Central to the argument for saving Providence’s Superman Building with public investment is a vision of the downtown economy driven by residents as much as office workers.
It’s a vision that’s emerged over the last two decades of downtown revitalization and would take a major leap forward if Rhode Island’s tallest building was filled with 280 apartments in the heart of the Financial District.
The new residents and their neighbors in other buildings would draw different services, such as a supermarket or expanded mass transit, than offices would.
The two recent studies of potential uses for the Superman Building at 111 Westminster St. outline the demographic and market shifts that have local developers rushing away from office construction toward rental housing.
If the studies are right, leaving the Superman Building as offices and failing to build new apartments in Providence will lead to serious oversupply in the office market, while exacerbating an apartment shortage that’s driving up rents.
Perhaps surprisingly, the most enthusiastic support for turning the Superman Building residential wasn’t paid for by property owner High Rock Development LLC, but by the city, which has pushed for continued office use.
4Ward Planning LLC of New York concluded in its report that “short of a large office tenant (e.g., large corporate user or the state) securing a minimum 50 percent of the building’s total leasable space within the next year, the viability of the [Superman Building] remaining as an office building is weak, at best.”
While High Rock has requested $39 million in state aid to renovate the building, 4Ward concluded that as much as $60 million would be a reasonable state investment to avoid having the vacant tower “destabilize” the local office market.
To support its finding that a downtown apartment tower is viable, 4Ward’s market study describes a real estate market tilting toward rentals in the wake of the subprime crash and expected to move further in that direction as the baby boomer generation enters retirement years.
Rising unemployment and tightening credit have chipped away at home ownership since the recession and looking ahead, 4Ward points to local demographic shifts increasing demand for rentals.
According to U.S. Census Bureau figures, the Providence metro-area population between the ages of 25 and 34 is expected to stay flat through 2017, after growing slightly in the last two years, while the population aged 34 through 55 will drop significantly.
That younger group is less likely to have a large family and more likely to rent, 4Ward said.
Further up the age ladder, the metro-area population (including Bristol County, Mass.) between ages 55 and 64 is expected to grow 4 percent by 2017, while the population between 65 and 74 years old is expected to grow 20 percent.
These two older groups, which include many so-called empty-nesters whose children have moved out and who are looking to downsize, is a prime market for high-end rentals.
Driven by these shifts, as well as a rising regional income and an increase in “nonfamily households,” 4Ward estimates that rents in the Providence area will grow 3.3 percent annually through 2017.
That optimism about the rental market is reflected in the interest developers outside High Rock and partners Cornish Associates are showing in building more apartments.
After new market-based, multifamily construction dwindled in the recession – and suspension of the state historic tax credit – a number of new Providence projects have started or are being planned.
Two are right next door to the Superman Building and nearing completion: the Arcade microloft conversion and Providence G luxury-apartment conversion.
On the East Side, Gilbane Development has been approved for a 95-unit Thayer Street apartment building targeted to Brown University students, while construction has begun on a 26-unit building at 125 Pitman St. The City Plan Commission on May 21 held a preliminary meeting on plans for a 30-unit building at 207 Waterman St.
Down the street from the Knowledge District I-195 land, preliminary plans have been filed with the city to build a six-story apartment building where a restaurant now stands on Hospital Street.
And on Canal Street just across the Moshassuck River from downtown, the owner of a parking lot has twice spoken to the city, and then backed off, about a 10-story apartment tower.
Outside the city limits, The Procaccianti Group recently had plans to build a 192-unit rental complex in Cranston scuttled by neighborhood opposition.
In East Providence, Churchill & Banks has proposed 276 rental units, along with 131 condominiums, in their Kettle Point development currently going through permitting.
Just to the north, the 600-unit Village on the Waterfront development, proposed for the former Chevron brownfield, would have a mix of rentals and condominiums when it gets going.
The Carpionato Group, which is hoping to build apartments on the I-195 land, has also proposed a massive mixed-use development, including rentals, in Tiverton.
In developments built just before the recession, units intended for sale as condominiums in buildings such as The Residences Providence, Waterplace, The 903 and Capital Cove have at various times been turned into rental units.
The Superman Building market study done for High Rock by Keystone Consulting Group estimated that at least 233 apartments at the 903 and 35 at the Residences would eventually be sold as condominiums, canceling out some of the new construction planned.
Perhaps the most controversial part of the 4Ward analysis is what it says about the local office market.
Because the industries growing in the Providence metro area, especially health care and education, aren’t centered around downtown office space, 4Ward concludes that the 1.2 million square feet of currently vacant space will be more than enough to meet demand in the near future, estimated at an additional 600,000 square feet.
Downtown property values could decline by as much as $220 million, resulting in up to $84 million in lost city tax revenue over the next decade.
Whether having the Superman Building reintroduced into the office market will really have such a negative impact on city office lease rates, and how it would differ from the building not existing at all, is difficult to say.
Michael Giuttari, president of MG Commercial Real Estate in Providence, said he doesn’t see the Superman Building depressing the downtown market, because potential tenants don’t see it as a viable option to use as leverage against other buildings.
“There is a lot of good activity in downtown and people just kind of ignore it,” Giuttari said about the Superman Building. “There are four or five major deals going on now downtown and it never comes up.”
If contributing $39 million (or $60 million) in public dollars toward the Superman Building would be a good investment for the city, the 4Ward study suggests it may be an even better deal for High Rock.
After a successful conversion to apartments, the study estimates the tower would be worth up to $90 million, significantly more than the $15 million High Rock thinks the building is worth now or the $33 million it paid for it in 2008.
If the building does become that valuable, it would nearly offset the $39 million High Rock has invested in it to date and $55 million it is proposing spending on the conversion. Not counting what it’s made in rent from previous tenant Bank of America, the Wellesley, Mass., developer would only have to make $4 million in income from the building to match its nominal investment. •
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