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Frank McCourt's Wife Is Only the Latest to Get the Raw End of a Deal

Thursday, Aug 5 2010

Page 2 of 6

Even if Union Wharf wasn't really a McCourt success story, Craig and Heath teamed up with him again to buy and develop an old waterfront Boston rail yard — the property that eventually became collateral to buy the Dodgers. McCourt provided the equity — $300,000 — while Craig and Heath provided the expertise in financing and development.

The rail yard belonged to the bankrupt Penn Central Railroad, which was looking to lessen its tax burden.

"I'm the one who found it," Heath tells the Weekly. "The Penn Central plain didn't want it. ... It was there for the taking."

click to flip through (5) ILLUSTRATION BY CHRIS RAHN

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In 1978, the three men secured an option to buy 24 acres from Penn Central for $3.5 million. To understand what a bargain it was, consider that when the same land sold to another developer in 2006, it was worth $203.7 million. It had appreciated 5,800 percent.

But in 1978, McCourt and his partners did not have $3.5 million, and they couldn't get anyone to lend it to them. This was the source of tension and the eventual rupture in the partnership.

It was clear that it would take years to develop the property, and banks were reluctant to make such a long-term investment. After scratching around for a couple of years with no luck in securing financing, Craig and Heath decided the most prudent thing would be to sell the option to a major developer. They would make a profit, and they could wipe their hands of the situation.

If they didn't sell the option and no angel investor materialized, the option would expire on December 31, 1980, and become worthless. They would lose three years of work.

But selling the option did not fit with McCourt's vision. McCourt tends to think in 50-year increments, and in this instance he saw the future of South Boston spreading out at his feet.

He fired Craig and Heath. They sued, claiming McCourt had no right to fire them. Within a couple of months, they reached a tentative truce. McCourt would have until December 15 to find someone to finance the purchase of the land. If he couldn't meet that deadline, then Craig and Heath would be allowed to sell the option by December 31.

It seemed like a workable agreement, but on December 15 the two sides could not agree on whether McCourt had come up with the money. He claimed that he had, while Craig and Heath said he hadn't. Craig and Heath promptly agreed to sell the option to Cabot, Cabot & Forbes, a large New England real estate firm that jumped at the chance to acquire the waterfront land at below-market price.

McCourt continued to scramble for financing after December 15 — strange behavior for someone who said he had financing secured.

The dispute continued right down to the wire, on December 31. According to Craig, McCourt hid the title from CC&F. Just before the recorder's office closed on December 31, when the land would have reverted back to the Penn Central trustees, McCourt and CC&F reached a new agreement. CC&F would buy the option for $1.6 million, and buy the land from Penn Central. McCourt would get a new option to buy the land from CC&F by April 2, 1981, for the price CC&F had paid, plus $3 million.

With Heath and Craig now out of the picture, McCourt battled to buy the land from CC&F. On the night before the new option was to expire, McCourt found his angel. He was David Chase, a Connecticut developer, who saw a good deal and offered McCourt a loan of $9 million.

But real estate is a tough business in Boston, and CC&F showed that it could play hardball as well.

As per the agreement, McCourt's letter exercising the option was addressed to a CC&F subsidiary. The letter McCourt sent them was returned unopened, because CC&F had cleverly failed to inform the mail room of the subsidiary's existence.

On April 2, 1981, McCourt's lawyer had his secretary walk the notice over to CC&F's office. But on instructions from her boss, the secretary at CC&F refused to accept it and ended up throwing it on the floor in the hallway. In a dramatic moment, McCourt's lawyer went to the CC&F offices at 10:30 p.m., persuaded the security guard to unlock the door and deposited a letter on the secretary's desk, with 90 minutes to spare before the option expired.

CC&F refused to acknowledge receipt of the letter, forcing McCourt to sue. CC&F held on to the property for nearly six years before a judge ruled in McCourt's favor.

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