The Worcester City Council will take up an item brought by District 2 Councilor Candy Mero-Carlson during its meeting on Tuesday, Sept. 10, that asks for council to convene in executive session.
Mero-Carlson’s item says it is “for the purpose of discussing all legal avenues the City of Worcester can take against Worcester Polytechnical Institute (WPI) and their recent proposed acquisition” of the Hampton Inn, at 65 Prescott St., and Courtyard Marriot, at 72 Grove St., in Gateway Park.
The item sits at number 12f on the city council’s agenda for Tuesday.
As This Week in Worcester previously reported, the purchase of these hotels by WPI will take an estimated $1.7 million annually off the city’s tax rolls in combined real estate and hotel taxes. WPI, like most universities, is tax exempt.
City officials and those part of the Economic Development Coordinating Council (EDCC) have strongly criticized WPI. They point out that Gateway Park sits on former brownfields and that $170 million in private and public investment cleaned up the area to make way for the project. See more about the EDCC in the previously reported story linked above.
The EDCC described the intent of the project as “a mixed-use district that expanded the City’s tax base, created jobs, and could be an example of how government officials, businesses, and academia can work together in a mutually beneficial way.”
While WPI has taken significant criticism, similar rhetoric about the owners of the property has been absent.
Let’s look at the history of the ownership of the properties, the people behind the businesses that owned them, and how that public investment, with tax breaks on top, benefited them.
Property Ownership
According to public property records, NAIRN LLC acquired 65 Prescott St. in 1999, for $0.
In 2014, NAIRN sold the property to SXC Prescott Street Hotel, LLC, for $100.
The City of Worcester entered into a Tax Increment Financing (TIF) Agreement with SXC for seven years, starting on July 1, 2015.
A TIF provides a property tax reduction on the increase in the property’s value after annual assessment of the value of the property.
For 65 Prescott St., the assessment of the property in 2013 determined its value as $550,000.
According to the TIF agreement between the company and the city, SXC Prescott Street Hotel, would invest $10,175,000 in developing it. The agreement estimates the value of the property after the company’s investment at $10,550,000. That makes the tax increment, the increase in taxable value, $10 million.
The agreement only includes estimates, and does not account for assessments done in future years.
With a 2013 tax rate of $30.85 per $1,000 assessed value, the estimated taxes due was $308,500 annually.
The TIF agreement reduced the tax liability of the company by an average of 35 percent over 7 years, beginning at 65 percent in year one and reducing by 10 percent each year. In year seven, the tax break was 5 percent of the tax increment.
Using these numbers, which don’t account for increased value assessed annually, that reduced the seven-year tax burden by over $750,000, from $2.16 million to $1.4 million, without accounting for the increases in tax assessment.
The Hampton Inn opened in February 2015.
According to records from the Worcester County Registry of Deeds, in April 2017, SXC entered into a mortgage for over $13 million on the property.
Nairn LLC acquired 72 Grove St. in 1999, according to public property records. Those records say the hotel was built the same year, 1999. Like 65 Prescott, it acquired that property for $0.
SXC and Nairn
According to records from the Corporations Division of the Massachusetts Secretary of State’s office, SXC Prescott Street Hotel, LLC, SXC Managing Member, LLC, SXC Managing Member, LLC, Schleicher & Stebbins Hotels, LLC, and Nairn all connect to a few individuals.
This web of LLCs is common in many businesses to limit liability. In many cases, a lawsuit against one entity won’t affect the others.
Leo Xarras, lists an address at 10 Cabot Rd. in Medford, the site of a three story office building. Xarras is chairman and CEO of Colwen Hotels, the company which managed Hampton Inn, at 65 Prescott St., when it opened in 2015. He is connect to only one of those entities.
Jennifer Stebbins Thomas, Mark C. Schleicher, and John R. Stebbins have connection to all those entities.
Stebbins is CEO, and Stebbins Thomas is Director at PROCON, the architect and construction manager for 65 Prescott. Both are also partners at Tidemark LLC, a New Hampshire based developer.
Inherited Wealth
Jennifer Stebbins Thomas and John R. Stebbins
The biographical data on the PROCON website for both Stebbins and Stebbins Thomas says each are “the fourth generation to lead the family business in its 88-year existence.”
Tidemark’s website says that “our story began more than 40 years ago when Mark Stebbins partnered with Mark Schleicher to embark on a commercial real estate development journey.”
The Mark Stebbins in that statement refers to the father of John R. Stebbins and Jennifer Stebbins Thomas, whose name was also John Stebbins. They inherited the companies from their father when he died in 2021.
Mark Schleicher
The New York Times spoke with Schleicher for a story in 2012 on family property. According to that piece, Schleicher’s family owned 33,000 acres of land in Southwest Florida. The family acquired the property, now over 100 years ago, after loaning money to a timber baron, who defaulted on the loan.
The family had developed about a quarter of the land at the time of the article.
Schleicher married into the family, whose wealth came from the Joseph Schlitz Brewing Company, which was founded in 1849 and sold to Stroh Brewery for $500 million in 1982.
The two Worcester properties, acquired in 1999, for nothing, were sold in 2017, after making significant investments into the properties to build the hotels. They also benefitted from the profit of the hotels in the interim.
SXC sold 65 Prescott St. to Breit Mass Property Owner LLC for $13.6 million. Nairn sold 72 Grove St. to Breit Mass Property Owner, LLC for $16.1 million. Both transactions happened in October 2017.
The return on investment realized by Stebbins Thomas, Scleicher, and Stebbins isn’t clear, as their companies are private. However, property records show the cost to replace the buildings has still not reached the amount they sold for seven years earlier, despite the high inflation of 2022 and 2023.
