Fifteen years on

By christina p. o’neill

There’s a study called the "Mindset List" published every year by Beloit College in Wisconsin. The study illustrates to faculty what incoming freshmen are likely to know - or not. And what they know from their purview is eons different from what most of our readers know, with the possible exception of some of our younger Forty under 40 winners.

Lets take the Mindset List to the local scene: Over the last 15 years, Worcester has always had major development projects proposed for downtown. But the city has seemingly never effectively marketed itself to the outside world.

The region’s largest industry in terms of employees has always been health care; it’s never been computers or manufacturing. Allmerica Financial has always been a publicly-traded company - it’s never been mutually-held. Housing prices have always seemed to be rising: they’ve never experienced any periods of retreat. There has always been commuter rail service between Boston and Worcester, but according to our leaders, the level of service is never enough. And, of course, car magnate David "Duddie" Massad has always owned Commerce Bank & Trust Co.

Well, life in the rearview mirror can sure be interesting - as can the road that lies ahead. That’s why in the following 15 examples of the region’s history, and in the freewheeling industry forecasts shared with us by the heads of dynamic, on-the-move companies, we look forward, as well as back, and ponder the role we have played in shaping what will now be our future.

Christina P. O’Neill

Acting Editor

Worcester Business Journal

Our favorite bird is

the crane: downtown

development

After 15 years of proposals and studies, Worcester now has more than $1 billion worth of development projects on the boards or in the works. The top questions now are how to get the infrastructure to fit together, and whether the new development will bring economic life to the same spots where previous development has failed.

In our inaugural issue in 1990, the Galleria at Worcester Center, built in 1971, was the focal point as we wondered, "Is it as bad as it looks?" The mall hadn’t undergone any significant update as malls in surrounding towns were adding space. Its re-launch as the Worcester Common Fashion Outlets in Oct. 1994 after a $53-million makeover by property owners Cigna Investments Inc. failed to bring a sustainable revival. By 2003, the mall stood all but vacant. In 2004, under public pressure from Worcester Mayor Timothy Murray, Cigna sold the 22-acre property to Boston-based Berkeley Investments Inc. for about $30.4 million.

Berkeley announced plans for the site that would include a $563-million, mixed use development with 650 units of housing, 255,000 square feet of new office space, 255,000 square feet of medical office space, and 407,300 square feet of retail and entertainment space. Phase One has already started with demolition slated for this fall. The entire project is to be finished by 2010.

The Worcester Centrum Centre opened in Sept. 1997. Funding for the construction of the $39.5-million, 190,000-square-foot convention center came from city and state bonds and private businesses.

In 1998, state lawmakers approved a $730-million courthouse bond bill, which included $125 million for a new Worcester County courthouse.

Worcester’s Union Station, which spent almost three decades as an abandoned structure, underwent a $39-million makeover in 1999 as an intermodal tranpsortation center. We got involved through the auspices of the Union Station Alliance, an advocacy group for the station’s preservation and reuse, of which WBJ publisher Peter Stanton was a member. Once the station was restored, finding tenants proved to be difficult due to additional buildout costs and road access problems.

In 2000, the 771,000-square-foot, $215-million Worcester Medical Center opened, after years of legal wrangling over the cost of landtakings and political wrangling over what the city should expect from the owners of the complex. This, too, became the grist for many WBJ editorials.

The Massachusetts College of Pharmacy and Health Sciences’ 2000 and 2005 renovation of two Foster Street buildings for a Worcester campus has brought much-needed life to downtown. The college bought 19 Foster St. for $350,000 in 1999 and raised $1 million in private funding to help finance the $20-million renovation.

Earlier this year, Springfield-based Monarch Enterprises broke ground for its 200-room, $25-milliom Hilton Gardens Inn on Central Street, the site of the former Central St. Fire Station.

For years, WBJ had advocated for a downtown mall design that would be more street-friendly. Local architect Peter Benoit had advocated reconnecting Front Street with Washington Square, and Mayor Murray took up the call. The MCPHS campus brings students downtown - and keeps them here, a development we also consider important for the life of downtown. Now that it looks as though some of our collective design wishes are being granted, the next challenge will be to attract the types of businesses to the city that will support the high-end condominiums and retail outlets Berkeley has planned for the space.

Ed Hilow and Christina P. O’Neill

Metrowest comes into its own

When you go to an Arc of Innovation forum at an area hotel, you notice the banners. They’re all over the walls of the room in which the forum is held. They bear the logos of the I-495 belt’s largest employers - those which either were much smaller companies in 1990 or which wouldn’t have touched the area with a bargepole back then.

But today, they’re all there. And not just in banner form – the breakfast tables are tent-carded for specific businesses - Fidelity Investments, EMC, Bose Corp., Genzyme, Putnam Investments, and more. They are part of what’s become a critical mass of decision-makers and political constituencies in a region that’s growing so fast it’s experiencing infrastructure challenges to its roads, schools, housing, and even water-treatment capabilities - all the things that are the Arc of Innovation’s bread and butter.

Since 1990, Metrowest - the region traversed by the Mass. Pike and I-495 - has grown into an economic powerhouse. But with that growth has come a strain on infrastructure and resources.

