A Brief History of MIT's Land Acquisition Policies
Reprinted from the MIT Faculty Newsletter, Vol. XXIV No. 2, November/December 2011.
In 1912, Francis Hart, the sixth treasurer of MIT, oversaw the purchase of 46 acres of land in Cambridge for the new campus. The purchase cost was $775,000 or $17,000 per acre. Shortly thereafter, Coleman du Pont, a member of the MIT Corporation, argued for additional land acquisitions and arranged for the acquisition of land west of Massachusetts Avenue for MIT’s future growth. Additional land was purchased the years that followed, for either immediate academic use or for investment use on an interim basis, awaiting the need for academic purposes.
These properties and others that followed were purchased with the intent of leasing them “as is” and if any improvements were made they would be covered by tenant leases. The intent was to have the lease income write down the capital cost of the property, so that when it came time to transfer it into the academic category its cost would be low. The funds used to make these purchases of property scheduled to be held for future academic expansion were held in Pool C, current invested funds, rather than endowment funds, thereby enabling below market transfers of property to academic use when needed.
In addition, MIT solicited gifts of property from both the federal government and private companies, which were added to our land inventory without a capital cost. After WWII, the federal government transferred several buildings to MIT that had been acquired during wartime and were now surplus to the government’s needs. In addition, the Nabisco Company gifted to MIT a property on Albany Street that allowed for the expansion of the Magnet and Fusion Laboratories. In similar fashion, the Atlantic Richfield Company donated land on Massachusetts Avenue to MIT for Institute purposes. Many of the tenants of these low cost real estate investments were MIT faculty startups who were able to afford the simple, low cost space as they struggled to get their companies going.
A Long-Range Plan
In 1960, the Institute’s Long Range Planning Committee commissioned the newly established Planning Office to prepare a long-range plan for MIT, a plan that would deal not only with the then current building priorities but would provide integrated strategies for the academic, residential, social, financial and community relations needs of the institute for the next 40 years. This time frame reflected the expected period of service for a newly tenured faculty member. A key component of that effort was a land acquisition plan identifying the area that MIT should acquire for its long-term institutional needs and would ultimately remove from the tax rolls. A parallel effort in this plan identified nearby areas where MIT could assist the City in rebuilding its then dismal economic base, and replenish and enhance the City’s tax base. The Technology Square initiative was the first example of this policy. Simultaneous with MIT’s planning efforts, the City of Cambridge Planning Board and its Citizen’s Advisory Committee had undertaken a review of the City’s plan and zoning ordinance. MIT, working closely with the City, was able to establish that the logical areas for MIT expansion would remain south of Main Street and Sidney Street, and that the Institute would seek to focus its efforts at economic renewal for the City north of Main Street and Sidney Street. This plan was enshrined in 1965 in the Planning Board’s publication “Land Use Goals for the City of Cambridge,” as well as later in the designation of an Institutional district for MIT in the Cambridge zoning ordinance.
By 1965, the initial success of the Technology Square project attracted the attention of a team from NASA that was charged with establishing an electronics research center in the Boston area. Their interest in being close to MIT and other institutions led to a Cambridge proposal, backed by MIT, to initiate the Kendall Square Urban Renewal Project that would clear much of the antiquated industrial buildings in Kendall Square, provide a site for NASA’s needs, and reserve a 13-acre area for private development. Their precarious financial condition in those days gave the City pause, until MIT agreed to utilize a special provision of the urban renewal law that enabled Cambridge to have the value of MIT land and buildings purchased within a mile of the project area transferred to its account.
Ultimately, this amounted to a sum of $6.2 million in credits that the federal government awarded the City of Cambridge, and made it possible for Cambridge to undertake the project without financial risk. MIT, in turn, was required to commit itself to using the properties that had been certified for these credits for educational, research, and service purposes.
MIT provided, as required by law, campus development plans for these properties, which were duly approved by the City Council in 1965 and 1967. While all of these MIT sites lay outside the official boundaries of the urban renewal project area, they did meet the federal requirements and they also lay within the area that had been established by the Cambridge Planning Board and MIT as the districts in which the Institute would concentrate its campus development.
Since MIT would have to assemble the remaining land to fulfill this plan on the open market, it was clear from the outset that the implementation of the land acquisition plan would take a long time; as much as 40 to 50 years. That projection has been painfully accurate.
The implementation of the plan was the responsibility of a real estate group in the MIT Treasurer’s Office. From time to time its energies were diverted to tasks that included MIT’s commitment to develop badly needed elderly housing for the Cambridge Housing Authority in 1971, and later for the completion of the land assembly required to rationalize the properties acquired from the Simplex Wire and Cable Company on which the University Park Project would be built. Notwithstanding those challenges, the Institute was fortunate to have as its Treasurer Glenn Strehle ’58, who placed Phillip Trussell ’56, an alumnus with deep loyalty to the Institute and considerable real estate experience, in charge of the Real Estate Office. As an MIT staff officer, Trussell worked in close cooperation with the Planning Office to implement the long-range Institute land assembly plan, as well as lead the development of the University Park project. This 20-year effort did not produce significant short-term gains but is now, with its combination of office, laboratory, retail space, and over 650 units of housing, an important source of the higher returns reported by the management company’s real estate group. University Park is also one of the City’s major taxpayers.