BRIET
When Stebbins Thomas, Scleicher, and Stebbins were done in Worcester, they sold the properties, and the TIF, to Breit Mass Property Owner, LLC, a subsidiary of Blackstone Real Estate Income Trust (BREIT).
The parent company of BREIT is Blackstone, Inc. Publicly traded on the New York Stock Exchange, the company has its headquarters at 345 Park Ave. in Midtown Manhattan in New York City.
Blackstone has over $1 trillion in assets under management and generated over $8 billion in revenue in 2023, with a net income of over $2.4 billion. It is active in several financial sectors, including credit, hedge funds and insurance. It is one of the largest investors in leveraged buyouts.
Leveraged buyouts are sometimes controversial. They use borrowed debt to buy a company using assets of the purchased company as collateral. They often lead to layoffs and sharp cost-cutting measures. Some leveraged buyouts are so-called “hostile takeovers.”
Corporate Welfare
The properties at Gateway Park sit on top of what was once brownfields. Heavy public investment cleaned up the area.
Three silver-spoon fed vulture capitalists took tax their tax break and the property they paid nothing for, and did what was best for them. The corporate giveaway became free money for them.
Even worse, they flipped them to even worse vulture capitalists in private equity.
Nobody seems to have a problem with that. No partnership expected, even though money that should have been in our schools. Instead, the profits made after public investment was extracted from Worcester to New Hampshire with Stebbins Thomas, Scleicher, and Stebbins, and Manhattan with BREIT.
The Outraged Business Lobby
CEO of the Worcester Regional Chamber of Commerce Tim Murray, also a member of the EDCC, is up in arms.
On Talk of the Commonwealth with Hank Stolz this week, he said “if I was City Manager Batista, if WPI President Grace Wong and Executive Vice President and CFO Michael Horan told me my coat was on fire, I wouldn’t believe them unless I had an ironclad legal agreement reviewed by an army of lawyers, going forward as it relates to WPI.”
No mention of the seller of the properties. Only WPI has an imaginary prohibition on acting in its own interests. Corporate giveaways, the inertia of the national Chamber of Commerce, shall receive no criticism.
When Stebbins Thomas, Scleicher, and Stebbins received two free properties of corporate welfare in 1999, where was Murray?
A Worcester City Councilor, elected in 1998.
What protections did he and other leaders at the time put in place to protect the public investment in those properties?
Absolutely nothing.
A deed restriction, which can limit the rights of the property owner to transfer the property, would have prevented this. But that would be a restriction on business. That’s not “business-friendly.” That’s not allowing the magic of the free market to miraculously solve all problems.
Instead, we’ll just wait for the inevitable and throw a big fit about it in the media.
Learning Nothing
Meanwhile, the Worcester City Council just approved another TIF last week for $5.7 million over 15 years for a developer to build 312 market rate units at 340 Main St.
The documents for the TIF, which were sent to city council prior to its vote, said the company will invest $81 million into developing the property. They have elected to pay $2.4 million to the city’s Affordable Housing Trust fund, to comply with the city’s Inclusionary Zoning ordinance rather than provide any affordable units.
Without the TIF, the city estimated a total property tax of $14.6 million over 15 years. While there are certainly other costs the company would accrue, those major costs total just under $98 million.
With the TIF, the taxes drop to over $8.8 million and the total cost to $92.2 million.
Those 312 units will generate over $8 million per year in revenue at today’s market rate rents when at full occupancy. The TIF changes the breakeven point from about 12.25 years to 11.5 years, a difference of about 9 months.
A project that will generate $8 million in annual revenue can’t happen because breakeven is 9 months further away? It’s not even believable.
What do we get for that tax break? Housing that a huge portion of those that live in Worcester can’t afford.
What prevents that company from selling 340 Main St. to a university or other tax-exempt organization?
Absolutely nothing.
How About A Plan?
While we should all appreciate that the city and elected leaders seem to have the will to fight against the proposed acquisition by WPI, I see no evidence, so far, that the city is going to do anything differently in the future.
Rather than publicly excoriate WPI, how about a plan to ensure this never happens again?
If nothing changes in the way the city does business, this uproar is posturing, and nothing more.
The silver-spoon fed trio, the vulture capitalists in Manhattan, and WPI are all acting in their own best interests. Others will do the same. Nobody cares about, as the Worcester Chamber of Commerce said, “the collaborative spirit in which the Gateway Park Project.”
There are No Corporate Partners
Any business with investors, and especially publicly traded companies, has a legal obligation to generate as much of a return as humanly possible for their investors. That’s their sole purpose. Big business does not have “corporate responsibility” programs out of the goodness of their heart. They don’t contribute to charity or establish foundations because they are doing the right thing. It is marketing, public relations, and tax strategy.
Let’s stop it with this myth of corporate partners. Local businesses where the owners are involved, that don’t have obligations to big money investors, and have a personal connection to Worcester, are potential partners.
The $5.7 million the city won’t collect over 15 years would be far better spent in our schools, working toward a long-term goal of building a workforce employers need.
If an employer is going to bring good paying jobs to the city, and lift city residents over the 7th lowest median household income in Massachusetts that Worcester currently has, that adds value to the city. Affordable housing units add value to the city? TIF away.
A project that brings 312 housing units at rates people that live here can’t afford will have little, if any effect, on the housing market in the city. Making any meaningful difference in the housing market will take an unrealistic number of market rate units over far too many years.
The city needs intervention, not the pipe dream that building housing for people who work in Boston, and spend most of their time and money in Boston, is going to change anything for the people who live here.
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