The developer of a riverfront hotel proposed for Providence gained initial approval from the I-195 Redevelopment District Commission a year ago, giving him clearance to move on to further state and city review.
Since then, the project has been before the R.I. Coastal Resources Management Council, another quasi-public agency that will decide whether he can develop a parcel on the Providence River.
What’s the holdup? Gerald Fandetti, president of GNF Associates of Cambridge, Mass., needs a waiver to move forward. One agency considers the site buildable; another has so many requirements that Fandetti’s not sure where he can put the hotel.
“I don’t think they’ve got their act together,” said the veteran developer of his experience in Rhode Island. “It’s been painful so far.”
Developers such as Fandetti aren’t the only ones grumbling about the slow pace of project approval and development in the Capital City.
Senate President Dominick J. Ruggerio Jr. has said Providence is getting in the way of economic development. He’s vowed to file a revision in the next legislative session that would speed up the review of projects locating in the I-195 District, bringing changes that would reduce city government’s role in the approval process.
“I mean, the idea of the 195 commission in the legislation was to expedite the permitting process,” Ruggerio said, in a recent interview. “But we get the most complaints from the developers that it takes too long. Obviously, time is money in the development business.”
Developers and city officials say a few dynamics are combining to give Providence a reputation for being difficult for developers.
CRANES IN THE SKY?
First, for all the boasting among state officials about “cranes in the sky,” new construction and substantial redevelopment are largely happening outside the Interstate 195 land and coming only with financing that includes generous government subsidies.
City tax-stabilization agreements paired with state tax credits are the norm in large projects. This is because the underlying economics that make Providence an expensive location to build have not changed in the past four years, according to real estate specialists. In fact, construction costs have escalated. And while commercial and residential multiunit rents are rising, they have not escalated enough to justify new development without heavy government incentives.
Second, the city has streamlined its processes, particularly in the inspection and zoning departments. But it still has a process for a tax-stabilization approval that requires City Council approval for all but the largest projects in the I-195 and Capital Center districts.
A proposal to streamline that by creating a standardized TSA for all areas of the city, which would sidestep council review for projects under $100 million, has been stuck in the City Council Finance Committee for almost a year.
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REDUCED ROLE: Although cranes are in the sky and construction projects are happening in Providence – pictured above are the nearly $57 million The Edge, foreground, and the $54 million The Commons at Providence Station, top center – Senate President Dominick J. Ruggerio Jr. said the city is getting in the way of economic development and has vowed to file a revision in the next legislative session that would speed up the review of projects locating in the Interstate 195 district by implementing changes that would reduce city government’s role in the approval process. / PBN PHOTO/PAMELA BHATIA[/caption]
Council President David Salvatore agrees with Ruggerio that Providence has a deserved reputation for being difficult.
He said developers have told him they aren’t pleased with a process that winds its way through various city departments and boards before reaching the City Council.
Salvatore, who introduced the administrative TSA proposal, said it hasn’t received a hearing in the council’s Finance Committee.
“I think that sends a bad message to the development community that there are obstructionists here in local government in Providence,” he said.
For their part, developers are still moving projects through Providence. Several say some aspects of the city’s review processes have improved.
Arnold B. “Buff” Chace, the managing partner of Providence-based Cornish Associates LP, said much has improved over the past several years, including a city planning employee who is essentially a conduit for resolving obstacles encountered in the development process.
But the underlying economics remain similar, including the rents that are not sufficient to overcome what he estimated at a 10-20 percent gap in construction costs. The gap exists because the city’s property-tax rate for multifamily residential is the same as its commercial rate, and three times that of Boston’s comparable rate.
It makes a tax-stabilization agreement a must-have for large projects, but the TSA for downtown development lacks the administrative approval for those in the adjoining I-195 and Capital Center districts. Out-of-state investors, in particular, are not eager to invest given political instability.
“One of the key issues here is attracting development capital to Providence,” Chace said. “There are a couple of reasons why it’s hard to do. One of them particularly for the outside investor, the fact that [the TSA] is arbitrary, reduces the predictability of it. So that makes it a less-attractive place to invest in.”
Cornish partnered with Massachusetts-based Nordblom Co. to redevelop The Providence Journal Building for new tenants, including Virgin Pulse. And it will partner again with the Bay State development company in new construction over an entire block downtown. The Nightingale, as the building will be called, will include ground-floor commercial space and residential apartments on the five stories above. Site work began in October.
Joseph R. Paolino Jr., the former mayor, has had several multimillion-dollar projects receive approval from both city and state officials over the past two years. Two of his projects involve hotels. Another was the renovation of the historic Case-Mead Building on a prominent corner downtown. The project recently won a statewide historic-preservation award.
