For big Hartford developer, challenges – and opportunities – abound

Brooklyn-based real estate company Shelbourne Global entered the Hartford market a decade ago, purchasing the iconic “Stilts Building” office tower at 20 Church St. for $44 million. 

Soon, Shelbourne added the bright blue glass tower at 100 Pearl St. to its portfolio of office property for $37 million. The chevron-striped tower at 350 Church St., known as Metro Center, followed in 2017 for $49 million. Shelbourne and LAZ Investments purchased the Gold Building, another gem of the office market at Pearl Street and Main Street, in 2019 for $70 million.

With its presence firmly established on the commercial side, the company started to branch out. By the end of 2019, Shelbourne’s downtown Hartford holdings included multiple residential and retail properties on Pratt Street and two parking lots the company planned to develop into multi-use structures.

“Our initial focus had been solely on office buildings,” Michael Seidenfeld, Shelbourne’s chief operating officer, said. “The more we got familiar with the Hartford market … what we realized very clearly is that this can’t work in a silo.”

Residential and corporate tenants support retail businesses, and a thriving retail district can attract even more companies and residents, thus reinforcing a cycle of economic development, Seidenfeld explained. He called it “a live-work-play concept.”

It was a different approach than what the company had deployed in other cities, and Shelbourne’s footprint in Hartford has grown quickly and more deeply than in other markets. 

Even as the COVID-19 pandemic shuttered corporate offices in Hartford — and downtown districts across the country — Shelbourne continued its buying spree. 

Since 2020, the company has acquired an interest in the Millennium, a former hotel, at 50 Morgan St.; the former Fuller Brush factory, which Shelbourne is converting into apartments; and even more retail, residential and office property on Main, Trumbull and Pratt Streets.

Central to the company’s strategy is Pratt Street, a block-long, pedestrian-only district in the heart of downtown. Shelbourne now owns nearly a dozen addresses on Pratt Street and adjacent blocks.

“We always believed that if we can bring to bear the entire block, it would only reinforce and enable us to really leverage the entire block to our vision,” Seidenfeld said.

Residents and leaders in Hartford, and Connecticut more broadly, have a lot riding on Pratt Street’s success, too. 

The city has directed millions of dollars in federal American Rescue Plan Act funding to offer grants to commercial landlords and small businesses for interior and exterior renovations. Nearly two dozen of the grant recipients are located on Pratt Street or within a block of it. 

The University of Connecticut is finalizing a 20-year $60 million lease for a property on Pratt Street, which Shelbourne and its partners have committed to refurbishing into student housing for the university’s Hartford campus. 

And the Capital Region Development Authority, a quasi-public agency funded through state bonding, has agreed to lend the property owners $10 million to help with renovation costs. CRDA has also provided financing to Shelbourne developments at 99 Pratt St. and the Fuller Brush factory, and Shelbourne recently approached CRDA for help with an office-to-residential conversion at 150 Trumbull.

Executive Director Michael Freimuth explained that CRDA supports projects in the capital city with an eye to “sustaining, protecting and improving” the value of the state’s substantial holdings there — from the Capitol grounds to office buildings, parks and public spaces, convention facilities, garages and so on.

If all goes well, the city stands to benefit, too. As property values rise, Hartford could see millions more in annual tax revenue.

“The city and state, obviously, have tremendous interests and concerns,” Shelbourne’s Seidenfeld said. “They don’t want anyone to fail. … This is across the board. Hartford is too small to allow any one hole in the boat.”

Unchartered waters

In the past four years, America’s downtowns have undergone an existential shift. Pandemic shutdowns swelled the ranks of remote and hybrid workers, and even as COVID came under control, many of those employment arrangements stuck.

Companies with office space in central business districts have downsized or allowed leases to run out, leaving vast swaths of commercial real estate vacant — and office landlords high and dry. City governments, which have long relied on their corporate tax base, are scrambling to identify new sources of revenue.

Discussions over converting downtown office properties into housing have become common. But it’s an expensive proposition. Most office towers would require extensive additional plumbing, bored through concrete slab floors on every level. And housing units require windows, making it difficult to repurpose much of the interior space that may currently house conference rooms or clusters of cubicles. 

Developers exploring such conversions are seeking substantial public contributions to take on the projects.

Hartford is among the cities considering these projects, for good reason. Before COVID, according to research by the Brookings Institute, the Hartford metro area recorded the highest differential between its daytime and nighttime population — meaning commuters filled its streets and frequented its businesses from 9 to 5, but things died down significantly after hours.

Shelbourne’s outsized stake in Hartford, diversified beyond its initial commercial investments, is a testament to its vision of the city as more than a commuter destination. City and state leaders want the same thing. 

But there could be risk in tying the fortunes of Connecticut’s capital city too closely to one developer. There could also be great rewards.

In downtown Detroit and Chattanooga, and in neighborhoods like Seattle’s South Lake Union and Cincinnati’s Over-the-Rhine, redevelopment efforts were catalyzed by a leading investor, corporation or philanthropic institution, Brookings researchers explained in a 2018 report. In these cases, the lead entity acquired multiple parcels of land in close proximity to each other with the intent to “reshape the area and help spur additional growth” over a longer term.

