April 14, 2024

In last week’s newsletter I wrote of the coming confrontation between the Lowell City Council and Sal Lupoli over his failure to commence work on one of the two buildings he had agreed to construct in the Hamilton Canal Innovation District (HCID). The Council’s Economic Development subcommittee heard from Mr. Lupoli on Thursday, April 4, 2024, and reported to the full Council this past Tuesday. After a brief debate, the Council voted to hold further discussions about this in executive session at some future date.

The Economic Development Subcommittee meeting was held in the Mayor’s Reception Room, a large rectangular space at the front corner of the second floor of Lowell City Hall. One long side of the room is lined with windows that overlook the Ladd & Whitney Monument and Merrimack Street; the other side is lined with portraits of 19th century mayors with a double doorway in the middle that opens onto the main hallway of that floor. The three members of the subcommittee – Chair Wayne Jenness and members John Leahy and Vesna Nuon, sat at a table with their backs to the windows. Opposite them was a row of easels and a large wooden podium. At the podium for most of the meeting was Mr. Lupoli and on the easels were renderings of the buildings he now proposes to build.

Mr. Lupoli addressed the construction delay head on. It was not his fault. It was caused by – Eileen Donoghue. Well, he never said her name, but he repeatedly blamed the “prior administration” for the current delay which he said was caused by a title defect in one of the parcels conveyed to him by the city. He also uttered a few things about Covid, rising construction costs, and higher interest rates. But the title defect was the thing.

After he discovered the defect, he devoted many months and much of his own money to rectifying it. That caused the delay. But the defect has been cured and now that he’s able to work with “Tommy Golden, who I’ve known for 20 years” and whose administration is a “delight for a developer to work with” all is on track. By the end of the meeting, some members of the subcommittee were almost apologizing to Mr. Lupoli for all the trouble the city has caused him.

In the days since the meeting, I’ve seen a photo taken that night from behind the Councilors that showed Mr. Lupoli and the renderings. In the background, staring into the room through the open door was Eileen Donoghue. Actually, it was her mayoral portrait. By some coincidence, hers is hung on the wall opposite the Mayor’s Reception Room entrance, so she appears to be standing there looking in. It also appeared that she had a smirk on her face. Perhaps that’s because as a lawyer, she knew that something about the “title defect” story didn’t quite add up.

When you buy a house, how do you know that the seller owns the property and has the right to sell it to you? In Massachusetts since 1640, you go to the registry of deeds and search the records for the property. If those records show that the seller owns the property and has the right to sell it, you can be comfortable handing over your money and accepting a deed in return.

But what if your examination of the records – a “title exam” – finds something problematic? You have options: You can go through with the sale as is; you extend the date of the sale to give the seller time to clear the problem; or you can walk away from the deal. You are not forced to buy property with a title defect and if your lawyers don’t discover the title defect until after you’ve finalized the sale, then you have a malpractice claim against your lawyers.

In this case, the title defect, which was on Lot 1, the parcel upon which Lupoli was to build a parking garage, was discovered before the sale occurred. In fact, Lupoli and the city entered into an amendment to the Land Disposition Agreement in which both parties acknowledged the existence of the title defect.

That amendment to the agreement, which was signed by Mr. Lupoli on June 7, 2021, and by Eileen Donoghue as city manager the next day, even placed $100,000 in an escrow account to deal with the title issue.

The same day City Manager Donoghue signed that amendment, she also signed deeds conveying lots 5 and the parcel formed by lots 2, 3A, and 4, to Mr. Lupoli. He had agreed to build a 50,000 square foot building on one and a 12-14 story high rise on the other. It should be noted that there has never been a claim of a title defect on either of those parcels. The defect was on Lot 1, the parking garage lot. The deed for that lot was ultimately signed by Donoghue on October 14, 2021. Presumably the title defect had been cured by then. In the world of real estate law, curing a title defect that involves Land Court, as this one did, in just over four months is extraordinarily fast.

But what alternative did Lupoli have to going through with the deal at that point? Paragraph 4 of the original Land Disposition Agreement, signed by Lupoli on December 18, 2020, and by Donoghue on January 7, 2021, addressed that, saying:

Termination. Prior to the Closing Date, Developer may terminate this Agreement if the Developer determines that a matter affecting title to the Property will adversely affect Developer’s plan to develop the Property. In such event, the Developer shall give the City written notice of its election to terminate prior to the Closing Date, in which event (i) the Deposit shall be returned promptly to Developer, and (ii) except as expressly set forth herein, neither party shall have any further liability or obligation to the other hereunder. In the absence of such written notice, this Agreement shall continue in full force and effect.