In 2000, as we reported at the time, the I-495 Technology Corridor Initiative, which had started in 1997 as an all-volunteer planning advocacy group, had reached a turning point in its history, where it had to evolve from a loosely-structured regional forum to a formally-organized entity with a full-time director. In 2002, the Initiative morphed into the 495/MetroWest Corridor Partnership Inc., comprised of the Initiative, the MetroWest Momentum program, and the existing chamber affiliation program, representing 32 communities, 2,500 chamber member businesses, and 540,000 residents in the corridor. The group’s three-year initiative includes direct lobbying for more state and federal resource allocation, expanding the tax base, attracting private investment, and advocating for affordable housing for the workforce, among other things.

In 2003, the Corridor Nine Area Chamber of Commerce dissolved its 24-year affiliation with the Worcester Regional Chamber, and instead affiliated with the 495/MetroWest Corridor Partnership. As Corridor Nine President Nancy Carlson told us in March of that year, the new affiliation gave Corridor Nine "a larger voice in a region that has more common goals and issues with us."

Christina P. O’Neill

The rise of the

life sciences

The early 1990s brought budding biotech firms - and their investors - to Worcester’s biotech park. But their journey from there would be anything but easy.

Cambridge Biotech Corp., the park’s earliest big tenant, had arrived at the end of the 1980s. They were joined by Alpha Beta Technology, EcoScience Corp., Transgenic Sciences Inc., and, later, Hybridon, which had originated in Shrewsbury in what was then called the Worcester Foundation for Experimental Biology.

But, just as in science, not everything went as planned. Alpha-Beta announced it would move to Rhode Island in 1992 because of an attractive economic development package, causing Gov. Weld’s war cry, "No more Alpha-Betas," as he launched a $600-million jobs-creation plan designed to encourage biotech companies and other industries to locate or stay in Massachusetts.

Meanwhile, the market was cooling for biotech stock offerings. When Alpha-Beta went public in October 1992, the stock traded at far less than what the company had hoped to raise from the IPO.

Transgenic Sciences Inc., which had gone public in 1989, hit the wall in mid-1993 after an acquisition spree. Its charismatic CEO James Sherblom was replaced by an outside director on TSI’s board. In 1994, Cambridge Biotech Corp. filed for bankruptcy amid a shakeup in its top ranks and an investigation into its finances. In 1999, Alpha-Beta defaulted on its loan from Rhode Island and filed for bankruptcy. In 2001, EcoScience Corp., which vaulted onto Worcester Business Journal’s Top Growth Companies list twice, filed for bankruptcy. And Dow Chemical, which had bought Alpha-Beta’s building for a specialty drug manufacturing facility, closed it down in 2004, citing weak demand.

Today’s biotech companies are smaller and more cautious. Worcester-based ECI Biotech, for example, started out in a three-decker and its president, Mitch Sanders, shows a talent for conserving money despite ECI’s status as a development-stage enterprise.

Massachusetts Governor Mitt Romney supports research on adult stem cells or those extracted from frozen embryos left over at fertility clinics. But he is opposed to cloning human embryos to extract stem cells, or "somatic cell nuclear transfer" saying that would create human life only to destroy it. In September of 2005, the Legislature overrode his veto of the state’s new embryonic stem-cell research law that encourages embryonic stem-cell research in the state, but exempts medical staff with sincerely held religious practices or beliefs from the work. The law bans reproductive human cloning, or the creation of a baby, but allows scientists to produce embryos for research.

Meanwhile, in California, voters passed Proposition 71, the "Stem Cell Initiative," which provides for $3.0 billion in funding over the next 10 years for stem cell research in the state.

That has repercussions for Advanced Cell Technology, based in Worcester’s Biotech Park. The company initially developed transgenic animals that could produce biotherapeutics for diabetes and neuro-degenerative disease, but later successfully cloned a rare species of cattle. Earlier this year, ACT, which owns or licenses more than 300 patents and patent applications, announced it intends to establish a research facility in California.

Kim Ciottone and Christina P. O’Neill

Commuter rail: it sure hasn’t been an easy ride

In early 1992, commuter rail from Worcester to Boston took a major step forward when the board of directors of the Massachusetts Bay Transportation Authority approved an environmental impact study contract for the $80-million project. By 1996, rail service had been extended from Framingham to Worcester via Ashland, Westboro and Grafton.

In the ensuing years, Worcester’s demand for additional commuter rail service continued to grow. In 2002, the Worcester and Grafton stops handled nearly 1,700 passengers daily. In 2002, the MBTA promised two Boston-to-Worcester round trips within a year to help fill the service gap between the morning and evening rush hours for workers and residents who needed to be in Boston for only part of the day.

The MBTA that same year was faced with addressing problems of breakdowns and delays. It continued working with Jacksonville, FL-based CSX Corp., owner of the rail, to upgrade the line, that same year replacing Amtrak, its commuter rail service operator, which was blamed for the failures.

By 2003, high housing prices in the Greater Boston region pushed buyers west beyond Interstate 495.

