Developer D+P Real Estate Inc. toiled for years on plans for a six-story, 240,000-square-foot, mixed-use building along Interstate 195 in Providence that would have included nearly 100 apartments and the new headquarters for Bank Rhode Island.
There were public meetings and frequent revisions and, finally, approvals for the project that was slated to take root on a small grassy lot in Fox Point on the east end of the I-195 Redevelopment District.
In the end, it appears the work was for nothing.
In December, D+P Real Estate halted the entire project after rising construction costs and fluctuating interest rates pushed estimates for the project higher than expected, making the endeavor financially unfeasible.
Jordan Durham, principal of D+P Real Estate, says some of the expenses for the project – the total cost of which had been pegged at about $70 million in 2022 – had increased 50% by 2024.
Now the developer isn’t pursuing any new developments, at least not until the economic situation stabilizes, Durham says.
“The outlook is really uncertain,” he said. “It’s going to be a bumpy road.”
D+P Real Estate isn’t the only developer that’s proceeding cautiously.
Price hikes for construction materials such as lumber, steel, concrete and drywall – fueled in part by a brewing trade war, as well as interest rates made less predictable by inflation worries – may be hampering some commercial real estate projects on the drawing board not only in the I-195 district but elsewhere in the state.
“It’s pencils down,” said Colin Kane, founding partner of Peregrine Group LLC, an East Providence-based real estate development company.
Commercial office projects have been hit particularly hard as demand for office space has fallen dramatically in recent years, along with rental rates, making it more difficult for the financial numbers to work, which makes lenders leery.
Meanwhile, other developers are focusing on residential projects with housing in short supply and rents at sky-high levels, making those developments more likely to provide a solid return on investment.
The I-195 district has been no different.
Since the district’s 19 acres of buildable land became available in 2011 after the relocation of Interstate 195, officials in charge of overseeing development have grappled with finding the proper mix of office, retail, residential spaces and other uses.
Most of the recent projects either proposed or completed in the district – a swath of about two dozen parcels on the south edge of downtown Providence – are residential buildings, with some commercial space.
At the same time, one of the most recent large-scale commercial projects in the district – a 208,000-square-foot laboratory building under construction at 150 Richmond St. – took a while to get off the ground as capital markets were holding back on lending. The developer, Ancora L&G LLC, is reportedly not borrowing money to finance the project that initially was supposed to cost $165 million.
Caroline Skuncik, executive director of the I-195 Redevelopment District Commission, acknowledges that the deal was assisted by an $81.7 million grant from the Centers for Disease Control and Prevention to construct a new R.I. Department of Health lab in the building.
Also, state officials have agreed to give financial backing to build and operate a 30,000-square-foot life sciences business incubator in the building called Ocean State Labs.
“Commercial deals are very, very complicated” in the current economic climate, Skuncik said.
Indeed, potential bidders to develop parcels in the district have dropped out of projects, while other developers – such as the partnership that proposed a 175-unit mixed-used project on the prominent Parcel 5 at Wickenden and South Main streets – are forging ahead despite looming question marks about the overall economy.
“You have to be optimistic that things are going to get built,” Skuncik said. “But there’s an underlying concern that it might not happen.”
THE RIGHT MIX?
A few years ago, Providence City Councilman John Goncalves was worried the district was focusing too much on residential development and departing from its original goal to create jobs.
When the relocation of Interstate 195 was completed in 2011, the idea was that 19 acres would be free to be used to bring a variety of commercial developments. Another 7 acres was set aside as open space.
But as housing developments started popping up throughout the district, some – including Goncalves – lamented that the I-195 Redevelopment District Commission overseeing the land use was straying from its original mission.
Now he celebrates housing developments.
Why? The state’s – and Providence’s in particular – housing crisis has only worsened. The district’s use for housing is “addressing this critical need,” Goncalves, whose Ward 1 covers the district, said in a statement to PBN.
“The momentum is undeniable and the benefits – more housing, child care, a grocery store, jobs, the state lab, the growth of biotech here – is all extraordinarily good for the future of Providence,” Goncalves said.
Kane, a former chairman of the I-195 Redevelopment District Commission, says a sufficient amount of housing for the workforce has always been a crucial piece to creating and sustaining more jobs in the city.
“It should be housing, housing, housing,” Kane said. “All of the residential projects that have been built in Providence … I applaud, because that’s where our economic vibrancy comes from.”
Robert Davis, another former commission chairman, says housing was a priority when he was on the commission from 2015 to 2022. It’s what was most financially viable for developers.
