountainOne Financial and Eversource. The BIC offers research and development facilities for manufacturers.

Electro Magnetic Applications is a Denver-based technology company operating a laboratory that tests the resilience of machinery and materials to be used in the highradiation and super-chilled environment of outer space. MountainOne Financial offers banking, insurance and investment services throughout Massachusetts. Eversource operates a solar array that generates 1.8 megawatts of electricity on an 8-acre site.

The WSBP has six construction-ready lots ranging in size from one to 16 acres. The larger lots are subdividable. State and local economic incentives are available through PEDA.

The Massachusetts Biotechnology Council awarded Pittsfield a “Gold” BioReady rating, which is reserved for cities and towns that offer biotech firms adequate water and sewer service, receptive zoning laws and city officials, and available sites pre-permitted for biotech uses. The WSBP’s zoning laws and available sites make it an excellent location for biotech businesses.

Pittsfield also created a “Red Carpet Team” comprised of state and local officials from the city, PEDA, the Pittsfield Economic Revitalization Corp., MassDevelopment, the Massachusetts Office of Business Development and MassHire. This team meets with businesses interested in locating or expanding in Pittsfield, to explain available tax and financial incentive programs. The Red Carpet Team successfully attracted e-commerce retailer Wayfair, which is expected to employ 300 people at a call center in Pittsfield.

Given Pittsfield’s cultural and recreational amenities, and its determination to attract laboratory, technology, and manufacturing businesses, it is worthy of serious consideration as a location for both start-up and established players in those industries.

Download the article as seen in Banker & Tradesman on January 31, 2022. Learn more about Christopher R. Vaccaro.

Benchmark with Checkered Past Shelved After Four Decades
By Christopher R. Vaccaro
Special to Banker & Tradesman

The London Interbank Offered Rate (LIBOR) was a widely accepted benchmark interest rate among financial institutions for over 40 years. Trillions of dollars in loans and other financial products were tied to LIBOR pricing. But LIBOR became tainted by scandal, and its time in the U.S. is coming to an end.

LIBOR is not a single interest rate, but 35 different interest rates determined by the Intercontinental Exchange (ICE) on a daily basis for the U.S. dollar, the British pound, the euro, the Japanese yen and the Swiss franc, on loans with maturities of one day, one week, one month, two months, three months, six months and one year.

On a daily basis, ICE asks a panel of major global banks, such as Bank of America, Barclays, Citibank, JPMorgan Chase, Citibank, UBS and Deutsche Bank, to quote what interest rates they are willing to pay on loans at the stated maturities. ICE then discards the highest and lowest quotes, producing trimmed averages as LIBOR for each currency and maturity. This method of determining LIBOR is based on what major banks say they are willing to pay for short-term loans, not on what they are actually paying for such loans.

Although interest rates tied to LIBOR can be competitively priced, LIBOR is subject to constant change, making some borrowers and investors uncomfortable. Many borrowers and investors prefer fixed interest rates, which allow predictable debt services costs for borrowers, and predictable returns for investors.

In contrast, some borrowers and investors prefer floating rates, such as LIBOR, which allow borrowers to benefit from rate decreases, and investors to benefit from rate increases. In response, banks market profitable interest rate swaps as financial products. Swaps enable borrowers and investors to trade fixed rates for floating rates, and vice versa, to mitigate undesired risks.

An Invitation for Mischief

The method of determining LIBOR, and LIBOR’s popularity in interest rate swaps, gave rise to considerable mischief that surfaced in the wake of the 2008 recession. An analysis by The Wall Street Journal indicated that some banks on the LIBOR panel quoted lowball rates that did not reflect increased loan defaults during the recession, and were out of line with rates quoted by other banks on the panel.

Also, financial institutions on the panel were parties to interest rate contracts tied to LIBOR, giving them incentives to make daily LIBOR quotes that manipulated LIBOR to increase the value of their contracts. A complicated scheme involving these activities was revealed in 2012. Subsequent investigations discovered collusion among multiple banks to manipulate LIBOR over many years. The investigations resulted in over $9 billion in fines against banks, and criminal charges against traders and brokers.

Responding to this misconduct, in 2014 the Federal Reserve convened the Alternative Reference Rates Committee (ARRC), a group of private-market participants, to manage a transition from U.S. Dollar (USD) LIBOR to a more reliable benchmark rate. In 2017, the ARRC identified the Secured Overnight Financing Rate (SOFR) as a desirable replacement benchmark rate. Since then, use of LIBOR has declined.

The Federal Reserve Bank of New York’s website publishes SOFR on a daily basis. Unlike LIBOR, SOFR is based on an average of interest rates that banks actually pay for overnight loans secured by Treasury securities. The methodology for determining SOFR is complicated and requires challenging data collection and mathematical formulas, but regulators and financial institutions seem confident that SOFR will not be prone to the same manipulation as LIBOR.

The Inevitable Ending

LIBOR’s phase-out became inevitable on Nov. 30, 2020, when the Federal Reserve’s Board of Governors, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. issued an interagency statement encouraging banks to move away from USD LIBOR as soon as practicable.

ICE will cease publishing the one-week and two-month USD LIBOR rates on Dec. 31, 2021, and the remaining USD LIBOR rates on June 30, 2023. USD LIBOR will remain in limited use until June 30, 2023, so existing USD LIBOR contracts can mature before LIBOR experiences disruptions. The interagency statement warns that financial institutions that fail to prepare for the end of USD LIBOR could undermine their financial stability. The statement strongly discourages financial institutions from entering into contracts based on USD LIBOR after Dec. 31, 2021.

Given LIBOR’s checkered past, few people will grieve as it disappears over the next several months. It remains to be seen whether SOFR will gain acceptance as a replacement to LIBOR, and whether it will prove to be safe from manipulation.

Download the article as seen in Banker & Tradesman on December 27, 2021. Learn more about Christopher R. Vaccaro.