Business & Tech

No takers for choice property near South Station

The state is trying to sell off land it owns at the edge of downtown Boston (highlighted above), but a bidding process drew no takers.

Last year the state put one of its largest properties in downtown Boston up for sale, touting 5.5 acres near South Station as a prime development opportunity in a hot real estate market.

The market didn’t quite see it that way.

The Massachusetts Department of Transportation did not receive a single bid as of the deadline Friday for the property on Kneeland Street, which now houses a steam plant, a state office building, and a small park popular with Chinatown residents.

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People in the real estate community said the property had too many challenges to justify the $167 million price the state had originally sought for it: building a new steam plant, a deck over Interstate 93, and a new park for Chinatown, while meeting high affordable-housing requirements.

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Several large development firms with experience building complex projects scrutinized the state offer, and passed, according to sources in the real estate community.

That didn’t especially surprise Curtis Kemeny, a veteran Boston developer who considered buying the site the last time the state tried to sell it, in the mid-2000s.

“It’s just a particularly complex site by virtue of its location and logistics. And it has a utility plant that needs to be incorporated into your development scheme,” Kemeny said. “It’s especially complicated.”

The lack of offers is a blow to Governor Charlie Baker’s plan to cash in on state-owned land while sparking new development, especially in locations close to mass transit hubs. It also highlights the challenge of building on odd, old remnants of the Big Dig highway project and Boston’s industrial past, while also meeting new demands for affordable housing and open space.

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The Baker administration used the site — which it dubbed SouthGate — last year to highlight its campaign to sell state-owned parcels to developers, unlocking new sites for housing in crowded Greater Boston and bolstering state coffers with the proceeds.

“This is something I believe has tremendous potential,” Baker said at a news conference in February 2016, alongside Boston Mayor Martin J. Walsh, to launch the sale.

When the site was put out to bid months later, that opportunity came with a long list of requirements: building a new steam plant for the energy company Veolia, and cleaning up any pollution from the old one; transportation improvements that include an expensive deck over the northbound lanes of I-93; rebuilding Reggie Wong Park on-site; and affordable housing requirements of 20 percent that are higher than typical city targets.

The original minimum bid MassDOT had set for the property — $167 million — made it comparable, per acre, to recent land sales in the Seaport; the agency later said it would be open to a lower bid.

State officials said they may simplify their list of demands and put the property back out to bid, after they talk with would-be bidders about what went wrong.

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“MassDOT remains committed to working with the City of Boston and its private sector partner on this opportunity to redevelop an underutilized property in support of local economic growth,” said agency spokesman Patrick Marvin.

The episode should prompt state officials to reconsider their approach to selling off surplus land, said Matthew Kiefer, a real estate lawyer at Goulston & Storrs who worked with a developer who ultimately chose not to bid. Rather than trying to maximize the upfront purchase price, state officials could focus more on gains from job creation and housing on the site over the long run.

“This highlights the problem with treating these sites as a short-term asset to be monetized, rather than as long-term economic development,” Kiefer said. “Maybe write down the initial cost and be patient about getting returns in the form of economic activity there.”

Even as the development boom reaches deep into the far corners of Boston, a number of complicated state-owned sites have been slow to follow. MassDOT is still negotiating with developers of a long-stalled skyscraper atop South Station. Big proposed developments over the Turnpike in the Back Bay and Fenway remain in limbo. And Simon Properties last year scrapped plans for a tower atop Copley Place, in part because of challenges building above the highway and rail lines below.

Some of those projects have achieved a near-mythical status in Boston’s development world for their delays. Angie Liou, executive director of the Asian Community Development Corp., hopes that doesn’t happen to the Kneeland Street project. She noted that this isn’t the first time MassDOT has tried to find a developer for the property, and it isn’t the first time it has failed.

“At this point,” Liou said, “it’s sort of like I’ll believe this project when I see it.”

Tim Logan can be reached at tim.logan@globe.com. Follow him on Twitter at @bytimlogan.