The T in 2003 added stations in Ashland, Grafton, Westboro, and Southboro, dramatically opening up west-suburban communities for people who work in Boston, but who were willing to commute longer distances in exchange for housing they could afford.

But there was one catch: How to get the commuters from suburban MBTA stops to their workplaces. That was particularly true in the Metrowest and Milford/Franklin regions, Michele Brooks, outreach and development director for the MetroWest/ I-495 Transportation Management Association told WBJ in 2003. Shuttle-bus service has been as intermittent as the state funds that have supported it, as we wrote that year.

As the workforce pushed westward, the I-495 corridor’s rapidly increasing traffic congestion was posing a challenge to retaining existing businesses, a more vital concern than attracting new ones.

In February 2004, a new $500,000 study of the Boston-Worcester commuter rail line was commissioned to look at the cost and feasibility of adding more trains. But the private ownership of the Framingham-Worcester track section by CSX Corp., say local leaders, has continued to stymie those efforts.

CSX maintains that anything above the 10 weekday round trips offered by the MBTA would be impossible without adding an entirely new track, estimated to cost as much as $30 million. Area lawmakers are hoping that the MBTA study can determine whether there is a less costly alternative. MBTA officials in 2004 told members of the Central Massachusetts Legislative Caucus that the new study will examine environmental permits, track design and land acquisition. That report is scheduled for release in this December.

Kim Ciottone

The best of times for EMC, the worst of times for DEC

We’ve been around long enough to watch what was once the region’s largest employer – Maynard-based Digital Equipment Corp. – decline and become subsumed by an acquirer, while a young, upstart data storage firm rose from obscurity and a $0.25-cent-per-share IPO in 1986 to a worldwide market leader.

In 1989, DEC was at its peak, with $13 billion in sales and 127,000 employees worldwide. But DEC was slow to respond to the growing open-systems software market and the emerging personal computer market. And whether it’s fact or urban legend that he said it, then-CEO Kenneth Olsen was quoted as saying, "There will never be a use for a computer in the home."

In 1990, DEC’s second largest development project, dubbed RA-90, was expected to be the next generation of computer disk drives, but glitches in product design delayed a timely market launch and competitors beat it to market with less expensive versions. In 1997, DEC won a patent infringement suit against Intel Corp. for designing Pentium chips with Alpha chip technology. In the settlement, DEC sold its Hudson-based semiconductor manufacturing facilities to Intel for $625 million in exchange for Intel’s manufacturing of Alpha chips for DEC. A total of 1,800 DEC employees became Intel employees. Intel has since invested hundreds of millions of dollars to expand the facility. Meanwhile, DEC continued to shrink, selling itself off business unit by business unit, eventually selling itself to Compaq Computer in 1998 for $9.6 billion.

Meanwhile, Hopkinton-based EMC Corp. has grown by leaps and bounds since 1990, and marked its 25th anniversary last year, having come a long way from its beginnings developing and selling memory upgrades to then-customer IBM Corp. EMC went public in 1986 and, throughout the 1990s, moved into international markets. And by the mid-1990s, the company found itself competing toe-to-toe with once-customer IBM for a piece of the mainframe storage market. In 2001, EMC inked a five-year, multi-billion alliance with Dell Computer.

It also hit the acquisition trail, with perhaps the most notable being the 1999 buy of another former high-flyer, Westboro-based Data General Corp., whose Clariion product line enabled EMC to target small- to mid-sized business - a complement to Symmetrix, which is geared for large companies.

Since 1998, EMC has purchased more than 30 companies, many of them computer storage software makers, thus expanding it into the software market, which as of the second quarter of 2005 accounted for 37 percent of its total revenue. In 2004, the company reported revenue of $8.2 billion and had 22,700 employees worldwide, compared with 1990 revenue of $171 million and 1,100 employees worldwide.

We’ve written plenty about EMC, and chose its then-CEO, Michael Ruettgers, as our Business Leader of the Decade in 2000. We’ve also written about the young high-tech firms that sprang from the ashes of DEC, drawing on the skill sets of the ex-employees DEC had left behind. Some are flying high, while some, especially the dot.coms, flew high and then crashed and burned. We’ve seen the high-tech scene come full cycle, from small-to-large, to large-to-small. And we can’t wait to see what’s next.

Ed Hilow

The rise, fall and rise of Allmerica

The transformation of the former State Mutual Life Assurance Company of America from a well-run but low-key mutual insurance company into a publicly traded financial services institution with a national presence, turned out to be a Faustian bargain.

In 1995, the year it demutualized and went public under the name Allmerica Financial Corp., the company ranked 348th among the Fortune 500, and was Massachusetts’ 13th largest home-based company. It employed 6,800 people, with 2,800 of them in Massachusetts, and managed more than $17 billion in assets.

The person leading the charge was John O’Brien, a Brockton native and Harvard graduate who had left a 20-year career at Fidelity Investments to run his own company. In 1995, the Worcester Business Journal chose him as one of five top business leaders in our fifth anniversary issue.