Paolino, managing partner of Providence-based Paolino Properties, has found city inspections are smoother. But the lack of the standardized TSA is hurting the city, he said. And he pointed to the changing dynamics of the City Council, where several new members have already said they don’t favor the tax-stabilization policies for large developments.
“If they don’t get it done before January, it will never happen,” Paolino said.
In Fandetti’s case, he’s had several conversations with the city that have been promising but said his interaction with state agencies has mostly led to frustration.
He’s trying to build a hotel on Parcel 1A, in the I-195 District. The I-195 commission insisted it was a developable parcel when it rejected two other noncommercial, alternate uses for the 0.28-acre property, including a sculpture garden.
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BAD REPUTATION: Rising construction costs and rents that are too low to justify new development without heavy government incentives in conjunction with a prolonged tax-stabilization agreement process has given Providence a reputation for being difficult for developers.
/ PBN PHOTO/PAMELA BHATIA[/caption]
But the CRMC has development restrictions that have reduced the building area to a fraction of the parcel, he said.
To move forward with his hotel project, he needs a waiver. Eight months after he started the process, he estimates he’s about halfway through.
“Their guidelines call for a 20-foot setback from the river’s edge and also a 25-foot construction setback,” Fandetti said. “Well, that’s a 45-foot setback all told. The site’s only 55 feet deep.”
The contradiction has led to almost a year of negotiations. His formal application for the 52-room boutique hotel, called the River View Hotel, should be submitted soon. As initially approved by the I-195 commission, the project would include an art gallery and a restaurant at ground level.
HOTEL GROWTH
Mayor Jorge O. Elorza concedes that not all processes are working as smoothly as they should. But he pointed to the volume of activity in Providence as a sign that development is taking hold.
Altogether, more than $657.8 million is under active construction this month, and another $86 million has been completed in recent years, according to R.I. Commerce Corp. and city records.
Some commercial real estate classes, such as hotels, are booming in Providence. Two new hotels are under construction downtown and a defunct office building is being converted to a boutique hotel on Westminster Street. About 340 hotel rooms are under construction, according to the Providence Planning Department.
Apartment buildings also are under construction in several locations of the city – including a new building and a planned second phase at the base of College Hill, a new structure near Providence Station and a renovated mill on the city’s west side.
“I look out my window every day. It is nice to see the cranes in the sky,” Elorza said. “And we keep close track of the projects in the pipeline. The fact that we’re seeing more development now than we have in at least a decade, if not a generation, [means] that whatever was stuck in the past is now unstuck. Many of the steps that we’ve taken in the city have been a part of that.”
Those steps, he said, include some new hiring and personnel changes that had the effect of treating developments with more urgency.
A project that needs to be expedited can be moved more quickly, he said.
But some things, such as the council review of tax-stabilization agreements, require change to be made more slowly.
Like Salvatore, Elorza supports the standardized TSA. “It’s currently stuck in the City Council,” Elorza said. “It’s is very frustrating. We never know [about] the projects that don’t go forward as a result of having such a slow and involved process.”
It wouldn’t necessarily expedite the review of a massive project, such as the 46-story residential tower proposed by The Fane Organization. Both Elorza and Salvatore said its request for new zoning is what makes that project different.
Elorza, who has spoken to the developer, said he will not support it until he is comfortable it’s a good fit for the city. He will not try to push it through.
“You have to get eight votes on the City Council,” he said. “Before I throw my weight around, I want to be confident that this is a project that works for the city.”
Ruggerio spoke publicly of his frustration with the pace of development at a meeting of state and business leaders in September. He cited the failure of Rhode Island to keep the Pawtucket Red Sox (the team plans to build a new stadium in Worcester, Mass.) and opposition that has afflicted The Fane Organization’s attempts to build the luxury condominium and apartment building.
The Fane project, called Hope Point Tower, is proposed for a parcel of I-195 land and, like the River View Hotel, has also gained initial approval from the I-195 commission.
Over the past year, it has moved through the city review process, in a quest to gain the required zoning change to allow a 600-foot height, though Fane recently proposed that the tower be built only to 530 feet.
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PUBLIC HELP, PRIVATE INVESTMENT
More than $657 million is under construction in Providence this month, according to state and city officials. Here are some of the largest projects. Project costs are estimates based on the data when state or city incentives were approved.[/caption]
VACANT PARCELS
By comparison, Massachusetts and Connecticut have swifter processes for development review, Ruggerio said.
He pointed to the development of the Seaport District in Boston. The area, home to multiple tech and bioscience firms, had among the most expensive commercial lease rates in the city in 2017, according to CB Richard Ellis New England.
The new Skanska tower, 121 Seaport, opened fully leased, attracting tenants that include the new headquarters for Alexion Pharmaceuticals.
