Last month Assembly Square Limited Partners’ (ASLP) sold its holdings to Federal Real Estate Investment Trust for $64 million.  Press coverage did not report that ASLP’s profit was in the neighborhood of $30 million, nor that virtually all of that value was created by the actions of Somerville’s Mayor and Aldermen. 

Here is how it happened.

At the end of 1998, ASLP bought the mall site for $18.8 million.  They put down $300,000.  Fourteen months earlier, an ASLP principal had bought the Good Time Billiards property for $8.2 million.

When the $18.5 million mall loan came due after one year, Home Depot bought it, and in March 2000, signed a mortgage with ASLP, and a 99-year land lease. It is not clear whether ASLP paid interest on this debt, or how much.  The lease does reveal that Home Depot paid all of ASLP’s subsequent litigation expenses and a large portion of the property’s operating costs.  The city had agreeably lowered the mall’s tax assessment to $18.8 million after ASLP bought it and gave ASLP another tax abatement in 2004.

In September, 2000, the city purchased 9.3-acre Yard 21 from the MBTA.  At a January, 2001 meeting with constituents, then Board of Aldermen President Tarpley said that the city was holding off issuance of a Request for Proposals (RFP) to developers, in order to give ASLP an opportunity to make deals with owners of surrounding properties.

When issued, the RFP appeared to have been written specifically for ASLP.  Few observers expected anyone else to bid.  One leading developer told the Globe that he had been very interested, but ASLP had tied up the surrounding properties.

Unexpectedly, a joint venture between Cathartes Investments and Habitat for Learning submitted a Yard 21 proposal that would have generated far more jobs and taxes per acre and far less traffic than would ASLP’s.  It promised to pay the city twice as much for the land and begin development immediately.

Instead, the city gave site control to ASLP.  But it did not require them to buy the property until 2009.  ASLP subsequently made a handsome profit selling its Yard 21 rights to Federal, without ever having to buy it themselves.

Meanwhile, in 2001 the Planning Board had violated the Zoning Ordinance by approving ASLP’s plan to replace the mall with a giant Home Depot.  Citizens appealed, and in an unusually pointed January,

2003 decision, the Court found that the Planning Board had bent the law to accommodate ASLP instead of requiring ASLP to obey the law.

Rather than proposing a development that would conform to the law, ASLP then persuaded city officials to gut the Zoning Ordinance.  Meeting in the Mayor’s office, ASLP and the Mayor’s retained attorneys hammered out rezoning that allows ASLP to do things with its property that another Assembly Square land owner, wanting to do an identical development, would not be allowed to do.  Aldermen passed this rezoning last April.

While the rezoning was being considered, ASLP negotiated to sell its Assembly Square interests to Forest City, a developer with the capacity to build what Somerville activists had been calling for, thereby ending five years of acrimony.  Both parties agreed on the terms and were prepared to execute the deal. 

Despite appeals from Alderman White to postpone voting until the deal was resolved, the Board approved the rezoning.  ASLP reneged on the deal and jacked up the price.  Forest City withdrew.  Passing the rezoning also facilitated the ignominious withdrawal of Home Depot, having fulfilled its usefulness to ASLP.

With the new zoning, ASLP obtained approval to build a big-box-dominated development, which will overrun East Somerville with the most intense traffic imaginable, while providing the fewest economic benefits. They never made environmental filings required by state law, or built a square foot.  Yet, depending on the broker’s commission and how much interest was paid to Home Depot, ASLP will leave our city with somewhat more, or somewhat less, than $30 million in profit.

Virtually all of this $30 million value was created by the city’s award of Yard 21 to, and gutting the Zoning code for, ASLP.  Yet, in today’s dollars, the city will never accumulate anywhere near that much in net tax revenues.

Why?