Before demutualization, the company got most of its earnings from Allmerica Property & Casualty and Citizens, both listed on the New York Stock Exchange, while the parent company was not public. Demutualization made management of the company more consistent across all division lines. By 1997, the asset-management side was bringing in the lion’s share of the revenues.

But by 2002, that wealth-building picture had been thrown into sharp reverse. Allmerica would lose $316 million that year. O’Brien resigned on Oct. 25, 2002, and the company announced a sweeping restructuring of the asset-accumulation business, which posted a $534.5 million third-quarter pre-tax operating loss, compared to a $40-million operating profit for third quarter 2001.

For excessive losses in property and casualty insurance, there’s re-insurance, which limits exposure to loss. But re-insurance products for investment-based financial products became unavailable after 1998.

Enter Frederick Eppinger, a Spencer native who joined the company Sept. 8, 2003. An insurance company veteran, he had also served with McKinsey & Co. a Boston-based financial-services consulting firm. Eppinger would trim divisions, cut jobs, and put the life business of Allmerica in runoff, which meant that the company would service existing policies but not sell any new ones. Over the next two years, the company saw its investment ratings upgraded by the big ratings agencies, and was on its way to a very good 2005 when Hurricane Katrina hit, changing the financial picture of all P&C insurers with any exposure in the Gulf Coast. Allmerica, for which Louisiana is the fifth-largest state in terms of direct premiums, was one of them. As did many of its peers, it saw its investment ratings put on watch and some of them downgraded.

The company now employs 4,300, with 2,300 of them in Massachusetts, and posted $3.1 billion in 2004 revenues.

Christina P. O’Neill

The malling of Central Massachusetts

The face of the Central Mass. retail and mall sector has changed dramatically over the past 15 years, as retail expansion gave the region’s shoppers more destinations to choose from for their shopping pleasure. Worcester county shoppers used to traveling east to the Natick Mall for high-end retail now have the Solomon Pond Mall on the Marlboro-Berlin line and the Shoppes at Blackstone Valley, a so-called "lifestyle" mall, in Millbury.

Lifestyle, or "power" center malls typically have an upscale orientation and between 150,000 and 500,000 square feet. of retail space. Another trend is the outcrop of smaller "hybrid" centers.

The 912,000-square-foot Solomon Pond Mall has built a strong following in the Worcester area drawing from as far south as Franklin and Milford, as far east as the Framingham-Sudbury area, and north from the Rte. 2 area.

On the Metrowest scene, in 1992, Chicago-based Homart Community Centers announced plans to purchase and tear down the nostalgic open-air Shoppers World in Framingham, the second oldest suburban mall in the nation, and that it planned to purchase the then 600,000-square-foot Natick Mall as well as the 760,000-square-foot Shoppers World.

After starting work on the Natick Mall, Homart razed Shoppers World, replacing it with a "power center" type strip development with major national retailers and grocery giants accounting for about 80 percent of the space.

Worcester County’s Auburn Mall underwent a $45-million revamp and addition in 2001. The update project included reconfiguring the 165,000-square-foot main Filene’s department store located in the middle of the mall, and a Filene’s home supply store replaced about half of the second floor of an 87,000-square-foot former Caldor’s store location.

The region is also home to the 311,000-square-foot Greendale Mall, with anchors Marshalls, TJ Maxx & More and Best Buy - and the long-ailing Worcester Common Outlets, with a planned $300-million redevelopment project.

Earlier this year, the Inland Real Estate Group of Cos. Inc., a Chicago-based real estate investment group, purchased part of the Lincoln Plaza Shopping Center for about $52 million from Sam Adams, who redeveloped the outdated open-air shopping center into a "power center" of large, nationally known retailers.

The new lifestyle center, The Shoppes at Blackstone Valley, located off Rte. 146 in Millbury, went on line in 2004. With more than 800,000 square feet of retail space, it’s a $60-million, open-air shopping center.

Retail experts interviewed by WBJ this year said differentiation in markets, focus and tenant mix should be enough to spell success for local Central Mass. malls despite mounting competition from newer "power" and "lifestyle" centers like The Shoppes. Chestnut Hill-based W.S. Weiner & Associates, which developed The Shoppes, said the launch of Marshall’s and Staples made a "huge difference" in the amount of customers visiting the site, changing the whole dynamic of the shopping area "to a major destination spot."

Kim Ciottone

Route 146 "Little Dig" connects Worcester, Pike

The Route 146-Massachusetts Turnpike interchange, hailed as the third largest construction project in the state behind the Big Dig, was slated for reconstruction in 1995 after decades of discussion. The ongoing project connects the Massachusetts Turnpike with routes 20 and 146, and turns the two-lane portion of Route 146 – from Route 122A in Millbury to Interstate 290 in Worcester – into a four-lane limited-access parkway. It will include a $54 million overhaul of Worcester’s Brosnihan Square, directly connecting Route 146 north to I-290 east and Route 146 South to I-290 west.

Worcester and Millbury acquired more than 70 parcels of residential and commercial property along Route 146, under the authority of the Mass. Highway Department, to make way for the wider road. Originally slated to cost around $240 million, the project, dubbed the "Little Dig, " is now estimated at around $300 million.