A Change in Focus
The change in the Real Estate Office’s focus begins with the change in leadership of the MIT Treasurer’s Office in the late 1990s. When Allan Bufferd became Treasurer, the focus of the Institute’s land acquisition program shifted from one whose primary goal was the assembling of land for future academic purposes, to one whose primary goal was the management and development of these properties to maximize the return on investment, until such time as it was needed for academic purposes. At that time it could be purchased by the academic budget at its market value. The argument for this shift in policy was, to some degree, based on the view that private real estate developers in the vicinity of the Institute were profiting from the economic stimulation provided by MIT faculty and students, and that MIT should also seek to enjoy the possibilities for significant returns in real estate development. In addition, the rising costs of land acquisition resulting in part from MIT’s early initiatives in Tech Square and University Park and the growing success of developments in Kendall Square, suggested a different “more business-like” view of the management of MIT’s land assets.
In a report prepared by the Planning Office in 1998, the issue was brought into sharp focus, when it pointed out the conflict between priorities for ensuring the continuity of the academic land reserve program and the pursuit of investment opportunities.
The report stated that one of the results of this shift was that the Institute had failed to acquire some important properties that were key to its academic future, because the return on investment was not high enough to meet their benchmark for returns. The focus was now clearly on purchasing property for the investment portfolio, rather than the academic expansion portfolio.
A number of recommendations were made to free the Treasurer to make land acquisitions for future academic needs, by providing a different financing mechanism that favored the needs of the academic land acquisition program. But, to date, this has not occurred.
MIT Investment Management Company
In the years that followed, Stephen Marsh became the Director of the MIT Real Estate Office and, with the establishment of the Investment Management Company in 2004, land acquisition and management policies took a very different turn. The former MIT staff members of the Treasurer’s Office now became employees of a separate MIT Investment Management Company (MITIMCo). Their new levels of compensation were based on market standards for investment managers and their total compensation based on incentives for performance. While this arrangement has become a common practice for some universities whose endowment is principally in equities and other similar investments, it was new to MIT. A key result of this arrangement is that the investment real estate group’s employees, whose incomes are based in part on performance, were encouraged to seek maximum return for any land resource under their supervision.
In addition, the new MIT administration, under President Hockfield, called for the acceleration of improvements to the environment in East Campus between the Sloan School and the Medical Department. A plan for this area had been prepared in 1998 consistent with MIT’s long-range academic, service, and environmental goals, but it was awaiting the completion of key land purchases before going forward. It would have permitted the development of 600,000 to 800,000 sq. ft. of space for academic and research use and provided for over 115,000 sq. ft. in retail area. In addition, it provided for the development of 400 units of housing on the Sloan School campus and a new green court for East Campus.
As noted above, Mr. Marsh and his colleagues in the investment company have proposed to the City and the MIT community a new development plan for these properties that had heretofore been reserved for academic use. He has submitted an amendment to the zoning ordinance that would allow the addition of approximately one million square feet of additional development. This development would be characterized by a series of separate buildings dominated by a 25-story office/laboratory tower for commercial clients to be located adjacent to the Kendall T Stop.
Since a substantial part of this area had been certified by MIT to the City of Cambridge and to the federal government for exclusive use as educational facilities as part of the underlying financing of the Kendall Square Urban Renewal area, Mr. Marsh was informed of the potential conflict between his proposal and the Institute’s past commitments. The issue was raised of the prospective conflict between future academic space needs that required the transfer of investment land to the academic portfolio, and the reduced revenues to the City of Cambridge when the projected high tax valued real estate was removed from the tax roles in the future. MITIMCo’s response was to claim that the current inventory of development rights for academic purposes would be preserved in the campus area in this proposal through a variety of mechanisms, primarily the demolition of existing buildings possibly including the 270 apartments at 100 Memorial Drive, and through the development of high rise buildings. Since high rise buildings for academic and research purposes have proven to be problematic at MIT – as witnessed by the Earth Sciences Building – to depend on that type of solution for the future needs careful scrutiny.
More troubling, has been the view held by MIT’s General Counsel that the Institute’s commitments to use the properties that MIT had certified to the federal government and the Cambridge City Council for educational purposes was no longer in force, based on a letter from the deputy counsel of the regional office at HUD, a letter which indicated that the federal government had no mechanism to enforce this agreement, since the project had been closed out with the City of Cambridge in 1984. This view is troubling for at least two reasons. First, the government has in effect admitted that it did not perform its due diligence in ensuring that MIT was in compliance with its commitments when the project contract with Cambridge was closed out. Nor, in fact, did the City of Cambridge ensure that MIT was in compliance at that or any other time.