UMass Medical Purchase Highlights Twists Of Non-Profit Ownership

PHOTO/Matt VOLPINI This building at 377 Plantation St. is one of three in Worcester recently purchased by University of Massachusetts Medical School.

PHOTO/Matt VOLPINI With its acquisitions of three buildings, including this one at 381Plantation St., the medical school, through its non-profit subsidiaries, now owns all five biotech buildings in Worcester’s biotech park.

Write a Comment

When the University of Massachusetts Medical School purchased three commercial buildings in Worcester's biotech park in late February, the reaction from local officials and media was one of concern over what the $40.3-million transaction would mean for the city's revenue picture, given that the sites would be exempt from property taxes since they were falling under the control of a non-profit entity.

The reaction was understandable. After all, taken together, the three buildings make up the city's largest property tax revenue source, putting a total of $1.5 million in Worcester's coffers this fiscal year.

The deal was also unanticipated by some, though the properties had been on the market for about a year. The school said it had been asked by the former owner, Alexandria Real Estate Equities, to keep sale negotiations confidential.

Also, the way local property tax law treats non-profit ownership of commercial property is a bit murky.

William Ford, the city's assessor, said the tax situation at the biotech park will depend on who rents the space from UMass.

Whatever space UMass keeps for itself — and the school has said it will reduce its presence in the buildings — will be tax exempt as long as it's consistent with the school's "organizational purpose."

But if UMass achieves what it says it intends — attracting for-profit life science tenants that value the proximity to the adjacent medical campus – the city should be able to retain much of the $1.5 million the buildings generate each year in taxes.

"If a for-profit (company) owns it, it's 100-percent taxable, even if nonprofits lease there," Ford said. "If it's a tax-exempt entity that owns the property, now we get into requirements of use and occupancy. So, if I have 50 percent of a building leased to a for-profit, that 50 percent is taxable."

Exempt Property

In Worcester, just over a fifth of the city's properties are exempt from property taxes, according to an analysis by the Worcester Regional Research Bureau.

The main reason for an exemption is that the property owner is a nonprofit or not-for-profit entity, such as a hospital, church, school or charitable organization, or it's publicly owned.

The total assessed value of all exempt property in Worcester is $4.4 billion, according to data provided by Ford. If subject to taxation, those properties would provide somewhere between $82 million and $136 million in tax revenue.

But barring a shift in tax laws, that revenue will never be realized.

So the city tries to make do with voluntary payment-in-lieu-of-tax agreements, or PILOTs. Current agreements on the books will mean nearly $20 million over the next 25 years.

School's Portfolio Growing

With nearly 6,000 employees, the UMass Medical is a separate entity from hospital operator UMass Memorial Health Care, which has more employees and owns far more real estate in Worcester and beyond.

But the medical school's property purchases last month are helping it catch up to its sister health care organization.

Through its non-profit subsidiaries, the school now owns all five biotech buildings in the park, where development was launched in the 1980s.

The buildings total 464,000 square feet and, combined, are assessed at more than $65 million.

UMass also holds 100 Century Dr. —an 82,000-square-foot building assessed at more than $10 million that houses UHealth Solutions, a non-profit health care consulting affiliate — and a house for its chancellor on Flagg Street.

UMass has sought to allay the tax concerns expressed by city officials when the biotech park sales went through, indicating that they planned to attract commercial tenants, which would mean the properties would continue to generate much of the $1.5 million in taxes they have in the past. If all of the space is rented to commercial tenants, the city would lose virtually none of that amount.

The city and others are helping make sure that happens in any way they can.

Setting The Table

In an effort to fill the three biotech buildings, which are set to see more room later this year when UMass and Quest Diagnostics vacate some of the space, UMass hosted a gathering of life sciences property brokers last week in conjunction with the city's economic development team and the Worcester Regional Chamber of Commerce.

Michael Collins, the medical school's chancellor, opened the event with remarks highlighting how the school's research breakthroughs and how its research budget has increased $100 million over the past six years. Then he asked those in attendance to help attract more companies to the city.

"One of (the) things I hope you will help all of us to do is be bullish on Worcester," Collins said. "I believe this city is uniquely positioned for life sciences moving forward."

Collins said he understands many life sciences companies want to be in Kendall Square in Cambridge, but said he thinks Worcester can have its own mini-Kendall Square with a few more companies locating to the city.

Kevin O'Sullivan, president and CEO of Massachusetts Biomedical Initiatives, sits on the city's Economic Development Coordinating Council, which organized the event. He said it had been in the works since before the UMass acquisitions were revealed, but the timing wasn't exactly a coincidence.

"It's incidental, but it's a good thing," O'Sullivan said. "It shows we're at least focused on it."

The event also highlighted other life sciences space in the region.

Eric Overstrom, provost and senior vice president of Worcester Polytechnic Institute, and Deborah Kochevar, dean of the Cummings School of Veterinary Medicine at Tufts University in Grafton, both pitched space they have available for commercial entities as well.

WPI still has space in Gateway Park and is looking for partners to build the park out further, which has two buildings completed. Cummings is permitted for just over 700,000 square feet of life sciences space and is seeking a major commercial tenant.

Timothy McGourthy, the city's chief development officer, wrapped up the event by stressing the city's communication and fast permitting process.

"We're one of the most aggressive communities with tax incentives," McGourthy said. "We want to help you find a space or help you build space, if that's what you need."

Medical School: Property Taxes Likely A 'Non-Issue'