Across all types of real estate in the I-195 district, 13 projects totaling 2.1 million square feet have been completed, are under construction or are planned over more than a decade, according to state officials. Those projects include more than 1,100 residential units constructed or in the pipeline.
Davis says the commission has successfully seized opportunities to develop commercial space where it can.
One example: Point225, a 200,000-square-foot, seven-story commercial building constructed in 2019 by developer Wexford Science & Technology, a company that creates innovation districts paired with research universities.
The Dyer Street building, anchored by CIC Providence LLC and Brown University, has grown into a focal point of the I-195 district, with 87% of the space leased by CIC – or the Cambridge Innovation Center – occupied by more than 240 of its client companies, according to state officials.
But even that $90 million project took some government assistance to get built, receiving $15 million in Rebuild Rhode Island tax credits and another $18.8 million in incentives from the I-195 Redevelopment Project Fund, established by the state to support district projects.
[caption id="attachment_493582" align="aligncenter" width="1024"]
GUIDING HANDS: Marc Crisafulli, left, chairperson of the I-195 Redevelopment District Commission, and Caroline Skuncik, the district’s executive director, outside The PVD Labs building under construction on Richmond Street in Providence. The structure will also house the R.I. State Health Laboratory.
PBN PHOTO/RUPERT WHITELEY[/caption]
Next door, construction on 150 Richmond – now dubbed The PVD Labs – is expected to be completed this year, but getting the finances worked out wasn’t easy, says Skuncik, who notes that she has worked on the project for the eight years she’s been district executive director.
With construction costs so high, and commercial rental rates sinking because of low demand, such projects are difficult to pull off right now.
“It’s very hard to get a deal to pencil out where a developer is getting a market return,” Skuncik said.
The situation was eased somewhat by the fact that Ancora L&G paid $1 for the land and RIDOH’s guaranteed involvement – the state will own about 80,000 square feet of the building for the new R.I. State Health Laboratory under a condominium agreement with the developer.
Also, Brown has signed on as an anchor tenant in a $13 million, 10-year deal, with plans to sublease 30,000 square feet to serve as the life science business incubator, which is being financed with the help of $9 million from the Rhode Island Life Science Hub and $1 million from the I-195 Redevelopment Fund.
Marc Crisafulli, the I-195 commission chairman, says 150 Richmond is an example of the agency’s approach to commercial development: Efforts are targeted where it makes the most sense.
As of December 2003, the I-195 district estimated that completed or under-construction projects generated 2,795 new jobs, not including construction activities.
And district officials are willing to take things slow.
The commission is holding an undeveloped half-acre parcel across Richmond Street from The PVD Labs. And Wexford already has an empty 35,000-square-foot plot next to Point225 and the lab building under contract, although nothing concrete has been proposed.
Officials hope interest in those properties will be spurred by their proximity to Brown’s 300,000-square-foot “integrated life sciences” building that’s under construction, an existing Brown lab at 70 Ship St. and the university’s Warren Alpert Medical School, as well as PVD Labs and Point225. But Crisafulli acknowledges it could be several years down the road.
“It might take us five years to get there, but we want to make sure we’re ready,” Crisafulli said.
[caption id="attachment_493581" align="aligncenter" width="1024"]
LAY OF THE LAND Thirteen projects totaling 2.1 million square feet have been completed or are planned. Nine parcels remain available for development.[/caption]
STEERING CLEAR
Bleak. That’s the outlook for most commercial office space, according to Kane.
Construction and labor costs have risen by about 50% in recent years – a lingering effect of the COVID-19 pandemic, which brought massive supply constraints and drove many workers out of the trades, Kane says.
Meanwhile, demand for office space has evaporated as companies have sought to shrink footprints at a time when hybrid work arrangements are still evolving.
The state’s office market supply is “static” with no new speculative office developments coming for the foreseeable future, according to a report by Cushman & Wakefield.
Amid this lack of development, there’s been a growing effort to convert underused office buildings into housing in Providence. Some properties in the core of the city’s financial district – such as the Lauderdale Building on Westminster Street and Studley Building on Weybosset Street – are either undergoing conversions or have already done so.
The state’s tallest skyscraper, the 1928 Industrial Trust Co. Building, is also in the process of being converted into housing. However, the project has been delayed by rising construction costs. And the second-tallest building, One Financial Plaza, which is home to several offices, has been scheduled to go to auction.
Vacancy rates in the Providence market rose 12.6% from the fourth quarter of 2023 to the same period in 2024 while rents edged downward to $22.12 per square foot from $21.91 a year earlier, according to Cushman & Wakefield.
