Banker & Tradesman January 14, 2008

Front Page

Berkeley Continues Search For Urban Village People

Lack Of Office Interest in Worcester's CitySquare Prompts Developer to Cut Project in Half


More then a year after a developer promised to transform the failed Worcester Common Outlets into an urban village, the project has yet to attract a single commercial tenant.

The Cornerstone of the city's latest effort to rejuvenate the downtown is CitySquare, a $504 million redevelopment of the former mall. Berkeley Investments has held out the hope of replacing the shuttered shopping center with a mix of medical and professional office space, condominiums, restaurants, retailers and theatres within steps of the MBTA's commuter rail.

But a lack of interest in offices at the proposed transit-oriented location has forced the Boston based developer to cut the project's initial Class A space component in half.

Worcester Mayor Konstantina Lukes, who has expressed skepticism over the project, said she is unhappy with the latest setback.

"Taxpayers are really frustrated. " she noted. "Many of us thought it would have moved forward by now, but the fact that the mall is still standing is a symbol that the project is stalled."

In October , 2006 Michael O'Brien, Worcester's City Manager, and Young Park, Berkeley's president, signed a 392 page agreement that touted $470 million in private investment and $94 million in public financing. At the time, they said the was a "significant milestone," and the "City Square and Worcester are poised for success."

Under the proposal, the empty mall and a portion of the parking garage would be razed. In its place would stand a medical office building, multifamily apartments, loft-style condominiums, senior housing, and retail spaces to accommodate restaurants, outdoor cafes, a multiplex movie theatre and a health club.

In addition, new roads would reconnect the downtown with Washington Square, Union Station, and Front and Shrewsbury streets. A 1,025 space underground parking garage also is planned.

But the three phase development, which is expected to take 8 years to complete, remains on the drawing board. O'Brien and Park did not return calls seeking comment.

Barbara Smith-Bacon, a Berkeley Vice-president, said construction was to begin once tenants were found for the 500,000 square feet of office space. The project was hindered, however, when St Vincent Hospital determined it no longer needed a new 275,000 square foot medical office building at CitySquare.

"If you want to put a negative spin on it, you can" Smith-Bacon said. "But we're facing economic realities and working with the city so that we can put tenants into the project in smaller bits. In this way, the city gets the same security of making sure they don't have to put money into the deal until tenants are lined up."

Smith-Bacon noted that it is not unusual for large development projects to take years to launch. Columbus Center, the $800 million air-rights project to be built over the Mass Pike between Boston's Back Bay and South End neighborhoods has yet to break ground, despite approved in 2004.

Smith-Bacon said factors that may have contributed to the CitySquare delays include cost of the real estate construction, where prices have increased 25% in the past three years, and a double digit vacancy rate in Worcester. As a result, she said, they will try to start a 250,000 square foot building.

"We are feeling very good about getting this started," she added. "But I cannot say it will start in six months because there's lots of work to do. We are having discussions with 10 to 20 potential tenants. The point is everyone at all levels are working extremely hard together to get the project launched.'

CitySquare has been touted as the largest public-private partnership outside of Boston in the Bay State's history. The project, which would be on 20 acres in the heart of Worcester, would total more then 2 million square feet of mixed-use development and reunite downtown streets that were taken during an urban renewal effort in the 1970's.

Philip Desimone, a managing director for the global real estate services and money management firm Jones Lang LaSalle,and a leasing agent for the project, refused to concede that CitySquare is in jeopardy.

"There are fewer challenges with this site then there are with others because it's permitted, ready to go and has broad support," he said. "If there is a challenge, it's finding someone who wants to locate in downtown Worcester and make it a signature spot for them".

For Desimone, the project is personal because his grandfather owned a haberdashery in the downtown and his father still practices law on Main Street. He disputed suggestions that time could run out and the developer might withdraw."

"Why does there have to be a deadline?" he asked. "What else are you going to do there? This is pivotal project to transform the downtown. A few years ago I visited New York's Times Square and noticed all the corporate headquarters there. That place use to be a dump. Now it's alive and vibrant. Maybe if CitySquare gets built, suddenly college kids will go there and it becomes the place to be."

Momentum for a fresh start for the downtown took shape in 2001 after Timothy Murray was elected Mayor. By 2004, longtime City Manager Thomas Hoover resigned and O'Brien, the city's former Parks and Recreation department commissioner, was tapped as the new manager. O'Brien had developed a reputation for strong leadership during his time at City Hall, city councilors said.

That summer, Murray called on the Worcester Common Outlets' owner to explore alternative uses for the site and threatened to take the property by eminent domain if a reuse plan was not devised. Berkeley stepped in and purchased the failed retail center and two corporate office towers for $30 million form Harford based Cigna Corp.

Since then, Murray has been elected lieutenant governor. In an interview with Banker and Tradesman, he said razing the mall and a portion of the parking lot is pivotal.

"It's not real until the first wrecking ball hits," said Murray.