Can Providence Survive More Apartments in Superman Building?
Friday, April 11, 2014
The latest proposal to rehab the vacant Superman Building would create 285 apartments in the heart of Providence if the state pays $39 million for the job. But who can afford to rent those apartments at 111 Westminster Street if well-paying jobs remain scarce in the financial district?
“The residential units proposed in the Superman Building, when completed and with the extra charges added to the rent or sale of the unit, will not be affordable to most Rhode Islanders. Most of these units will remain empty for years,” said Dr. Edward M. Mazze, Distinguished Professor of Business Administration at The University of Rhode Island.
“The city should not fund housing projects by providing special deals. Government officials should not be dazzled by slick presentations, pro-forma financial statements, models of the construction project and promises of the future. If the project makes economic sense, private investors will put in their money because of the returns they will receive. Providence can then collect the taxes it needs to support city programs. If the project makes no economic sense, the builder will go to the government for funding or relief and Providence taxpayers will get hurt.”
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“Every market study – not just ours, but every study you can find anywhere – will demonstrate that occupancy rates in the greater downtown area are all in the 90 percentile. The 903. The Renaissance. People want to live in walk able, livable cities. Millenials want to live in walk able, livable cities. They do not want to move to the suburbs. We have to start thinking long term about this city and this state,” Fischer said.
Fischer believes the last thing the city needs is more office space. This makes the Superman building project interesting to Thomas Sweeney, of Sweeney Real Estate and Appraisal, who believes office space will most likely be developed in the I-195/Link redevelopment area or on the unimproved lots in Capital Center.
“Amica left the city in the late 1980s, early 1990s. While Bank of America moved out of 111 Westminster, they moved into both 100 West and One Financial, retaining a significant number of jobs in the Financial District,” Sweeney said.
“I think there needs to be a balance between the residential and office uses. The fact that 111 really is no longer viable as office space makes the proposed conversion an interesting possibility. I think the City and State should look at all options to encourage development in order to create both places to live and jobs, which will increase the demand for office space.”
The new proposal from the building’s owner, High Rock Development, calls for tens of millions in Federal Tax Credits and $39 million in State dollars to subsidize the project. High Rock would not receive any money until the building renovation is completed with a certificate of occupancy issued. High Rock will purchase a private completion bond in an amount sufficient to guarantee completion of the project - thus ensuring all economic and employment benefits to the State of Rhode Island are realized in the event that the owner is unable to complete the project.
Intense scrutiny
Gary Sasse, Founding Director of the Hassenfeld Institute for Public Leadership at Bryant University and former Executive Director Rhode Island Public Expenditure, said the Superman Building currently represents a “lose-lose” problem both for the owner and the Cit.
“Providing preferential tax treatment and other public incentives for a unprofitable undertaking would not be a sound investment that results in a sustainable project. For the Superman Building redevelopment to be a win, strong, visionary and fiscally conservative leadership will be needed to turn the building from chicken manure into chicken salad,” Sasse said.
For the taxpayers to be asked to subsidized redevelopment of the building, Sasse said Superman due diligence by the General Assembly and City Administration should prove the following beyond any reasonable doubt;
1. The business plan demonstrates there is a robust market for the contemplated use of the Superman Building.
2. The business plan identifies when the venture will result in a return on investment.
3. The owners provide collateral to secure any public expenditure or subsidy.
4. The owners underwrite a realistic share of Kennedy Plaza redevelopment efforts. (In their proposal, High Rock shall contribute $50,000.00 annually into the fund for a period of ten years – $500,000 total – to help fund organizations such as the Downtown Providence Parks Conservancy for the maintenance, enhancement and programming of Kennedy Plaza.)
5. The property tax stabilization be for a defined period with programed reduction over the life of the stabilization agreement.
6. The City show how the investment in the Superman Building fits into an overall downtown revival strategy.
7. Funds are identified to build an appropriate public infrastructure as well parking.
“So much misinformation”
Misinformation coupled with a public already burned by the 38 Studios failure may be the Kryptonite stuck inside this project’s success. Fischer was quick to address this with what he called three important facts.
“These are not condos. This downtown market is starving for residential rental units. The last thing Providence needs right now is more office space,” he said.
