Westwood Station Construction and Financing Update

On "value-engineering": Value engineering is the process of trying to produce construction with design that is more cost efficient. Its goal is NOT to reduce quality, but to produce the same quality at lesser cost or with a better result. For example, there are three approaches to building garages: cast-in-place concrete (the garage is fully cast at the site); a pre-cast garage where the major components are concrete cast off-site then trucked to the site and erected; and, "hybrid" garages which use combinations of steel and concrete. Different garage sizes and designs lend themselves to different costs. All sorts of factors affect the "best" garage design: the intended use (retail, office or residential parking); the size of the garage; tenant requirements; and, site and soil conditions. It may sound a little silly, but getting garages "right" is very important in many respects. Think about your own experience when you go somewhere and the garages can be confusing, scary and of poor quality construction. Lighting, signage, elevators, stairs, sight lines, and construction quality all need to be well thought out.

Pre-cast garages are often favored because of the more reliable quality control when you have the garage spans cast in a factory but there are only a few precast plants in the northeast (and a few in Canada). If several of these are busy, the cost of precast garages climbs quickly. On the other hand, cast-in-place garages depend on carpenters creating wooden forms on site to cast the garage members. If the carpenters are busy, then cast-in-place garages can escalate in cost. Cast-in-place and hybrid garages are also more demanding on general contractors, so you have to evaluate quality controls in the field closely.

As the economy changes, costs and availability changes. A year ago, concrete was rising in cost at a frightening clip, particularly as demand in China drove up cement and concrete costs. Earlier this year, gas costs made the shipping of large precast spans in the northeast much more expensive.

Therefore, you really have to stop and evaluate what will be the best product at the best price when you actually lock-in a contract. To get the right answer, you often have to engage the architect and structural engineers to test new designs so that the construction and price can be properly evaluated.

You can undergo a similar process on other building elements, including elevators, building skins, electrical systems and windows. The bad news about a bad economy is obvious, job losses, declining incomes, reduced state and local services. The good news is commodity and labor costs are lower so you can sometimes deliver the same or BETTER product for less cost.

On public funding and infrastructure. At present, Westwood Station has to provide over $120,000,000 of infrastructure and mitigation improvements. Of this amount, approximately $80,000,000 or more is PUBLIC infrastructure (largely major highway ramps and roads). Many of these road improvements were pledged by the state when the MBTA/Amtrak station was built but were never built. Significant portions of these pledged improvements have become the obligation of Westwood Station.

Also, some of the "private" infrastructure ($40,000,000 of the balance of the $120,000,000) includes investments most of us would think of as public. For example, we will spend millions to build or rebuild electrical service in the area (we build it, NStar owns it and receives all revenues). These "private" infrastructure investments also include public plazas, fire station and equipment, project roads, and public aquifer enhancements.

In addition, after two years of intense state evaluation that fully approved the project with this $120 M cost, the Town of Canton is insisting on $35,000,000 of additional public highway infrastructure. As you know, Canton has backed up their insistence by blocking Westwood's Home Rule Petition (Wegmans) in the state house.

The above amounts do NOT include $33,000,000 in planning and permitting costs that have been spent to date on the project.

We cannot identify any other private development project with anything remotely approaching this level of cost.

At present, there are NO PUBLIC FUNDS WHATSOEVER dedicated to this massive infrastructure and mitigation undertaking. As the financing markets have collapsed, commercial lenders are refusing to lend funds for public infrastructure. Therefore, if the state or federal government should choose to make available public funds to pay public infrastructure, it is likely that we will seek to secure such funds.

I do think it may help your readers to consider this: at this point in time, virtually all major pending construction projects in greater Boston have come to an unprecedented FULL STOP. If you see construction, it was construction that started several months ago. In other areas of the country, projects are now being arrested in mid-construction, in some cases with incomplete steel frames rising into the air. Usually, non-profits (hospitals, colleges, etc.) take advantage of times like these to get construction done at good prices. That is not the case today, where even Harvard with a $20 Billion endowment has announced a major curtailment of campus expansion. Hospitals are very uncertain of future donations and borrowing costs.

We are on the verge of one of the most massive curtailments in construction that this country has ever seen and its effects are only just beginning to be felt. Now, it is taking the form of major construction layoffs. Next, engineering and architectural firms will reduce staff. Law firms are also beginning to feel the chill.

Westwood Station is viable because of the deep investment commitment of its investor, Commonfund and its skillful retail partner, Steve Karp of New England Development. We are moving ahead on all fronts, design, permitting, leasing and construction. We expect and believe that certain obstacles, such as Canton's blockage of the Westwood Home Rule Petition, will end. But, yes, it may require creative approaches to areas such as the massive infrastructure investment.

We do believe and presume that there will be banks still standing and ready to lend over the next few months. Unfortunately, such a presumption can be readily called into question. A few months ago, Royal Bank of Scotland, Citizens' Bank's parent bank, one of the largest banks in the world, was thought to a significant financial entity. Today it is fully owned by the British government. Sovreign Bank is now a Spanish owned entity and our own government has become the owner of one of the world's largest insurers (AIG). No one, no one, knows what will happen next or how these and other banks will behave over the next several months.

I strongly believe that the Town of Westwood through all of its citizens and leaders, through its Selectmen and its Planning board, has, over the past four years of painstaking work, ensured a sound, healthy, vibrant new place to be created on the site of this old industrial park. The benefits of new infrastructure, new local and state tax revenues, construction jobs and permanent jobs, are very substantial, but fully realizing this project will remain challenging.