Five years after a landmark US Supreme Court decision altered practices in eminent domain and economic development nationwide, a recent twist will have vindicated some people and burned others.  The pharmaceutical giant Pfizer Inc., which was the corporate anchor tenant in the middle of Kelo v. City of New London, has just announced they will vacate their 8-year old, 750,000 SF R&D campus in the Connecticut seaport city, and relocate the site’s 1,400 jobs to an owned facility just across the Thames River in Groton. 

After their $68 billion acquisition of rival Wyeth Pharmaceuticals, Pfizer corporate real estate executives are engaged in a massive integration and portfolio optimization task.  Certainly many properties from both organizations are under strategic review, but this one undoubtedly involves the most external scrutiny.

Pfizer was not a party to the suit, and in fact is not even located strictly on the land at issue in the Kelo case.  But its prospective presence on 26 acres nearby was a critical and controversial element in the seminal real estate development battle. 

State and local politicians and economic development officials attracted Pfizer with a 10-year, 80% tax abatement on their parcel at 50 Pequot Ave, New London, CT.  Meanwhile, they used the company as the raison d’entre for an “urban village” revitalization plan in front of neighboring Fort Trumbull State Park, involving retail, multi-family residential, and hotel uses.  That plan called for existing properties to be forcibly taken by the city, leveled, then transferred to the site’s quasi-public developer, New London Development Corporation. 

As Pfizer completed construction on their $294 million facility in 2001, residents on the mixed-use site sued the city to prevent the completion of the project.  The city pursued the case to the High Court, and ultimately prevailed in a 5-4 decision interpreting the Fifth Amendment concept of “public use”, which was widely criticized. 

Subsequently, congress and 43 states have created various laws prohibiting or limiting the use of eminent domain for strictly economic development reasons and/or transfer to private developers.  New London’s “urban village” project has mostly failed to materialize, and the land between Shaw Cove and Greens Harbor where a neighborhood once stood is a splotchy mix of grass and dirt.  Now, Pfizer’s world-class office building next door will be vacant by 2011, just when the tax incentives run out.

In a front-page New York Times article, former residents such as Susette Kelo and Michael Cristofaro delivered what may be their final punches with “I told you so” spirited interviews.  Robert M. Pero, the incoming mayor, who fought for the project as a city councilman, also appears to be fuming that Pfizer did not consult or notify the city before announcing the move.

In the past few weeks, months of speculation are culminating as Pfizer has announced a number of closings – and affirmed the longevity – of various facilities throughout the world.  In other municipalities, local politicians are proactively approaching the company to discuss their plans and pitch the case to stay-put.  The US pharmaceutical industry is significantly clustered in a line between southern Connecticut and southeastern Pennsylvania.  Pfizer’s headquarters are in New York City, and Wyeth was based in Collegeville, Pennsylvania. 

Geographic clustering creates strong incentives and relatively straightforward opportunities to downsize the corporate real estate portfolio.  GlobeSt.com reported that Pfizer plans to reduce its global R&D footprint by 35%.  Functions and workgroups are being shuffled among sites throughout Pennsylvania, New Jersey, New York, and Connecticut.  Realignment will also affect properties in North Carolina, the United Kingdom, and elsewhere, but it seems these will not be as rapid.  And certainly none will be as dramatic as New London.

Similar Posts:

• Perfume Wearing Off at 1095 Avenue of the Americas
• LaFavre Building Twin Cities Advisory Practice