So the agreement gave Lupoli the right to void the deal if a title defect was discovered before the closing date. A title defect was discovered before the closing date. He had the right to walk away and get his money back. He chose not to. Instead, he made a business decision to proceed with full knowledge of the title defect.

For him to now imply that his delay was all the city’s fault sidesteps the business decision he made to proceed.

Unfortunately for the city, when at the subcommittee meeting another Councilor, John Descoteaux, asked what legal recourse the city might have, the assistant city solicitor in attendance, rather than point all this out, or rather than explain the reversionary clause in the deed that says if Lupoli did not comply with the construction timeline then the city may take back the property, instead repeated all the Lupoli talking points, essentially laying full responsibility for the delay at the feet of the city.

As we all know from following the ongoing renovations to Lowell High School, the Covid-19 pandemic caused a spike in the cost of construction and materials. Add to that the profound increase in interest rates that has occurred since then and there is no disputing that a construction project that made financial sense pre-Covid might not be feasible now. That seems to be the bind in which Lupoli now finds himself.

Ironically, that situation is perhaps made worse by Lupoli having already completed the parking garage. During his presentation, he made two points about the garage which, if true, shed more light on his predicament. First, he said notwithstanding the buzz in the community that the garage is now filling his pockets with cash, the parking volume generated just by the adjacent Justice Center will never be enough to cover the cost of constructing and operating the facility. It is only with additional parking from the two buildings he committed to build on the other two lots that his parking garage works financially. Second, he said he built the parking garage first, even with the title defect issue, because lenders for the other two buildings would provide more attractive financing terms for buildings on those lots with the adjacent garage already constructed rather than merely proposed.

Because he must pay for the parking garage, Mr. Lupoli likely can’t afford to walk away from the entire project, but to construct the buildings promised could be financially ruinous for him. So now, Mr. Lupoli proposes a scaled down project, replacing the promised 12-14 story high rise with a 5-story wood frame apartment building, and the promised 50,000 square foot building on the other lot with a second apartment building. That second building would have no retail. The building on the larger lot would have a restaurant on the ground floor.

While there was some talk of the need to amend the current zoning of these parcels to allow these changes to occur, the bigger decision for the Council is whether to amend the agreement regarding the size and type of buildings to be constructed.

From the birth of the Hamilton Canal District back in the late 1990s, the bigger of these two lots was always identified as the prime parcel in the entire development. Although divided on paper into three smaller parcels, it is a huge piece of vacant land in a prime location with the Hamilton Canal on one side, the Pawtucket Canal on the other, the train station a 10-minute walk in one direction and the core of downtown equidistant in the other direction. It was always designated as the future home of a “signature” high rise building that would be a fitting gateway into the central city.

Councilors must now decide if a wood frame apartment building, even one nicely constructed, is the appropriate use for that parcel. True, there’s a housing shortage, but there are many places on which you can build apartments; there is no other parcel like this one.

I get a sense that some Councilors have already locked themselves into a “something is better than nothing” position which I think is short-sighted. Notwithstanding the white flag waved by the law department at the subcommittee meeting, the city has options. It can negotiate an unwinding of the deal and allow the parties to walk away, leaving Mr. Lupoli with his parking garage. Or if a more aggressive stance is needed, the city can declare a default in the agreement and retake ownership of the two vacant parcels in six months. Undoubtedly that would lead to litigation, but so be it.

That might cause Mr. Lupoli to lose money, but as he explained at length during his presentation, he’s one of the foremost real estate developers in Massachusetts and even advises Governor Healey on real estate matters. Someone of his accomplishments would have known of the potential risks of the agreement he made. Notwithstanding America’s propensity for allowing the private sector to keep all the profits while the public sector covers the losses, the Council must do what’s best for the entire city in the long term which might not be what is currently proposed. 

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Here’s a link to last week’s newsletter which covers more details about the various agreements and deeds already signed.

Here’s a link to the April 4, 2024, YouTube recording of the Council’s Economic Development Subcommittee which I’ve written about above.

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It’s time for the Spring tours of Lowell Cemetery. They take place next Saturday, April 20th and Sunday, April 21^st, both at 10am, both beginning at the Lawrence Street entrance to the Cemetery; and both covering the same material. The tours involve walking around the cemetery for 90 minutes while I tell stories about some of the people buried there. Parking is available inside the cemetery. The tour is held even in light or moderate rain.