CitySquare Landed The Big One, But Now What?
Photo/Livia Gershon
Flanked by Lt. Gov. Timothy Murray (left) and City Manager Michael O'Brien, Young Park, president of Berkeley Investments, discusses Unum's plans for CitySquare at an April 1 press conference.
Early this month, when developer Berkeley Investments Inc. and Unum Group formally announced plans to move the long-awaited CitySquare project forward, the public and private leaders involved hailed the development as a spot of bright news amid the general economic gloom.
Finding Financing
But CitySquare remains far from immune to current economic pressures.
“There’s no doubt that financing any kind of development is difficult now,” said Berkeley President Young K. Park. “This is not a speculative development, so it’s not as challenging, but it is not by any stretch a walk in the park.”
Park said his company is in discussions with several financial institutions about financing the first chunk of the project, the construction of the 194,000-square-foot “Building H” that Unum would occupy and the renovation of a parking garage. He said they like the idea of having Unum, an established company with good credit and a dominant market position, as a tenant.
Joseph Hegenbart, senior vice president at real estate investment company NorthMarq Capital LLC in Waltham, said financing for the project would have been a slam dunk in 2006.
“If you had a project with a tenant so there was really no marketing risk associated with it — if you were talking 18 months ago — there would be a high likelihood that the deal would be financed,” he said. “In fact you could say that with Unum there it would be a certainty.”
Today, though, Hegenbart said, banks just don’t have much money to lend, even to demonstrably solid projects. And if they do agree to a financing deal their underwriting standards are higher, he said. Where they once asked developers to cough up a quarter of a project’s cost in cash, that’s now up to 50 or even 75 percent.
Sid Spiegel, vice president of the commercial division at NE Moves Market LLC in Waltham, had a more optimistic take on the situation.
“Berkeley has a good reputation,” he said. “Unum is a good tenant… I would think a lender’s not going to have a big problem with that deal.”
Spiegel agreed with Hegenbart that lenders want developers to put more money into deals these days, but he said he doubts the financing will hit a dead end.
“I’ve got to think Berkeley’s not stupid,” he said. “They know what they’re doing. And neither is Unum going to move forward on a deal if they don’t think they’re going to have something they can move into.”
Park said he’s feeling positive about potential lenders’ interest in CitySquare, but there’s still an open question about whether the terms of a deal would be “attractive enough.”
“That’s what we’re working on,” he said.
Park declined to say how much money he needs for the project’s first phase. Building H represents 10 to 15 percent of the square footage involved in the $565 million project.
For now, Park said he isn’t actively working on financing the remainder of the project. That will have to wait until other tenants are signed on.
When it does happen, Hegenbart said, it could be an even more difficult process since multi-tenanted office space and, particularly, retail are considered high risk these days.
“It’s expected that we’re going to see a lot of defaults on loans to retailers,” he said.
Those kinds of concerns could even effect the first phase, Hegenbart said, if lenders think its success depends on the viability of the project as a whole.
“The lenders are going to say I don’t think that can get done, and that needs to get done to make this a success,” he said.
Still, the official signing of a lease for Building H, which Park said should happen in June, will set at least some things in motion. A state allocation of $25 million and a $1.75 million federal grant will become available for the demolition of the old mall, the new building construction and street improvements in the area. And Park said some potential new tenants are also likely to come forward.
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