The Big Picture
What’s Up, What’s New, What’s Growing in Downtown Real Estate
On a recent brisk afternoon, in a picture of suburban calm, laundry flapped from a clothesline behind a wood-frame house on Pulaski Street. But just steps away, at the planned Gateway project, which vows to add offices, shops and apartments to Stamford’s South End, sprawled a jarring moonscape of rocks and dirt. This patchwork, tale-of-two-cities contrast should be familiar to anybody who’s given more than a passing glance to Stamford in the past year or so, as large-scale developments attempt to remake the city in a way that recalls the urban renewal schemes of the 1970s.
A crazy-quilt mentality could also describe the way developers, brokers, urban studies experts and city officials are reading the tea leaves about the health of Stamford’s downtown real estate market.
While data about the leasing market continues to be less than desirable — a quarter of the city’s offices are empty — and some lots appear to feature half-built concrete hulks and little else, many real estate observers see hopeful signs. Call it the best of times and the worst of times merged as one.
“I’m bullish on the opportunities,” says Carl Kuehner, the chief executive of Building and Land Technology (BLT), the Norwalk-based developer that owns or controls about a quarter of the city’s office space, including the proposed Gateway site that borders the city’s train station and is close to getting zoning approvals.
Kuehner has another reason to celebrate. In December Starwood Hotels and Resorts Worldwide announced it would relocate in 2012 from White Plains, New York, to a 250,000-square-foot multi-level berth at 333 Ludlow Street, a BLT property, though the decision came after Governor Jodi Rell offered $90 million in public money as incentives.
Very little state and city financing, though, is paving the way for BLT’s sweeping Harbor Point project, which BLT inherited from Antares Investment Partners, the Greenwich development firm that famously collapsed in 2008. Spread across eighty-seven acres, the roughly $3 billion project also includes the Square, the Park and the Commons, which are bisected by Washington Boulevard. It will offer apartments, offices and retail space with a high glass-curtain wall quotient that recalls the shimmering cluster of mixed-use midrises Kuehner built at the junction of Route 7 and the Merritt Parkway in Norwalk.
The Harbor Point buildings will sprout from old manufacturing sites. Even more emblematic of the South End’s shift away from factories is BLT’s conversion of the former Yale & Towne lock-making complex on Henry Street, where apartments are being added to historic brick structures.
The Yale & Towne and Square sites, as well as a Fairway market and a smattering of smaller shops, will be completed by year’s end, promises Kuehner with a confidence that recalls the headiest days of the last decade’s real estate boom. “There is clearly a workforce out there who could use this,” he says. “We already touch 400 people every morning on our Jitneys, bringing them from the train station to our offices on Ludlow and Canal.”
But counting on workers to fuel demand may be risky. At the end of 2009, Stamford’s unemployment rate stood at 7.5 percent, with large losses among the investment banks that employ the people developers are hoping to snag. “Twenty percent of our jobs are in financial services, but 30 percent of job losses were in financial services,” says Michael Freimuth, the city’s former economic development director. “You see it in a reduction of cars on the highway and reduction of people on the trains.”
Other damage from the Great Recession is apparent in downtown Stamford’s vacancy rate, which stood at 23 percent in the fourth quarter of 2009, up from 17 percent in the year-ago quarter, according to Jim Fagan, a broker with Cushman & Wakefield who has worked with many of Stamford’s landlords.
But that could soon change. Investment bank UBS, which already leases 650,000 square feet at 677 Washington Boulevard plus another 550,000 square feet elsewhere in the city, wants to expand. As a lease expires in the company’s New Jersey facility, according to city officials, UBS is looking for million square feet of office space, which among other places could be absorbed by 695 East Main Street, the empty former Gen Re building.
Still, asking rents continue to be depressed, dropping from $43.54 a square foot in 2008 to $41.22 in 2009, according to Cushman figures that define the downtown area as stretching roughly from Interstate 95 to North Street. But lower rents can be a useful tool in retaining tenants, and one that they’re not afraid to use, according to Stamford’s top landlords. S.L. Green, for example, which owns five properties and 1.5 million square feet of offices, mostly along Washington Boulevard, reduced rents from $50 a square foot to $35 a square foot in some buildings, says John Barnes, a senior vice president. As a result, he adds, his buildings are 90 percent occupied.
Meanwhile, Malkin Properties, which owns three properties, including the three-building First Stamford Place, has 93 percent occupancy, says Jeffrey Newman, an executive vice president, who credits round-the-clock service, like in-house barbers and fitness centers, for Malkin’s successes.
However, in a sign of how the build-it-and-they-will-come outlook can stumble, Malkin has postponed construction of Metro Tower, a seventeen-story, 350,000-square-foot building planned to rise behind the train station — next to Malkin’s Metro Center—despite having zoning approval. “We are not going to break ground until we have a lease first,” Newman explains.
Of particular concern to some analysts is how landlords who paid top dollar for their properties at the market’s peak can continue to make pricey loan payments when tenants may now be paying less money for their spaces.