In 1997, two years after work had begun on the project, Worcester had not actively begun to market the 146 corridor. "No one is really marketing anything," commercial real estate broker Jane Fine told us that April. David Forsberg, then the city’s chief development officer, said the city had to give priority to accommodating businesses forced to relocate as a result of the project, to keep them in the city and to ward off further erosion of the city’s commercial tax base. "We believe the city can and should begin actively marketing the corridor now," we editorialized, "especially to Greater Boston businesses that may be looking to move or expand westward."

Commercial real estate broker Howard Katz, president of The Katz Companies, based in Worcester, saw the corridor as a blank canvas, full of potential to attract a diverse array of high-quality businesses. But, he said, the city had to realize it was competing with growing commercial hubs such as Marlboro’s Route 20-I-495 junction; Westboro’s Route 9-I-145 junction; and Devens (see next story), for which MassDevelopment had created an incentive package and was offering pad-ready parcels with one-stop permitting. At the time, we reported, the opportunity "is Worcester’s to make the most of - or to squander."

As far as a city marketing initiative, Forsberg, now president of the Worcester Business Development Corp., points out that, because so much property along the 146 corridor is privately owned, the marketing activity is likely being done through traditional channels such as commercial real estate brokers. Katz says that’s exactly what’s happening.

His company has seen increased interest and activity up and down the corridor, despite a shortage of large, pad-ready, industrial-zoned parcels. Local industries that want to stay in the city are willing to build, he says, but there’s only so much land. With the corridor now set to be completed in 2007, he says, he expects interest will increase as that date nears. "They want land that’s ready to go or a building that’s ready to go," he says of his clients. "Not what’s on the drawing board."

But, he says, the 146 Corridor is "the new [I-]495."

Ed Hilow and Christina P. O’Neill

The reuse of Devens

When the former Fort Devens was shut down as an army base on Mar. 31, 1996, nearly 2,800 civilian jobs were lost. Devens now hosts 75 businesses employing 3,600 people and generating $130 million in annual payroll thanks to an ongoing multi-million-dollar redevelopment plan. The plan also preserved 2,100 acres of open space.

About 5.2 million square feet of Deven’s total 8.5 million square feet allowed under the plan has been built or committed to by existing or incoming tenants. An additional 900 acres remains federal property operated by the U.S. Army and the National Guard.

MassDevelopment, the quasi-public development agency that took title ownership of Devens in 1996 and was appointed to redevelop the base, made a $9.5-million electrical system upgrade, resurfaced roads, and brought a new wastewater treatment plant on line.

Since 1996, MassDevelopment has invested $119 million in the project The redevelopment was initially focused on attracting larger warehouse and distribution operations but evolved to attract companies such as high-tech software developers, universities and biotech-related firms. Diversity of tenants, MassDevelopment says, is key to long-term growth and sustainability of Devens.

Businesses at Devens now range from small, two-person operations to 450-500-employee operations as well as growing companies such as American Superconductor, Bionostics and Deven’s first business tenant Xinetics Inc. Xinetics recently received a $2.5-million loan and plans to add 40 to 50 new people to its current 80-person workforce by 2008. The four largest employers at Devens are the Army Reserve, which employs 500; Gillette’s warehouse with 450 employees; and a federal Bureau of Prisons hospital with 400 employees.

MassDevelopment’s goal is to create 7,000 jobs at Devens over a 40-year period. Expedited permitting, open space, low real estate taxes, its own municipal utility services, and easy access to key labor pools have helped bring the 4,400-acre, former military base well on its way to achieving that goal.

Kim Ciottone

Blackstone Valley

fills up

The Blackstone Valley has seen a building boom, an influx of new residents from the east, the cleansing of its waterway, a new mall, and a new push for tourism. Under the auspices of the Blackstone Valley Chamber of Commerce and local business leaders, it has taken an intelligent approach to regional economic development along the Route 146 corridor (see page 15).

When we reported on the appointment of Marty Green as regional economic development director of the Blackstone Valley Chamber of Commerce in 1996, the region, comprised of the towns of Blackstone, Douglas, Grafton, Hopedale, Mendon, Millbury, Millville, Northbridge, Sutton, Upton and Uxbridge, was at the starting gate of a multi-year strategy to expand the local tax base and add new jobs to the area. It had become primarily a residential region since the loss of its textile business during the 1960s and 1970s.

The region’s advocates pointed then to the advent of MBTA commuter rail, which would pass through Grafton, freight-rail service by Providence & Worcester Railroad, as well as the improvements on Route 146. However, warned Roy Angel, then-acting director of the Massachusetts Office of Business Development’s central office in Worcester, the towns "need to plan for the next 20 years. Tools that are put in place now will drive development." At the time, many towns had outdated master plans badly in need of updating.

By 2000, towns along the corridor were upgrading their zoning, two were considering an overlay district to govern design standards along Route 146, and one was nearing completion of a new master plan.

In 2002, Vincent Osterman of Whitinsville-based propane supplier Osterman Associates warned WBJ that the region lacked sufficient infrastructure to support growth along the 146 corridor. He said the valley’s growth could bring conflict between those who came here to live and the towns’ need for business growth to help preserve the quality of life the newcomers came for.

