Two lawsuits challenging Cambridge’s inclusionary zoning are set to be discussed in a closed-door session of the City Council on Wednesday, with one of the suits affecting an apartment project that’s meant to start work within weeks.
The zoning compels developers of big, market-rate residential projects to use 20 percent of new square footage for affordable homes. It’s long been questioned whether the percentage holds back development, but in December developer Patrick Barrett took his case to Land Court with the help of the Pioneer Institute, a conservative think tank in Boston.
Barrett’s lawsuit stems from a 89,500-square-foot condominium project that would combine five buildings he owns on Columbia Street in The Port neighborhood. He said inclusionary zoning violates the U.S. Constitution’s Fifth Amendment, which protects personal property rights from government takings.
Similar arguments appear in the other lawsuit, filed Aug. 27 by Old North Development in Middlesex Superior Court, but instead related to the Massachusetts Declaration of Rights.
There’s justification for keeping inclusionary zoning rates of 20 percent, which was in place long before multifamily zoning was passed, said Melissa Peters, assistant city manager for Community Development, at a Sept. 16 meeting about other residential zoning. An analysis is due to be heard in full on Sept. 28 with “options,” Peters said.
Tenants expected in 2028
The project in question in the second lawsuit is at 1740 Massachusetts Ave., where Old North plans to tear down a one-story building that has been emptied of its commercial tenants – a Walgreens that closed July 9; the Keezer’s secondhand clothes shop and tailor, which relocated just steps away at 1730 Massachusetts Ave.; and Simon’s Coffee Shop, which is preparing a move across the street to become a tenant of the shuttered restaurant Dear Annie, but hasn’t been able to announce a reopening date.
Old North expects imminent demolition followed by 18 to 20 months of construction, ending in a 64,330-square-foot, six-story building with 71 homes – 14 of them affordable – opening to tenants in the first half of 2028.
The obligation to provide affordable homes is a violation of state rights, according to Old North, that say the government can’t block private use of land and take private property “without an individualized showing of nexus and rough proportionality.”
Development without bonuses
The city offers bonuses to developers that include affordable homes in a project, allowing them to build bigger and denser, Old North’s lawsuit notes, but that doesn’t apply at 1740 Massachusetts Ave. where it “did not request, does not need and does not receive any density bonus, height increase, floor-area ratio relaxation or other regulatory incentive under the city’s inclusionary housing requirement.”
Yet “the covenant obligates OND, at its own expense and in perpetuity,” to build, maintain and manage affordable homes alongside the system for managing the one that are rented at market rates.
That includes verifying tenant incomes annually, maintaining records and delivering annual reports of rents, utilities and fees, using city-approved lease forms and a city lease addendum, substituting a market-rate unit if an affordable apartment is out of service and getting “paid nothing for any of this work,” the lawsuit says.
The bank said no
The developer had been proceeding toward demolition until it encountered a problem with its $5.5 million lender for acquisition of the property and its predevelopment process, Cambridge Savings Bank. The bank was expected to also be the lender for construction, according to a lawsuit exhibit. When Old North applied for a building permit June 10, it found the Housing Department required sign-off on an affordable-housing covenant and an agreement from the bank that it would let the city move in front of it on first rights to loan collateral – a mortgage on the property, which Old North bough in October for a total $8.5 million.
The bank said no. “Having a subordination to any restriction could certainly have a negative effect on the bridge loan’s underlying collateral value,” says Justin Doyle of Cambridge Savings Bank in a letter included in the lawsuit.
Old North’s principals were perplexed, the lawsuit says:
The city has promulgated no regulation moving the covenant-recording requirement from the certificate-of-occupancy stage to the building-permit stage. Neither the [Cambridge zoning ordinance] nor any regulation requires execution or recording of the covenant as a condition of the building permit. Other Massachusetts municipalities that impose inclusionary requirements condition recording of the affordable-housing covenant on issuance of the certificate of occupancy rather than the building permit.
Zoning back to 1998
Affordable-housing covenants are hardly new – the zoning was introduced in 1998. Cambridge Savings Bank touts its “knowledge of the local real estate market” as a selling point, and Siegel, also of SGL Development and the Benjamin William Construction Group, says online that he has too has vast experience in local real estate, having developed $100 million worth of it in Cambridge over the past 10 years.
The language of the lawsuit does not make clear why this specific project has become a sticking point after nearly three decades of inclusionary zoning and nearly a decade at current levels. Market watchers in a Banker & Tradesman report on Sept. 1 pointed to external factors, that the “financial equation has changed amid rising interest rates and construction costs.”
A spokesperson for the city, Jeremy Warnick, said Sept. 2 that staff was “focused on thoroughly reviewing the matter and evaluating next steps.”
Proceeding toward demolition
Delays at 1740 Massachusetts Ave. cost the developer roughly $23,600 weekly “while an otherwise lawful project sits idle,” the lawsuit says, and that the city charges a flat $450,000 building permit fee that is an “unauthorized, illegal tax under well-settled Massachusetts law.”
Old North and the city have been in touch about the case, but with nothing substantive said that would change the developer’s position, said Old North’s Adam Siegel in a Sept. 14 call.
The company is “proceeding forward with everything we need to do to demolish the building,” having cut all the utilities and sending out a predemolition survey to neighbors to identify existing damage or imperfections, Siegel said. A demolition application permit process was underway, but Siegel wasn’t sure if he would go forward with razing the existing structure without a solid response.
Hopes for a court date
Old North wants to end the impasse with a Housing Department sign-off and to “and clear the path for the building permit to issue without unconstitutional conditions,” since there’s no reason not to start building while broader legal issues are resolved. The city has refused, the lawsuit says, and Siegel gave an update since its filing: “There’s no decision there yet.”
Old North hopes to have a court date at the end of September or start of October, he said.
As with Barrett’s lawsuit, though, even tying inclusionary zoning to a specific property or a short-term goal such as getting a permit issued – and even if it’s because of a bad economy in which costs and the stakes are higher – shakes the law to its foundations. The Old North lawsuit asks a judge to find that “the city lacks authority to apply” inclusionary zoning in general.
An email sent to Cambridge Savings Bank on Sept. 3 for information about the case brought no reply.