RFR Holding, for one, purchased seven Stamford properties—including the long parade of buildings along Tresser Boulevard that form many first impressions of the city—in 2007 for $850 million, though the portfolio is considered worth considerably less today. “Everything’s down thirty percent,” says Aby Rosen, RFR’s president. “And that’s on paper. But for us, it’s a different game. We intend to own them for a long period of time. Our goal has never been to go in and recapitalize and sell. That was never our plan.”
Still, despite reports that the company is negotiating with its lender over the payment terms of the $300 million first mortgage on an RFR partner property, Rosen says his portfolio is generating enough income to cover his loans. In fact, a loan extension with Bank of America is simply for RFR to have enough capital on hand to continue to make improvements to their properties, which are 92 percent occupied, according to Rosen. Those improvements include adding shops in connecting hallways, art by Keith Haring on walls and a fountain on the plaza between Three and Four Stamford Plaza. “A lot of people have cut back on capital programs and commitments,” Rosen says, “and we have stuck with it through thick and thin.” In fact, so confident is he about Stamford’s fortunes that he is looking to add up to four other buildings to his portfolio soon.
Where Rosen is looking to expand, smaller landlords like the 114-year-old Ashforth Co., which reports an occupancy rate of 94 percent at its three properties, including its headquarters at 707 Summer Street, are taking a more conservative approach and improving what they’ve already got. To wit: last April, in the throes of the recession, Ashforth debuted an on-site recycling program. Not only did it generate 2,585 pounds of electronic waste, it allowed tenants to dispose of household goods conveniently at work instead of at some faraway site, which boosted tenant satisfaction, according to Darrell Harvey, the company’s co–chief executive.
Whether or not landlords are truly rosy about the future, most say that ongoing infrastructure improvements in Stamford as a great thing. A clear favorite is the redesign of Mill River Park, which as part of a $30 million project has removed retaining walls and a dam from the eponymous waterway to bring it back to a more natural state. Its banks, meanwhile, will eventually add an amphitheater, carousel and skating rink. Some immediate beneficiaries would seem to be residents of Trump Parc, a new thirty-four story condo, who will gaze down on the river from their living-room windows.
What’s less clear is whether riverfront property can lure a restaurant to the cavernous 3,500-square-foot space at the tower’s base, which still sits empty after being marketed for months, says Tom Rich, president of the F.D. Rich Company, which codeveloped the building with Donald Trump and Louis Cappelli.
Separately, Rich is waiting for lending markets to thaw before he can break ground on the already-approved Atlantic Hotel and Residences, which will offer 100 rooms and 56 apartments from a spot on Broad Street, now home to a parking lot. Likewise, his $550 million Ritz Carlton hotel-condo project, which would incorporate downtown’s former post office, awaits funding, Rich says.
But Rich, who has built much of modern-day Stamford, is sanguine about his efforts to create a restaurant row on lower Summer Street to rival the main one on Bedford Street. Indeed, in late fall a new 2,500- square-foot restaurant, Bar Taco, will open, joining a local outpost of Barcelona, which debuted last May, and a handful of new ethnic eateries across the street. “We will emerge from this stronger,” Rich predicts.
Another project in the works is the expansion of Stamford Hospital. Starting this spring, assuming zoning approvals, the West Side facility plans to bump out its campus toward Stillwater and Merrell avenues to accommodate a new utility plant and emergency department, in
the first phase of a three-phase project. The expansion, which will require the demolition of forty homes in addition to the twenty that have already been razed, will also remove the Vidal Court housing projects, with the current residents being relocated to nearby sites.
Because a $225 million project can be a hard sell in a downturn, the hospital postponed it for more than a year, according to David Smith, a senior vice president, but the hospital’s facilities are notably outdated and need upgrades. “When is the right time to afford something like this?” Smith says.
While no major opponents seem to stand in the way of Stamford’s main landscape reinventions, the same can’t be said about RMS Construction’s plans to put up a ninety-four unit apartment building on the property of St. Andrew’s Church on Washington Boulevard, adding a different kind of wrinkle to the local real estate story.
Because building the four-story structure meant razing a 137-year-old Gothic rectory on the site, Save Old Stamford, a local preservation group, sued to stop it. “If you look at the history of Stamford, at what was there and what remains, there are very few buildings that remind us of our past,” said president Joseph Conetta before the courts ruled the church could proceed with the demolition.
Randy Salvatore, RMS’s president, had said the church depends on the sale of the rectory to survive. “It was the right ruling,” he says. “It allows the church to go on and do what they need to do for the parish and the community.”
That’s not the only project Salvatore’s banking on. In November, seemingly unafraid of economic headwinds, he also cut the ribbon on his 97-room Hotel Zero Degrees—a sizable renovation of the former YMCA—with room prices that start around $150 a night during the week.
But whatever happens in the months ahead, no matter how many splashy new towers go up or development deals go forward, the market will continue to reward buyers, renters and office tenants over the people who built their properties, says Fagan. “Tenants are going to be very, very sharp with their pencil to negotiate the best deals possible, and landlords will continue to talk up the market.”