In 2004, Marty Green left the executive director’s post at the Blackstone Valley Chamber of Commerce. In June of this year, he joined Whitinsville-based Hit Catcher as its vice president of sales and marketing.

Progress on the bikeway, meanwhile, has stalled; Rhode Island is making more progress than Massachusetts in building the path. Blackstone Valley lawmakers recently called for legislation that would order the Massachusetts Highway Dept. to build the path from Worcester to the Rhode Island state line.

Christina P. O’Neill

The de-Spagging

of Spag’s

Anthony "Spag" Borgatti founded Shrewsbury-based Spag’s Supply Co. in 1934 with a box of fireworks and $35 borrowed from his mother. The store became an impossible-to-emulate success model for local retailers, as one of the earliest and best-known volume discount retailers in New England.

Whether it was automotive parts, wall clocks, or birdseed, Spag bought it in bulk, storing it in truck trailers on the premises. In its glory years, Spag’s Supply drew in a reported 10,000 shoppers per day, some of them international. In 1982, Borgatti estimated that Spag’s had topped $60 million in annual sales. An unconfirmed report says Spag’s achieved $1 million in cash sales in a single day. The March 14-17 1990 issue of the Worcester Business Journal listed the privately held retailer as the eighth largest private company in Central Mass. with $101 million in 1990 revenues.

In 1993, the company constructed a two-story building on 1.3 acres on Harrington Avenue, which until then had been home to a basketball court and ball field. Borgatti purchased that land from the town of Shrewsbury for $270,000. But he then made an additional $450,000 donation, enabling the town to buy 19.7 acres along Maple Avenue from what is now the Worcester Foundation for Biomedical Research. Borgatti also gave the town $50,000 to relocate the Harrington Avenue ball field to Greylock Avenue.

But competition from emerging warehouse and national discount retailers, such as Atlanta, GA-based Home Depot Inc., Natick-based B.J.’s Wholesale Club Inc., and Bentonville, AR-based Wal-Mart Stores Inc., brought pressure on the business to keep pace.

At the time of Borgatti’s death in 1996, Spag’s had about $80 million in annual sales. His three daughters took over the firm, their titles determined by birth order. Carol Borgatti Cullen, the eldest, was named as president, Jean Borgatti as executive vice president and Sandra Borgatti as treasurer.

Meanwhile, competition pressed in. In 2001, Spag’s aborted its plan to replicate a store in Springfield, closing that operation due to soft sales and an inability to expand the site. The company hired an outside consultant to help reposition, or, in their words, "re-Spag" Spag’s, replacing 20-year veteran Joseph Kirby in the COO post. But in 2002, Kirby returned, and told WBJ in early August that the store wasn’t for sale, in response to questions about $4.04 million in recent property transfers at the Spag’s site.

Less than two months later, Jerry Ellis, chair and co-founder of Hingham-based surplus and salvage retailer Building 19, announced his company would purchase Spag’s entire operation from Borgatti’s three daughters for undisclosed terms, renaming it Spag’s 19 and retaining all employees, and attempting to retain Spag’s notorious style and loyal customers.

But key manufacturers, such as Montvale, NJ-based Benjamin Moore paint, severed their ties with the store after the buyout. As a result, Spag’s 19 began phasing out most of its regular merchandise and eliminated its paint and hardware departments. The store’s historic repertoire instead was replaced with the salvaged and damaged items purchased by the truckload at bankruptcy and fire insurance sales that stock regular Building 19 locations. But customer traffic eroded. In 2004, Spag’s 19 laid off 25 employees, including Borgatti’s three daughters, one of whom was a full-time manager.

Kim Ciottone

High housing costs become an economic issue

Rising housing prices in Central Massachusetts used to be the sign of a robust economy, but in the last few years they’ve come to be regarded by everyone from economists to employers as too much of a good thing.

Fueled by low interest rates which make borrowing easier, prices rose as the region’s economy came out of a 27-month recession - a stark contrast to the drop in housing values just after the 1988 recession, which lasted from Dec. 1988 to June 1991.

In the last two years, the value of an average single-family home in Mass. is up more than 32 percent, from $266,350 in 2003 to $352,853 in 2005. After the 1988 recession, that average value actually dropped 13 percent, from $175,917 in 1991 to a low of $153,133 in 1994, before leveling off, according to the Mass. Department of Revenue.

To understand what’s happened in the Mass. housing market since 1990, one has to revisit the 1980s, when an economic boom spurred enormous residential development.

For the five years (1983-1987) preceding the 1988 recession, nearly 177,000 housing units were built, compared with about 90,000 new units added in the five-year period (1995-1999) preceding the 2000 recession, according to the U.S. Census.

The majority of lenders got caught up in the frenzy, issuing construction loans to developers left and right trying to get their piece of the real estate pie, says Bonnie Heudorfer, a consultant specializing in housing, strategic planning and community development at the Center for Urban and Regional Policy at Northeastern University. But when supply exceeded demand, housing values fell and many lenders suffered financially or failed outright. They then tightened credit for construction loans, choking the supply of new housing, which has led to today’s housing crunch, adds Heudorfer.

