Massachusetts Bay Transportation Authority's Monitoring of the Operations of the South Station Ground Lease

This is a Massachusetts State Auditor report about how the MBTA monitors the private company managing South Station under a long-term ground lease.

“This audit of the Massachusetts Bay Transportation Authority covers the monitoring of the operations of the South Station ground lease as of September 30, 2010.”

The auditor reviewed whether the lease was being managed well and whether the money from South Station was being split fairly under the lease.

“The objective of this review was to determine whether the MBTA and EOP South Station ground lease is being managed efficiently and effectively and whether generated income is being shared equitably under the terms of the lease.”

South Station is public property used for transit, rail, offices, and retail, so lease income and operating costs affect public resources.

“The MBTA’s share of the income is currently used to help offset its transit station operation costs.”

For riders and taxpayers, better oversight could help keep South Station operating costs lower and improve how money from the property is handled.

“The public-private partnership was therefore created to manage the passenger service concessions and real estate at South Station -- not to generate a profit for the [MBTA], but to provide high-quality services for MBTA customers.”

The lease was working in the MBTA’s favor overall, but the auditor found room for better cost checks, electricity management, lease monitoring, and possible refinancing.

“Although recent performance under the lease has been favorable to the MBTA, there remains opportunity for improvement if both parties to the agreement are willing to reevaluate certain operating conditions as they currently exist with a view toward enhancing the efficiency and effectiveness of the operations.”

The auditor recommended that the MBTA verify space calculations, monitor tax-payment negotiations, audit the electricity program, review debt costs, and resolve subleasing issues.

“The MBTA did not specifically comment on the remaining recommendations but indicated that it agrees with them and plans to monitor their implementation.”

The report is significant because a decades-old South Station lease still had many years left, and small oversight issues could affect public costs over time.

“The lease still has 14 years remaining, with two 15-year options for renewal.”

A ground lease means the MBTA owns the land and buildings, while the tenant controls and manages them during the lease and pays rent under the contract.

“A ground lease is a legal contract for the lease of land and any buildings and other improvements on the land.”