Boston officials will give State Street Corp. $11.5 million in tax cuts to construct a new office building on the South Boston waterfront, part of the city’s effort to transform the once shabby industrial neighborhood into a thriving district of new homes, businesses, and retail stores.
The tax deal announced today will help finance construction of an 11-story office building for State Street at the Channel Center complex off A Street. The $11.5 million tax break, which still needs approval from the Boston Redevelopment Authority, will be spread over 15 years.
Among the city’s largest financial services employers, State Street is the latest of several companies to win a tax break for new offices on the waterfront. Vertex Pharmaceuticals Inc. received more $21.8 million in city and state tax incentives for a pair of large office buildings nearby at Fan Pier.
Such tax deals are often controversial, as the companies receiving them are often profitable. State Street, for example, reported net income of $1.92 billion in 2011 and paid its chief executive, Joseph Hooley, total compensation of $16 million, according to government filings.
But city officials say the tax breaks are necessary to spur investment in the neighborhood. In 2008, investment bank JP Morgan Chase & Co. received a $4 million break to move to the waterfront.
The tax concessions for State Street will reduce its tax bill by about 20 percent, but the company will still pay $43.4 million in new taxes over the 15-year period and create 1,200 construction jobs.
“State Street Bank & Trust Co is Boston’s seventh largest employer and keeping this economic giant in the city not only ensures that we are retaining jobs, but is a key to attracting new jobs and creating an economically successful and vibrant city,” Boston Mayor Thomas M. Menino said in a statement.
State Street could not be reached immediately for comment. The company has thousands of employees in Boston and already occupies some of its most prominent commercial buildings.
Channel Center’s developer, Commonwealth Ventures, filed detailed plans for the office building last month, but State Street was not formally revealed as the tenant until today. The project will also include construction of a parking garage and public parks next to the new building. Commonwealth has also signed on a new development partner, Area Property Partners of New York, for the project.
The developer has already renovated former Boston Wharf Co. warehouses at the Channel Center into more than 200 residential units, restaurants, stores, and offices. The development of a large new office building for State Street is a major boost for the complex and for the wider area, which has been renamed the Innovation District by Menino.
The district has attracted scores of new businesses in the past two years, and continues to generate interest from a broad range of companies that want to relocate there. State Street will join Fidelity Investments and Manulife Financial as major financial companies on the waterfront, which also has attracted a range of technology and communications businesses.
A new building for State Street would add considerable momentum to the office construction market in Boston, which all but died out during the recent economic downturn.
State Street currently occupies office space in prominent commercial buildings across Boston and has several leases expiring in 2014. The company has offices at Copley Place, the Prudential Building, and the John Hancock Tower in the Back Bay; it also has offices at Lafayette Corporate Center in the Financial District. Its lease at its namesake headquarters building at One Lincoln Street expires in 2023.
Commonwealth Ventures purchased Channel Center in 2007 from Beacon Capital Partners for $21.5 million. Beacon had previously redeveloped about 30 percent of the property, but the firm abandoned the effort when the area’s recovery proved slower than expected.
In recent years, the Fort Point area around Channel Center has seen steady redevelopment of its turn-of-the-century warehouse buildings, which have been converted into mixed-use properties with residences, boutique retail shops, and restaurants.