Barry Bluestone, director of the Center for Urban and Regional Policy, says this tightening of supply is the cause of the surge in housing prices and demand today. Some estimates put current housing demand in the state at a pace 50 percent faster than supply, adds Heudorfer.

In 1990, the 30-year fixed mortgage was king, says Heudorfer. There were few mortgage products such as adjustable rates. But growing competition has pushed many out-of-state lenders to set up satellite and subsidiaries offices in the state, where they offer a wider variety of mortgage products to tap a larger demographic that might be unable to qualify under the standard 30-year fixed mortgage. Among these products are no-interest loans, 80/20 mortgages, 15-year mortgages, adjustable-rate with fixed introductory rates – all with little or no down payments.

Following the decline in housing value in the early 1990s, 1995 marked the beginning of the upward trend in home values. From 1995 to 2005, the value of a single-family house has risen from $153,571 to $352,853 - an increase of 130 percent.

From 1990 to 2002, Massachusetts lost more than 213,000 people to domestic migration within the country, but this was offset by international migration. From 2003 to 2004, it was the only state to lose population, according to the U.S. Census. Chief among the factors that made people leave is the state’s high cost of living, according to a survey conducted by the UMass Donahue Institute.

Ed Hilow

The changing face of banking

The late 1980s laid the unhappy groundwork for the early 1990s in banking. During the roaring 80s, many midsized regional banks had gone public and, flush with new capital, invested it in commercial and residential real estate faster than the regional market could absorb it. This created a glut of bank-owned real estate which would take until the mid-1990s to work its way through the region’s economic system.

Their capital eroded from loan losses, many regional banks failed, from large ones such as Bank of New England to small ones such as Home Federal. This opened the field for larger players to enter and consolidate the Central Mass. marketplace. We watched in 1992 as credit tightened and developers struggled to finance projects which five years prior would have gotten easy approval. Either the banks were in no position to take on any more risk, or they were disinclined to do so.

In 1993, car magnate David "Duddie" Massad bought Commerce Bank and Trust Co., then at $187 million in assets and in deep financial trouble. He infused $4.3 million of his own capital into it and brought it back to life. He told us in 1995 that he wanted to make it a billion-dollar bank. By 2004, it was almost there, with tangible assets of $968 million. Also that year, Flagship Bank, then with assets of $260 million, announced plans to merge with Burlington, VT-based Chittenden Trust Co. and BankNorth Group bought 13 Shawmut branches in Central and Western Mass., creating First Massachusetts Bank NA, then the largest locally based bank in Worcester.

In the following years, consolidation continued. In 1994, Worcester County Institution for Savings was acquired by Bank of Boston, after a 1990 proxy fight derailed its acquisition by Citizens. Bank of Boston and BayBank merged to create BankBoston, which then merged with Fleet Financial Corp. in 1999. At the time, we editorialized that in order to keep meaningful competition, the majority of the branches should be sold to a large bank from outside New England. That’s what happened — though not because of us — when Pennsylvania-based Sovereign Bank acquired the majority of the branches divested by Fleet.

In 2000, a group of Worcester businessmen filed an application with the state to open Commonwealth National Bank. It was the first de novo bank in the region in 13 years.

Growing use of the Internet tipped the tables even further, with competitive bidding for mortgages from financial institutions around the country available at the click of a mouse. Banking has changed because the customer base has changed. The region used to be home to many mid-sized to small manufacturers, privately owned, which were a primary source of business for smaller community banks. With the switch to a service economy, a company’s tangible assets aren’t as easy to value as manufacturing equipment once was. And in an economy in which non-bank finance giants such as GE Capital and GMAC can out-compete banks for commercial business, banks have to be proactive and creative in order to keep their customers.

Christina P. O’Neill

Nypro Inc.: We’ve got the world on a string

Clinton-based contract manufacturer Nypro Inc. started out with its fortune hanging on a string. But it wasn’t just any string. It was the nylon plastic fastener that retailers use to affix price tags to clothing and other products. And we all know how tough those things can be.

That thin nylon string launched Nypro on a decades-long voyage from a single-operation plastics molder in Clinton in the 1950s with annual revenues of around $600,000 into a global enterprise that integrates product design, mold making, painting, assembly, filling, packaging and distribution.

The company’s plants now make an overwhelming array of plastic parts for the electronic health-care industries and electronic manufacturing service, as well as consumer goods that we use every day, from cell phones to sporting goods.

The mastermind behind this expansion was Gordon Lankton, whom we cited as our Business Leader of the Year in 2001. In 1962, Lankton bought a 50-percent ownership stake in the company, which was then known as Nylon Products. Four years later, he established an employee stock-ownership program and, in 1998, he sold his ownership to employees, making Nypro one of the largest employee-owned companies in the region and the 18th largest in the country. This year it extended stock ownership rights to its non-U.S. employees.