Even Class B lease rates in the Seaport rose rapidly last year, driven by the arrival of tech firms. The rate rose by $3.69 a square foot to $52.74, according to CBRE.
By comparison, the most expensive submarket in the Providence downtown market last year was the Capital Center District, where lease rates last year reached $33.53 per square foot.
The Financial District submarket in Providence, encompassing the skyline buildings and one-third of the commercial area of downtown, rose to $26.67 per square foot, according to the 2018 CBRE Market Outlook.
Within the I-195 district itself – which is not tracked as a separate commercial market – many of the available parcels remain vacant, years after the area was cleared and prepped for sale.
Along the 26-acre swath of land, three projects are under active construction, including Wexford Science & Technology, which is developing Parcels 22 and 25, and Chestnut Commons, a 92-unit residential building that began construction this month on Parcel 30.
In addition to these commercial projects, a 400-foot-long pedestrian bridge is under construction over the Providence River, designed to connect the east side parcels to the west side of the district.
In all, after exempting the parkland from the district, about 19 acres is available for development.
Developers have expressed active interest in many of the parcels – notably those on the east side and near the Wexford site under development. The Hope Point Tower is pitched for the northern portion of Parcel 42, a site that has since been reconfigured by the state to accommodate the high-rise footprint.
But at least eight parcels in the district have not attracted serious interest, despite years of marketing efforts. They include some of the larger properties, located near Interstate 95, said Peter McNally, executive director of the I-195 commission.
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INNOVATION CENTER: Construction continues on the Wexford Innovation Center, one of three projects under active construction in the state-controlled former Interstate 195 lands. The Wexford project will total more than $88 million and includes an innovation building to be developed by Wexford Science & Technology LLC. Tenants will include the Cambridge Innovation Center, Brown University’s School of Professional Studies and Johnson & Johnson.
/ PBN PHOTO/PAM BHATIA[/caption]
LOW RENTS
Many development officials have pointed to the relatively high commercial tax rate in Providence as the culprit depressing real estate investment. But McNally said the taxes are not disproportionately high in Providence.
On a square-foot basis, the taxes on an office building in downtown Providence are less than a comparable tower in Boston, Chicago or Los Angeles, said McNally.
“I would actually argue it’s not difficult to develop in Providence. It’s no more difficult than most other medium- and large-sized cities. I would also say our taxes are not particularly high.”
So, what is the issue? It’s the rents, he said, which are driven by job creation.
The rents are rising but are still not high enough in Providence to justify new construction, at least not on the scale as seen in more-dynamic real estate markets, he explained.
“Rents are higher than they were four years ago, but they’re not at a level that supports new construction,” McNally said. “That’s why the development that you have seen in Providence and Rhode Island has been using Rebuild Rhode Island tax credits. I would expect and would hope there is a day in the near future where that wouldn’t be required. Where the demand and the rent levels would be sufficient to justify new development.
“Supply, job creation, that’s what drives multifamily rents and multifamily demand,” he said. “What the administration [of Gov. Gina M. Raimondo] is doing here, that encourages me. If you want to help multifamily development, the best thing you can do is create jobs. Do whatever you can do at the government level to create jobs.”
‘GOING NOWHERE FAST’
But the bureaucracy of navigating city government processes, as well as state hurdles, is still a problem, say developers and some politicians.
Frustrated by the lack of progress in the I-195 district, Ruggerio suggested he would introduce legislation in the next General Assembly session to put more approval authority under the I-195 commission. He has since clarified his intention, saying zoning decisions should probably remain with the city. Salvatore, for his part, thinks the city should retain its power to review projects.
But the process must be streamlined, said Ruggerio. Development is cyclical, he added, and the window of opportunity may close on Providence if it doesn’t move.
“There is a sense of immediacy here,” he said. “We floated bonds in order to pay for the land. Those bonds are coming due and we’re hoping to develop that land, that was the whole idea.”
For Fandetti, whose project has yet to move beyond the state approvals to the city, a comparison with Massachusetts is easy because much of his development activity has taken place in the Bay State.
When Massachusetts issues a request for proposals for a development, it’s a signal that they want to develop a site. Yes, the process involves a few meetings and public hearings, but the presumption is that development will move forward, he says.
In Rhode Island, he’s had difficulty getting his hands around what the state wants in terms of a development footprint on Parcel 1A.
Of the CRMC, he said, “We’ve had a couple of meetings with them to get a sense as to what they’re open to. We’re looking at the historical precedence of other buildings that have been built by the water. They have new regulations and new guidelines. It’s just frustrating that this sort of thing wasn’t worked out beforehand.
“If you don’t have everybody onboard, you’re going nowhere fast,” Fandetti said.
Mary MacDonald is a staff writer for the PBN. Contact her at Macdonald@PBN.com.
