The MBTA is facing a $45 million budget deficit just days into the new fiscal year as a real estate deal the transportation agency is counting on to balance its budget is in danger of collapsing.
The T is wrestling with nearly $900 million in cumulative budget deficits between fiscal 2013 and 2016. It closed a projected $132 million budget deficit in fiscal 2012, which started this week, by refinancing $33 million in debt and selling off assets in one-time deals.
The biggest one-time transaction was a bond deal that traded $450 million in future parking revenues for $300 million in upfront cash. The 2012 budget also counts on $45 million from the sale of the North Station garage, a 1,280-space parking structure that sits underneath the TD Garden. The T anticipated naming a winning bidder in the garage sweepstakes in August and closing the sale by December, but it’s no longer clear that the agency will be able to sell the garage at all. A failed sale would leave the T with a sudden $45 million hole in its budget.
While the T is counting on $45 million from the North Station garage sale, the T’s real estate advisors put the garage on the market with a $70 million minimum bid – a $25 million markup. Potential buyers pushed back, saying the $70 million price was far too rich, given the garage’s financials (it grossed $6 million for the tax-exempt T last year), its poor physical condition, and its location at the end of a transit line. But the T and its real estate advisors have held firm on pricing.
Things came to a head last month, when potential bidders took a weekday tour of the nearly-empty garage, and then peppered T representatives with a series of unfriendly questions about the $70 million price tag. One attendee said a real estate exec “tore into” the T over pricing. “There was a lot of pressure,” another adds. A third attendee said T officials were originally talking about a price tag of $35 to $40 million, but now that figure has been doubled. “They should have taken the money and run,” the attendee said.
Real estate sources who spoke about the North Station garage did so anonymously because the bidding process remains open. They all believed the T had inflated the garage’s asking price by at least 20-30 percent. “I think it’ll be a failed process,” one predicted.
Sources ascribed the inflated price to either a hope that the TD Garden’s owner, Delaware North, will overpay out of desperation to control the garage that sits underneath the Garden (Delaware North is pursuing redevelopment plans on the site of the old Garden), or because the T thinks it’s entitled to a cut of any financial stability a new owner would bring to the garage. At last month’s walk-through, T officials responded to critical questions by saying that the $70 million price was conservative, based on a recent report that claimed the garage wasn’t being managed effectively.
Public bid documents are peppered with references to a floundering sale. One potential bidder cast doubt on the willingness of any bank to finance a deal based on the T’s minimum bid price. Another said the $70 million minimum “makes no sense.” A third asked the T if the agency planned to reopen bidding in the event that all bids came in below its $70 million target; the T implied in those documents that, instead of lowering its minimum price or rebidding the garage, it would instead cover its budget deficit by increasing its already high debt load, using the garage as collateral.