With the tariffs looming, the economic uncertainty has had many developers steering clear of office development.
“It just all adds up to make the numbers difficult,” Durham said. “It’s not that we’ve closed up shop; we’re just riding out the current environment.”
The outlook is much rosier for residential development, as Providence has seen some of the country’s climbing rents and demand for more units remains strong.
That brighter outlook is illustrated in the projects that have either been recently completed or are close to breaking ground.
Developer Pennrose LLC recently finished a 66-unit apartment building with a retail space and a child care facility – the first phase of construction on a 1-acre crescent-shaped lot between Our Lady of The Rosary Church and Interstate 195 on the east side of the Providence River.
Pennrose recently announced it has secured funding for the $32.5 million second phase, which includes 61 apartments. The deal includes a mix of funding from public agencies and private debt and equity.
Also prepping to get construction started in the fall: the developer Urbanica Inc., which has received approval for a two-building project with 171 apartments and 8,300 square feet of commercial space on a 1-acre parcel between South Water and South Main streets, just south of the Plant City Providence LLC food hall.
Both Pennrose and Urbanica did not respond to messages seeking comment.
In mid-April, developer CV Properties LLC said it was ready to break ground on Dyer Wharf, a 12-story, 214-unit apartment building on the west bank of the Providence River.
Richard Galvin, CEO of CV Properties, acknowledges that developers are certainly facing headwinds right now, but he believes construction costs may start to moderate.
As of now, Galvin says his company would be looking at the several funding “tools” available from the city and state – namely tax stabilization agreements for projects in the I-195 district and state tax credit programs. (Galvin declined to disclose project cost estimates.)
While Crisafulli would like to see more commercial development, he acknowledges that’s not where the demand is. Also, the I-195 district’s mission isn’t just long-term development, but also to address the immediate focus of state officials.
Right now, that’s housing and life sciences.
“We have to respond to what the market will bear,” Crisafulli said.
AREAS OF FOCUS
The west end of the I-195 district – where there are four empty lots totaling about 4 acres overlooking Interstate 95 – has been much quieter.
Last year, the R.I. Public Transit Authority had assessed the possibility of relocating its transit center to Parcel 35, a 2-acre plot between Clifford and Friendship streets. The idea was later rejected.
Since then, there’s not much activity in that part of the district, aside from the I-195 commission working with the R.I. Housing and Mortgage Finance Corp. on a residential project on a 12,500-square-foot lot at Pine and East Franklin streets, next to Dexter Manor.
While district officials don’t have much of a plan in that area, Crisafulli says there is a lot of potential that he doesn’t want to squander, noting that the area could comfortably fit a 20-story building with as much as 2 million square feet of commercial or residential development.
“We don’t want to underdevelop it,” Crisafulli said.
For now, district officials are focusing on the momentum among parcels along the river.
In March, the commission also selected Design Center Partners LLC’s pitch for Parcel 5, which is a two-building project with 175 residential units, street-level commercial space and a “pedestrian street” running between the buildings.
Parcels 8 and 8A, south of the Trader Joe’s East Inc. grocery store – where plans for BankRI’s headquarters fell through – now sit empty.
The commission has offered Bluedog Capital Partners LLC and Transom Real Estate – two developers that had made bids for Parcel 5 – an exclusive opportunity to develop the land.
Bluedog Capital has told Providence Business News that it is not interested. If Transom also decides not to pursue it, the commission will consider issuing a request for proposals for the land, but only if there appears to be enough interest.
“You have to make sure the timing is right, that the right people are interested, that you’re going to have a real competition,” Crisafulli said. “We just don’t know where that stands.”
There’s also the prized Parcel 42 abutting the District Park on the west side of the river, once the proposed site of a 550-foot, $300 million luxury tower.
Crisafulli says the 1-acre parcel would be ideal for a corporate headquarters and the commission offered it to Hasbro Inc. for $1 last fall in an effort to dissuade the Pawtucket toy maker from relocating to Massachusetts. Hasbro never responded.
Still, Crisafulli isn’t in a rush to find another prospect. After all, the district was formed with the expectation that filling parcels would take up to 30 years, he says.
“It’s much more important we get it correct than we do it fast,” Crisafulli said.
Indeed, I-195 district leaders noted real estate projects take many years to complete. Also, the market moves in cycles, largely determined by economic conditions, so the potential downturn isn’t going to throw the district off its course.
“Eventually, the cycle turns,” Skuncik said. “Even if they’re a few slower years, we’re still on track for what is normal for this type of large-scale redevelopment.”
