May 22, 2017

CT's 'bridge bank' finds its stride redeveloping downtown Hartford

PHOTO | Steve Laschever
PHOTO | Steve Laschever
Capital Region Development Authority Executive Director Michael Freimuth stands atop the apartments at 777 Main St. in Hartford, which proved to be one of the most complicated projects he's helped finance.
PHOTO | Steve Laschever
Suzanne Hopgood, serving a second term as chair of the Capital Region Development Authority, credits leadership for its success.

For years, the 26-story former Bank of America building at 777 Main St. stood as an empty symbol of downtown Hartford's malaise as a hub for employment and urban living.

Today, the skyscraper has been transformed with $85 million in private and public capital into 285 nearly full high-rise living spaces, with a bustling coffee shop and a food market occupying its streetfront commercial spaces. Soon, drugstore chain CVS will relocate its downtown store from across the street, to 777 Main.

Bruce Becker, the New Haven architect-developer who transformed 777 Main from office space to housing, says the building symbolizes something much more positive for Hartford.

"It shows that if something is worth doing in Hartford, it can get done,'' Becker said.

As one of the most complicated office-to-housing conversions ever in this state, it also stands, Becker and others say, as a monument to the deal-making ability and tenacity of the staff at the Capital Region Development Authority (CRDA), the quasi-public state agency whose roots date to 1998 to spark revitalization of Hartford first, followed by the region.

CRDA has had measurable success in its core mission of presiding over the creation of some 3,000 downtown living units — it's halfway there. But its ever-growing plate has been filled with many more responsibilities, some say too many.

In addition to housing, it manages the state's money-losing Hartford area entertainment/convention venues; oversees 16,600 garage and outdoor parking spaces, plus a central utility plant housed inside the convention center to heat and cool not just that huge building but most of Adriaen's Landing, including the Marriott Hotel and the Connecticut Science Center; oversees the state's investment in the New Haven Connecticut Open tennis tournament; and coordinated and oversaw the rehabilitation of a pair of Hartford office towers the state acquired to relocate several state agencies — 450 Columbus Blvd. and 55 Farmington Ave.

All of that not only adds to the complexity and responsibilities for fulfilling its mission, observers say, but has exposed CRDA to public criticism over plans for a $250 million makeover of the XL Center.

"The workload grows exponentially,'' said Michael W. Freimuth, a former Stamford economic-development director who has been CRDA's first executive director since 2012. "The tasks and responsibilities grow just about every year."

Seeded with two separate $60 million capital infusions, CRDA since its inception has leveraged that money into $373 million in assets on its books against liabilities totaling $149.7 million, according to its fiscal 2016 annual report. Both are up from a year earlier.

Freimuth has a staff of 11 who handle everything from underwriting and vetting redevelopment projects, to ensuring vendors are paid and the lights stay on at the Convention, XL and tennis centers and The Rent.

But CRDA's primary focus and function, he said, is serving as a "bridge lender'' to developers' commercial projects that, over time, are intended to pull more "feet'' into downtown to live or work.

Also, by repurposing the city's inventory of underused, blighted commercial buildings, CRDA and its supporters want to lift downtown real-estate values, enhancing not only investors' portfolios but also the city's ability to leverage those higher values into more tax revenue.

The city and CRDA got good news in January, when Hartford's 2016 grand list showed a 10 percent gain in value.

Complex deals

Of the dozen Hartford housing deals CRDA co-funded, some were among the most complicated Freimuth says he's ever been involved in. Not only is bank financing and investors' equity included, but some required a patchwork-quilt of funding from state and federal historic-building and affordable-housing tax credits. Others required state funding to remediate toxic chemicals/materials from buildings and grounds.

Hartford's exorbitant commercial property tax rate — 74.29 mills — along with high construction and other costs make it difficult for developers to finance city developments using only private funds, which is where CRDA steps in as a "gap financier,'' Freimuth said.

"We're the delta between what it costs to build the product and what it's worth," he said. "We'll be successful when that delta disappears.''

The Capitol Lofts, a $36 million conversion of the former Hartford Office Supply building at Capitol Avenue and Flower Street into 112 apartments, required eight funding sources — banks, tax-credit issuers and CRDA's co-investment — to get done.

