Meet Worcester's CitySquare 2.0 | Can Hanover Insurance's investment save downtown?
Over the past six years, CitySquare has gone through enough false starts and disappointments to make even the biggest city booster a bit cynical. So it's a testament to the respect commanded by the Worcester-based Hanover Insurance Group that so many people are again talking about the development with hope in their voices.
âThey bring huge expertise, resources and a commitment to downtown that's second to none,â said David P. Forsberg, president of the Worcester Business Development Corp. âI was very, very pleased when I heard that they were going to get involved.â
Officially Unofficial
No deeds have yet been turned over, and neither Hanover nor current CitySquare owner Berkeley Investments are speaking on the record about the planned acquisition.
But on March 16, City Manager Michael O'Brien announced that Hanover investment arm Opus Investments had signed a purchase-and-sale agreement to buy the developable portion of the property from the Boston firm. O'Brien also said Hanover and potential CitySquare tenant Unum Group have reached an agreement on the terms of a lease that will unlock public money for the demolition of the old Worcester Common Outlets.
Young Park, president of Berkeley, declined to comment on the details of the deal but said he hopes the sale will close within a month.
So are the renewed hopes justified? What can Hanover bring to the $563 million project that Berkeley couldn't? And why does Worcester's biggest business want to get involved in a development that has been so troubled?
Richard Kennedy, president and CEO of the Worcester Regional Chamber of Commerce, said one big thing Hanover and Opus bring to the table is cash.
âThe fact of the matter is, Berkeley depends on its banking relationships or its funding relationships. It's not their own funds,â he said.
In contrast, as a property and casualty insurer, Hanover has a lot of money that it simply has to invest somewhere. As of the end of 2009, its investment assets stood at $5.2 billion. While 92 percent of those funds were in fixed maturity assets, Hanover spokesman Mike Buckley said $350 million were invested in commercial real estate.
Opus also manages funds for smaller insurers, mutual funds and benefit plans, bringing its total assets to $6.5 billion.
Besides having the money, local boosters like Kennedy and Forsberg said, Hanover has good reason to help the city, if only to improve its chances of recruiting and retaining good employees. And any investment in downtown would no doubt help Hanover's other big investment in the city, the Hanover Theatre, which is just a stone's through away from CitySquare.
âIt's an investment for them,â Kennedy said, âBut within the Hanover organization there are people who recognize that they've got a vested interest in the success of the city.â
Call It A Bargain
Sidney Spiegel, vice president of the commercial division at NE Moves Mortgage LLC in Waltham, said he hasn't been following the CitySquare saga closely, but he hasn't heard of many cases where an insurance company takes a direct role in property development. Still, he said, it could be a good investment for Hanover.
âI would assume they're buying it, probably, because it's a good deal,â he said. âBerkeley probably just wanted to get rid of the thing at this point.â
Spiegel said a typical scenario for an investor buying into this sort of project at such a low point in the real estate market would be for them to hold onto it for a couple of years and wait for the economy to turn around.
âI've got lots of clients that are buying real estate,â he said. âThey call it land banking.â
O'Brien said he's fully confident that, once Opus officially buys the property, the first parts of the project will start moving right away. He said demolishing the mall and constructing the Unum building before the real estate market heats back up will allow the parties to take advantage of the current lower construction costs.
âThis is the right time and right place, and makes all the sense in the world,â he said.
O'Brien said getting those pieces of the project going will set the stage for more aggressive development when real estate rebounds. He also said Hanover's involvement in CitySquare may allow some parts of the development, like the much-anticipated extension of Front Street to Washington Square, to move forward more quickly.
Michael Barry, a spokesman for the Insurance Information Institute, an industry-funded nonprofit, said it's not unusual for property and casualty insurers to invest in real estate as a small part of their portfolios, and even to take a direct role in a development.
âUSAA (which insures military families) owned, for instance, a resort just outside of San Antonio,â Barry said. âSo it's not unheard of for property casualty insurers to own real estate.â
Forsberg said Hanover's role in the renovation of the Hanover Theatre demonstrated its ability to take a hands-on role in local projects.
âThere's a lot of real estate expertise in Hanover,â he said. âIt's a huge set of companies. I don't know all of the detail about how they're going to handle this, but certainly they have a great deal of expertise on the financial side, a great deal of expertise on the real estate side.â
Forsberg said he expects the company would hire an outside firm to actually develop the property.
Charles F. Monahan Jr., president of the Massachusetts College of Pharmacy and Health Sciences, agreed that Hanover can get the job done.
âI think the fact that Hanover's taken over the project, it's going to get done because of their past record and what they've done for the City of Worcester,â he said.
To O'Brien, the fact that Hanover is even interested in the project is a vindication of the city's promise.
âThese are skilled and knowledgeable individuals that know and understand the investment world,â he said. âIt says that Worcester's a safe bet.â n
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