Real estate forum: Developers see promise, hurdles in Central Mass. growth

Central Massachusetts has built substantial development momentum, but the cost and complexity of producing housing, modern commercial space and job-ready industrial sites adds challenges to the next phase of economic growth, according to local real estate experts. “Developers and investors have to make a return on their investment,” Craig Blais, president and CEO of Worcester Business Development Corp., said at the Worcester Business Journal’s Real Estate Forum on Tuesday. “We have to continue to focus on costs, and we have to eliminate as many hurdles as possible — whether that be through permitting, the cost of electricity or taxes — to even out the playing field so that we stay focused on that return.” Blais was one of nine panelists from across the real estate landscape who spoke at the event, held Tuesday at The College of the Holy Cross’ Hogan Center in Worcester. Topics included affordable housing, the availability of public financing and tax credits, and how economic development in the city arrived where it is today. Unlocking financial support One major topic of discussion was both the importance that subsidies play in completing projects, particularly those involving affordable housing and adaptive reuse of properties, coupled with the difficulty developers face in assembling capital stacks from a wide variety of sources.  Speaking on a panel on unlocking housing affordability and development, Ryan Chamberlain, vice president at Boston-based Synergy, discussed the challenges the company overcame in funding its adaptive reuse of the former Fallon Health headquarters in Downtown Worcester.  The project involves 198 market-rate apartments in the former office tower and 22 affordable condominiums in an adjacent building. “There’s probably seven different funding sources there to build your capital stack,” Chamberlain said. “None of the programs really speak to each other. … We’d have 30-plus people on closing calls to bring everybody together to close on this.” While the project wouldn’t be feasible without subsidies, Chamberlain suggested better communication between government agencies and a streamlined application process that would allow access to multiple funding sources. Speaking during an earlier panel on major developments in Central Massachusetts, Blais echoed similar sentiments. “We have too many things that are in too many buckets,” he said. “There are all these programs, and if you could figure out a capital stack in affordable housing, good luck to you, because it’s extremely difficult. The developer has to hire a team of consultants to figure all that out, and that all takes time. It takes money, and then eventually the affordable housing doesn’t get built.” Despite the difficulties in wrangling all the different sources of funding, Synergy’s vision for Altitude Worcester and its use of the state’s new Commercial Conversion Tax Credit Initiative has owners of Boston’s massive business towers looking west for guidance, said Joshua Lee Smith, partner at Worcester-based Bowditch & Dewey. “Boston, I think they look to Worcester,” he said. “They look to the Synergy project in that first [commercial conversion tax credit] program. Now, there are a number of Boston-based projects that are office-to-residential conversions that are happening.” Pros and cons of Worcester Panelists said Worcester's value proposition includes a skilled workforce, colleges and universities, improving housing options, and lower costs than Greater Boston. At the same time, they warned that construction, taxes, energy, and other operating costs can negate that advantage, particularly for manufacturers and developers deciding whether an investment will generate an adequate return. Polar Beverages President and CEO Ralph Crowley used his business to illustrate both sides of that equation. He described Worcester's workforce, highway access and favorable outbound freight economics as strengths, while saying energy and tax costs are substantially higher than at the company's operations elsewhere. He also said the company needs modern industrial space that is difficult to find locally. “What’s fascinating about Worcester is there aren’t very many manufacturers,” Crowley said. “So when we produce something here, trucks are coming in to deliver to BJ’s Wholesale or Stop & Shop, and they’re looking for anything to bring back to where they came from. So we get great freight rates out of Worcester. … We’ve got [Interstates] 290, 495, the Mass Pike — readily convenient — but it is very expensive to be here.” Crowley said Worcester provided the best workforce of any of Polar’s sites across the country, but that quality workforce came at a high cost, including higher property taxes than found elsewhere. Boosting the public housing stock During the housing panel, Worcester Housing Authority CEO Alex Corrales and Trinity Financial Principal Patrick Lee offered insights on how the two entities have worked together to revamp the city’s public housing stock. Worcester Housing Authority’s current redevelopment work is focused on two aging family-housing complexes being renovated and supplemented: the 527-unit Phoenix at Curtis and the 350-unit Lakeside Apartments. Both are newly constructed buildings replacing older apartments, resulting in a net gain of more than 300 units.  Together, the multiyear projects would replace outdated public housing, add hundreds of affordable apartments, increase accessibility, and introduce new homeownership opportunities. The added apartments come as WHA is facing overwhelming demand. Corrales said the waiting period was 12 years for a Section 8 voucher and at least a decade for public housing. “The folks that I’m serving, they don’t have 12 years,” Corrales said. “They don’t come to the housing authority going, ‘Hey, I got 12 years to wait. Can I get on your list?’ They want it. They need it today.” He credited Trinity for its role in bringing together financing. “You have to go find 14 funding sources,” Corrales said. “It’s so complex, and that’s why you need partners like Trinity.” Lee said the cooperation between public and private leaders for the projects stood out to him. “Making available public and private resources was a key part of it,” he said. “When this community puts its shoulder behind a project, you’ve got real wins and actually faster [results]. That means the city manager, the mayor, the council, the business community, and nonprofit leaders all got behind that project and said, ‘This is something that we want.’” Eric Casey is the managing editor at Worcester Business Journal, and primarily covers the real estate and banking & finance industries.