At the April 26 grand opening, Freimuth quipped to the assembled crowd, including Hartford Mayor Luke Bronin, who also sits on CRDA's board, that Capitol Lofts was the result of "three years of arguing and one year of building.''

Complexity hasn't stopped CRDA from pursuing new deals, nor has it slowed developer-borrowers' repayment on existing ones, he said.

One of CRDA's early office-to-apartment conversions, The Spectra Boutique apartments in the former Sonesta Hotel site in Constitution Plaza, has fully repaid its $2.05 million loan from the agency, Freimuth said. Landlord for The Grand On Ann apartments, 209 Ann Uccello St., has repaid a portion of that project's $4.5 million CRDA debt. CRDA uses collections to fund more redevelopment.

Spectra's landlord is close to acquiring a pair of derelict downtown buildings, 101-111 Pearl St., that Freimuth says would be redeveloped into 258 apartments. The State Bond Commission on May 11 approved $15.5 million in funding to CRDA for the conversions.

CRDA Chair Suzanne Hopgood said the agency's staff and its 12-member board, seated with municipal and corporate/academic leaders, plus the heads of four key state agencies — all deserve credit for focusing on CRDA's mission and finding ways to close on the hardest, most complicated deals.

Hopgood, a business consultant who at one time oversaw a multibillion-dollar real estate portfolio at Aetna, says Freimuth is the best dealmaker she's ever seen.

"He knows what the numbers are,'' she said. "He knows the dynamics of each deal."

Bronin is one of two municipal appointees on CRDA's board. East Hartford Mayor Marcia Leclerc is the other.

"CRDA's investments and expertise have been the most important public contributions to Hartford's downtown revival in decades,'' Bronin said. "CRDA's success has played a huge role in attracting new investment to the city, and without CRDA I don't think we would have seen UConn move downtown or the Goodwin Hotel reopen."

Leclerc says her town east of the Connecticut River looks forward to the agency underwriting and spurring development there, especially along its historic Silver Lane commercial corridor that has seen better days. Pratt & Whitney's multimillion-dollar headquarters expansion is underway, while plans are shaping up for an outlet shopping mall adjacent to The Rent.

But for CRDA's efforts, Leclerc said, "Hartford would not be as far along" in its redevelopment as it is.

CRDA's mandate to develop the Hartford region includes that it assist any one of the city's contiguous towns with economic development — but only if they ask for it. So far, East Hartford, Newington and Wethersfield have done so.

Entertainment overseer

Senate Republican Pro Tem Len Fasano (R-North Haven) says few argue that CRDA has a vital hand in Hartford's economic/cultural redevelopment. But overseeing XL Center, The Rent, convention center and New Haven's tennis center is burdensome for the agency and too costly for the state, he said.

Fasano said he'd like the state to cede some of its entertainment operations — and the millions in annual operating subsidies that go with them — to private hands and he's been one of the loudest voices opposing a CRDA-backed plan to spend $250 million in taxpayer funds to completely renovate the XL Center.

He also noted that, as state assets, the quartet yield no direct tax collections to their host cities, beyond levies on visitors' food and beverage purchases and hotel rooms. The state offsets some of that tax-revenue loss with annual "payments in lieu of taxes,'' or PILOT. However, the state's mounting fiscal woes have clouded its ability to sustain those payments.

On top of $600,000 a year the state pays CRDA to operate the XL Center, the state also plugs all annual operating deficits the 38-year-old facility incurs, Fasano said.

"We can't afford it anymore,'' he said.

In the year ended last June 30, overhead for all four buildings, plus costs tied to Hartford's aging Church Street parking garage, contributed to CRDA's $5.6 million operating loss.

Just recently, CRDA began soliciting potential private partners/investors willing to cover part of the renovation costs for XL and other properties.

Freimuth says the idea of private financing for the XL is worth "exploring.''

Meantime, the legislature's Finance, Revenue and Bonding committee has approved spending a scaled-back $75 million over two years on the XL, but it's not clear if that will have broader support in the full General Assembly.

See Related Story: CRDA's roots go back decades

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