Assembly Square, the Back Story
Part 3:  Wheeling and Dealing

A Commentary by William C. Shelton

(Editor’s note: The views and opinions expressed in the commentaries of the Somerville News do not neccessarily reflect the views and opinions of the paper, it publishers or its editors.)

   From the mid-1980s to the mid-1990s, a few speculators became interested in the 50 acres of Assembly Square land that would later become the focus of city redevelopment efforts.  By far, the most clever of these developers was Steve Samuels.  The Samuels family had been principal shareholders of First National Stores, which, in the mid-Twentieth Century, was Assembly Square‚Äôs largest property owner.  Following First National‚Äôs closure, the Samuels went into real estate development there and elsewhere.

   Two machine tool manufacturers owned the property adjacent to the Assembly Square Mall, which is now targeted for an IKEA store. In the years after the Mall‚Äôs opening, both plants closed, eliminating 400 jobs. Cooper Industries bought HK Porter, and Cambridge Machined Products went into bankruptcy. 
   Winchester-based Jupiter Properties bought the Cambridge Machined Products property in 1985, and the Mystic Builders Supply building.  Aside from leasing the latter to Good Time Billiards, not much happened at these sites for the next ten years.
   In 1988, Shearson Shopco, a joint venture with Shearson Lehman, bought the Assembly Square Mall for a head-turning $42.3 million.  The next year, Boston‚Äôs overheated commercial real estate market tanked.  The turn of the decade brought virtually no new construction across the region.
Former Mayor Michael Capuano cites this as the only reason that he was willing to consider big box development.  Home Depot wanted to put a store on Middlesex-Avenue. Stephen Bobrow, president of the New-York based company that owned the property, assured the mayor that he would not sell it to Home Depot.  Instead, in April, 2001, he executed a 40-year land lease.  In the mid-1990s, the store had the highest per-square-foot sales of any Home Depot in the U.S.
   Steve Samuels and Costco Wholesale Corporation were paying attention.  In 1993, they obtained options to buy the old machine tool company sites so that Samuels could develop a Costco there, along with a Stop and Shop.  Since the property sat on filled tidelands, they needed a state license.  The project languished because Shearson Shopco was unwilling to grant Costco/Samuels an easement across the mall property, and the Capuano administration declined to take it by eminent domain.  Costco eventually located across the river in Everett‚Äôs Gateway Center.  Stop & Shop bought the old Somerville Lumber site.
   Meanwhile, Cambridgeside Galleria and Medford‚Äôs Meadow Glen were eating the Assembly Square Mall‚Äôs lunch. National stores left Assembly Square, and Jordan Marsh‚Äôs closure eliminated its last ‚Äúdestination tenant.‚Äù  Mall management began offering short-term leases to little-known retailers.
   Like a city government that tries to compensate for the absence of promised commercial tax increases by boosting parking fines, Shopco tried to compensate for declining rent revenues by increasing existing tenants‚Äô common-area charges.  The increases were so oppressive that short-term tenants began leaving, while others threatened litigation.  Before the conflict was resolved, Shopco defaulted on its mortgage.  Its lender, Aetna Insurance, foreclosed in 1996, bought back the deed for $15 million, and began seeking a buyer.

    Steve Samuels saw a strategic opportunity.  He bought the former machine-tool properties in 1997 for $10.5 million.  Rather than buying the mall, he bought the K-Mart lease, knowing that this would give him leverage with new mall owners.
    Peter Merrigan was a smart and ambitious graduate of the MIT real estate program who had been negotiating to buy the mall, with an eye toward creating a big-box strip mall.  Taurus New England was a highly successful firm that acquired failed real estate projects, repackaged them, and made enormous profits.  Merrigan joined Taurus and persuaded his new colleagues to buy the mall.  In October, 1998, they did so for $18.8 million, financed with an $18.5 million one-year note.
    Taurus very much needed the K-Mart lease.  It had a clause obligating the mall‚Äôs owners to lease to retail tenants.  Taurus needed to persuade gullible city officials that this clause prevented Taurus from using the mall site for higher-value development.
   Steve Samuels agreed to sell Taurus the lease, but only if they would give Samuels an easement.  They did, and Samuels sold his properties to IKEA in 1997 for $19.5 million, having held them for less than two years.  He made $9 million in profit.
   Samuels would go on to develop the kind of high-density project advocated by the Mystic View Task Force, in the Fenway, where similar activists in that neighborhood supported him. Taurus‚Äôs development partner, National Development, would bail out of the mall project and build a high-value development across the river in Medford. 
   Although future events would demonstrate that the K-Mart lease posed no real obstacle to high-value development, city officials would never challenge this fiction.  Because of these officials‚Äô commitment to illegally entitle Taurus to build low-value big boxes, Assembly Square would remain undeveloped for seven more years.