In 1990, just before the breakup of the Soviet Union and the rapid decline of the ruble, Nypro ventured into Russia as waves of other Western companies were leaving, and established Nypro Moscow. "I do it for idealistic reasons," then-CEO Gordon Lankton told WBJ in a 2001 interview. "Somebody’s got to help those people. ... In a very small way, I’m hoping that we’re setting some type of example on how they can get out of the mess that they’re in."

The Russian strategy wasn’t the only counterintuitive move Nypro made successfully. While other plastics manufacturers were feeling the effects of competition from China, Nypro’s China plants had become its profit engine by 2001.

In 1998, the company launched Nypro Online, a virtual extension of Nypro Institute, the company’s corporate university, founded in 1978.

In 2001, Lankton retired, turning over the presidency to Brian Jones, who had been with the company since 1987, first as its vice president of quality, then its Clinton headquarters, then Nypro North America. Lankton remains as chair.

Since Jones became president, Nypro has established 20 new manufacturing and design facilities, growing by about one-third, according to its 2004 annual report. In 2004, its Technology Center came online at Clinton headquarters, including a new mold-building facility containing the latest in automation and robotics. The company has added enhanced services to its molding and assembly facilities around the world to furnish its customers with the proprietary know-how that it says is essential to growth.

To date, Nypro has 13,000 employees worldwide, including 1,200 locally. It celebrates its 50th anniversary this December.

Ed Hilow

Fasten your seatbelts, it’s going to be a bumpy ride

When the new $15-million terminal for Worcester Airport opened in May 1993, things didn’t look too good. Two months previously, in March, the FAA downgraded the airport’s tower from a level 2 to a level 1, indicating declining traffic. The Florida Shuttle’s daily no-frills flights between Worcester and West Palm Beach were on-again, off-again. Service for business passengers was dealt a blow when both Continental and USAir suspended jet service, while keeping turboprop flights. At the time, our editorial noted a lack of marketing of the facility at a time when Bradley International in Windsor, CT had billboards up all around the Greater Worcester region pitching that airport. "Imagine building a $14-million manufacturing facility and then not hiring a sales and marketing staff to create customers," we fretted. "That’s what has happened at Worcester Airport."

Since 1990, $50 million has been invested in the airport which, in the 1980s, had hosted six carriers and more than 350,000 passengers annually. But the airport started to lose carriers and, by the mid-1990s, was served by only one commercial airline, Continental Express. Revenue from general aviation; corporate, small and large aircraft charters; private and training flights; and one commercial air service weren’t enough to keep it in out of the red. With more than $1 million in subsidies needed from the city annually, it raised the question of whether the city wanted to remain in the airport business at all.

In 1995, the Massachusetts Port Authority signed an 18-month agreement to help get the airport off the ground by committing more than $250,000 to fund technical assistance. Massport’s plan was to market the Worcester Regional Airport outside the city to draw in passengers from all around New England as an alternative to Logan International Airport.

In its first step towards that goal, Massport brought in USAirways Express, which started air service to New York and Philadephia. Continental Express also committed to keeping its air service and even added another round-trip flight to Newark, NJ. But within two years Continental stopped the service, which was losing money. In 1999, Massport signed a formal five-year agreement with the city to manage and operate the airport and, in 2000, it brought in three additional airlines. While passenger counts had been on a steady decline through the 1990s, in 2000 they more than doubled to 106,000 from 49,000 in 1999. The trend continued into 2001 - strong signs that the airport was making a turnaround.

Sept. 11, 2001 changed all that. Air ridership plunged and some airlines had to cutback on workforce and scheduled flights to keep from going bankrupt. In 2001, ASA-Delta Connection slashed its Worcester-to-Atlanta service due to a sharp drop in ridership. Massport, which had about $450,000 in 2001 airport operating losses, was forced to make cutbacks. In 2002, American Eagle, Delta and USAirways reduced the number of flights from the airport, while Pan American Airways stopped its service altogether. Later that same year, all but USAirways discontinued service, citing unprofitability. Within a year, USAirways followed suit and ended service in March 2003, eliminating all commercial air service from the airport.

A separate but related battle has emerged between the city and the Massachusetts Highway Department over an airport access road. A $1-million study done by Mass Highway had identified 27 potential access roads and assessed their potential impacts. But residents and businesses along the proposed routes objected and Mass. Highway dropped the project.

In late 2004, Philip Niddrie, the city’s former chief development officer, was appointed as airport liaison, and, over the course of the year, hired a Bethesda, MD-based consulting firm, Infrastructure Management Group Inc., to develop a revival plan for the airport. The study, funded with a $400,000 grant from the Federal Aviation Administration, was due out in July but at press time has yet to be released. Over the course of 2004, city officials met with six carriers. In late September, a five-year deal was struck between Las Vegas-based Allegiant Air LLC, the city and Massport. Allegiant will operate four weekly non-stop flights to Florida’s Orlando Sanford International Airport starting in December. Allegiant, which is trying to bolster its presence in the Northeast, will also begin service in late October to Orlando from Pease International Airport in Portsmouth, NH, and Stewart International Airport in New Windsor, NY. At present, Massport pays 87 percent of the airport’s $2-million annual operating deficit.

Ed Hilow