As for the perceived hesitance to support a millionaire’s project with taxpayers’ money, Fischer said projects of this size are nearly always completed this way. But they need vision. If the numbers are right, if 1000 construction jobs can start next year with this project, Fischer said people need to understand that big projects like the Superman Building and South Street Station can kick start an economy.
“There has not been a major project in this city and throughout Rhode Island that has not received state and city support. American Locomotive, The Arcade, The Foundry. And, by the way, breaking news: There’s $54 million in old historic tax credits sitting over at South Street. The Masonic temple received $31 million in state and federal historic tax credits,” he said.
“The problem we have, and it’s a real problem, is that construction costs in Providence and Boston are quite similar. The problem is the rents that Boston gets are about 40 percent higher. That is a real development challenge.”
If they build it, will they come?
Mazze said there are many homegrown hurdles for projects such as the Superman Building to leap.
“During the next five years, the growth in good paying jobs in Rhode Island will be for jobs located outside of Providence. The real need for housing in Providence is for families needing affordable housing and students attending colleges in the city. This market, unless subsidized by tax credits or other government support, is not as profitable for builders as is constructing higher priced residential units,” Mazze said.
“Even though Providence tries to portray itself as a great place to live, many of the amenities that city dwellers want do not exist. Residential building projects with more than ten units in Providence are extremely risky.”
Mayoral candidates weigh in
"The Superman Building has been an iconic structure in the city for many years, and we need to come together and make a responsible, transparent plan to make it productive again. We have many remarkable examples of how city leaders have worked together to preserve historic architecture, create jobs and revitalize downtown and 111 Westminster shouldn't be any different, said City Council President and Mayoral candidate Michael Solomon.
“The city and the state need to work together to ensure that taxpayers are protected and that we all do our best to kick start the economy. In our creative capital full of young people, artists and entrepreneurs, there is a need for more affordable apartment living. Ensuring that we have adequate affordable housing options and supporting businesses are not mutually exclusive; our downtown businesses, both new and existing, need affordable and available housing for their workforce."
Lone GOP Mayoral Candidate Dan Harrop said the project is another example of the “give-aways” that are sinking the city.
“Part of the reason we are in trouble in Providence – $600 million deficit in the pension fund, a billion deficit in the benefits fund, a billion in deferred maintenance – is the ‘give-aways’ Democratic politicians in the Mayor's office and city council have been giving for decades. At best, the city should take an ownership position in lieu of taxes in projects that are essential to the city,” Harrop said.
“By taking an ownership position we at least have the opportunity of gaining back our investment (lost taxes) at some point in the future. Think of how this would have made a difference today if we did this 30 years ago. If the Superman Building is such a great economic deal, it should be able to find public money on its own. In general, though, I am not in favor of politicians picking favorites to support financially. They tend to be very bad at it, cannot separate out political factors and just look at business factors, and the 38 Studios debacle or the impending Biltmore debacle or the scandal of the Providence Economic Development Partnership only emphasizes this.”
Brett Smiley believes the new economy comes with workers who want to be centrally located to everything in their lives.
“Workers don’t want to travel far from home for business or for leisure. In order to be competitive, Providence does need more affordable, residential space Downtown, but we also must find the appropriate balance between housing, employment and nightlife. When looking at a new development Downtown, and especially one that may require a public subsidy, it's essential that the project produce a public good that warrants the public investment."
Jorge Elorza said he believes the Superman Building is iconic and deserves saving, but not at the expense of more important city issues.
"The Superman Building is an iconic piece of our City’s skyline, and we should work to restore it. The prospect of rebirth as residential or mixed-use space is exciting, and it will breathe even more life into our city center. With that said, any decisions we make about subsidies for development need to be balanced with investments in our neighborhoods, rehabilitation of our schools, fixing potholes, bringing abandoned properties back into the housing market, and supporting middle-class businesses in our neighborhoods."
Lorne Adrain spoke of a world where people are rediscovering urban centers.
"Throughout the world, people are moving back to cities, from young professionals to retirees. We should encourage people to invest in downtown Providence living by offering them a vibrant and attractive environment. Providence has been named one of the best American cities to live in. The Arcade and Providence G showcase Providence's potential, and we should help that potential come alive: an entrepreneurial economy that creates more jobs in our city will also create demand for housing downtown. The Superman building can be an important part of inspiring and enabling this kind of growth. This kind of progress is important and we must be creative in facilitating it without putting taxpayers on the hook.”
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