In every way but one, Capitol Cove in Providence was finished at the worst possible moment for a condominium complex.
When the sales office opened in late 2008, the real estate market had recently collapsed, there was a credit crisis and politicians in both parties were debating ways to head off a depression.
The lone bright spot for projects like Capitol Cove, also known as One Park Row West, was that even the Great Recession couldn’t stop rising demand for student housing, especially upscale student housing, in Providence and cities across the country.
At first, Capitol Cove developer Robert Roth resisted renting any of the 96-unit mid-rise complex on the banks of the Moshassuck River, telling Providence Business News in November 2008 that we were “beginning to see the end of the real estate downturn and should start seeing a steadying of prices and positive movement in the near future.”
By March 2009, that optimism had dimmed and Roth announced that Capitol Cove had been leased to Johnson & Wales University, which would convert the apartments to dormitories for its growing student body.
Even then, the lease was for three years, and Roth said he intended to re-engage the condominium market again in the summer of 2012 when the economy would, presumably, be humming again.
Now that those three years have passed, Johnson & Wales has put down roots in the Capital Center and Capitol Cove stands as another example of the post-crash shift in the real estate market away from home ownership and toward renting.
The university renewed its lease at Capitol Cove for 10 years in March 2011, and this May, when the development went through foreclosure, signed an agreement with the new landlord so that it could continue undisturbed.
Back in 2009 when Johnson & Wales first moved in, some saw the arrival of students as an unfortunate precedent that would reflect badly on the other large residential buildings in the Capital Center area that remain unfilled.
Now after three more years of depressed real estate conditions, most are happy to see the building occupied by students.
“I think it is good for the city,” said Joseph Paolino Jr., managing partner of Paolino Properties about the new Johnson & Wales lease. “Having an empty condo building and trying to sell them when they aren’t selling doesn’t help.”
With 40 acres of former Interstate 195 land now opening up for development, some of which is likely to be residential, Paolino noted that there could soon be even more units on the market competing for occupants.
“The condominium market is still 10 years away from coming back,” Paolino said.
Down the street from Capitol Cove, progress selling units in the other large Capital Center condominium buildings has been slow but steady this year.
At Waterplace, Intercontinental Real Estate has sold 27 units since March, bringing the total under contract to 73 out of 193 total homes.
Other buildings, such as the Avalon at Center Place, just down the street from Capitol Cove on Park Row West, are targeting high-end rentals.
The Providence Foundation Executive Director Daniel Baudouin said the presence of Johnson & Wales is a positive for the downtown real estate market because the school absorbs inventory while keeping the Capitol Cove building occupied and the area vibrant.
“The lights are on, kids are around, and Johnson & Wales runs a very tight ship,” Baudouin said. “I think any residents downtown are a positive and it tightens up the market a little bit.”
Seven years after he started Capitol Cove, Roth is out of the mix after Bank of New England foreclosed on the development in May.
Roth had built the complex under a 95-year land lease signed in 2005 with Capital Properties Inc., the publicly traded company that owns the three-lot, 5-acre piece of land the building sits on, as well as much of the land in the city’s Capital Center district.
In Roth’s place as Johnson & Wales’ landlord is William P. DeLuca III, whose family owns Bank of New England, a car auction and four auto dealerships in New Hampshire and Massachusetts.
Bank of New England and an affiliated lender, Lease and Rental Management Corp., which had a second mortgage on Capitol Cove, transferred their interests to 3 limited liability corporations they control, 261 LLC, 262 LLC and 263 LLC.
Reached at Auto Use, a DeLuca-owned financing company specializing in subprime car loans, Robert J. Drew, president of Lease and Rental Management Corp. and signatory for 261 LLC, said the new ownership group did not have any development plans and intended to keep leasing the Providence property to Johnson & Wales.
Attempts to reach Roth were unsuccessful.
Under the land lease, Capital Properties receives $300,000 for the developed lot. For the vacant lots, the company received $175,000 for one and $200,000 starting in 2015 for the third, whether anything is built on them or not.
Leasing land for development in downtown Providence is Capital Properties’ primary business.
The change at Capitol Cove comes as Capital Properties negotiates a possible exit from its petroleum terminal business in East Providence.
The company owns the Wilkesbarre Pier below Veterans Memorial Parkway and operates it for Global Partners LP, a Waltham, Mass.-based fuel company.
Under the terms of the agreement between the two companies, Global has an option to buy the terminal and is now working through the process of establishing an appraised value for it.
Global’s lease expires April 30, 2013, and in May Capital Properties announced that it would not renew.
If Global decides not to exercise the option to buy, Capital Properties Vice President Todd Turcotte said it will have to re-evaluate its options at Wilkesbarre, which could include finding another buyer or another fuel company to partner with. He wouldn’t say whether Capital Properties was looking to get out of the petroleum terminal business.
Back in Providence, Johnson & Wales’ new lease at Capitol Cove comes as the university continues to expand both downtown and at its Harborside campus.
Johnson & Wales’ latest master plan includes new dormitory buildings along the western end of Friendship Street, although the start of those projects is likely a minimum of five years away.
Terms of the Johnson & Wales lease for Capitol Cove were unavailable.
Johnson & Wales spokeswoman Miriam Weinstein said under the new lease life at Capitol Cove should proceed as it in past years for the 334 students living there. •
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