If done right, researchers Christopher Leinberger and Tracy Hadden Loh wrote, this strategy has “the potential to create socially equitable, environmentally sustainable, and healthier places to live and work.”

CRDA’s Freimuth said, “It’s certainly been a pattern in Hartford, where a developer seems to get a lot of real estate and build a portfolio.” In recent years, he conceded, Shelbourne’s investments have been growing. “I wouldn’t say they’re the majority but they’ve obviously got quite a bit of property,” Freimuth said.

The model can stall, Brookings researchers wrote, if the developer can’t meet its financial obligations and fails to build trust with local leaders. And the approach can produce new problems by “concentrat[ing] power in the hands of a relatively small group of actors, creating the potential for a lack of accountability and public backlash,” the researchers found.

Balancing on ‘Stilts’

In the last two years, several lenders have brought foreclosure actions against Shelbourne. The company is currently involved in litigation over two of its office towers, Metro Center and the Stilts building, as well as a row of mixed-use buildings along the south side of Pratt Street.

Earlier this year, Shelbourne’s lender on the Millennium property sued, alleging the company was in default on a $27 million mortgage. Seidenfeld said the original lender has since sold the loan and Shelbourne is in good standing with the new lender.

Late last month, the Stilts building went into receivership, meaning day-to-day operations will be handled by an outside entity while litigation continues between Shelbourne and the bank, Wells Fargo. Shelbourne’s lender for the Pratt Street buildings, a family trust that sold the property to Shelbourne in 2019, is also seeking receivership in its case.

Shelbourne is also engaged in multiple tax disputes with the city of Hartford, arguing that the city overvalued its properties when calculating its tax obligation in 2021. The court recently found in Shelbourne’s favor in the Stilts building case, saving the company more than 50%.

A spokesman for the city of Hartford declined to comment on the litigation.

(Shelbourne previously sued the city over its 2016 valuations and reached a settlement the following year that reduced several assessments and brought down Shelbourne’s property tax liability by millions of dollars a year. At the time, Shelbourne managing member Ben Schlossberg told reporters that, without the reduction, “Our buildings would have gone into foreclosure and, we dare say, the city would have been recertified as a bad place to invest in properties.”)

Seidenfeld attributed much of the company’s current financial woes to the post-COVID economy. Office towers everywhere are facing weak demand. Shelbourne’s office properties are currently 40% vacant.

At the same time, interest rates are elevated, making it more expensive to borrow money. And inflation has driven up construction costs for retail renovations and residential conversions, as well as the operational costs of running a building.

“The challenges we’re facing now are more challenging, are more steep, than we’ve ever seen,” Seidenfeld said. “It’s not your typical up-and-down, if you will.” 

But he noted that Shelbourne still has its sights set on the long-term. “We’re not afraid of hard work and some short-term pain, and we’re not yet ready to walk away from any of that.”

That pain extends to Shelbourne’s creditors.

One of them, the family trust of Samuel Cohen — longtime Pratt Street landlords who sold three buildings to Shelbourne in 2019 — expressed frustration with what they see as delays the company has deployed during foreclosure proceedings.

The Cohens sold their Pratt Street properties to Shelbourne for $4.8 million; Shelbourne paid $1.2 million and borrowed the remaining balance of $3.6 million from the Cohens. The properties were the collateral for that loan. But Shelbourne didn’t pay off the balance of the loan when it matured in March of last year, and the Cohens filed foreclosure to recover the properties. The case has been in court ever since.

“Unlike other actions in which Shelbourne-owned properties in Hartford are being foreclosed on by large institutions like Wells Fargo and Webster Bank, this case is different,” a lawyer for the trust, Brian Cohen, said in an emailed statement. “The Cohens are everyday people whose lives are in distress because they trusted Shelbourne, which claims to be ‘a people first real estate company,’ but actions speak louder than words; Shelbourne knows that the livelihood of the Cohens, a great, longtime Hartford family that has owned property on Pratt Street since the 1960s, is at stake, but it doesn’t care — Brooklyn-based Shelbourne put itself first and a local family last.”

Seidenfeld said Shelbourne has “made multiple fair offers” to settle the case.

CRDA’s Freimuth said he’s aware of the dispute between Shelbourne and the Cohens, but his agency isn’t involved. “My guess is that they’ll work it out,” he said. Freimuth added that today’s higher cost to renovate and operate the property “probably complicates what [Shelbourne is] willing to do to make [the lawsuit] go away.”

Lawyers for the company’s other creditors, Wells Fargo, Webster Bank and EMG Transfer Agent, didn’t respond to emails.

The dormitory deal

This spring, UConn’s Board of Trustees gave its initial approval for a plan to repurpose one of Shelbourne’s office properties into dormitory housing for 200 students on Pratt Street.

A 20-year master lease, which the parties have not yet signed, would call for UConn to pay $2.2 million annually to Shelbourne in the first year, increasing up to $3.7 million by the end of the term. The units are slated to open for students by August 2026.

UConn isn’t required to conduct a competitive bidding process — known as an RFP or request for proposals — for real estate transactions. In cases where university officials are unfamiliar with a local market, they may conduct an RFEI (request for expressions of interest); that didn’t occur for the Hartford dormitory deal.

“UConn officials reviewed information and visited multiple commercial and residential properties throughout downtown Hartford in the fall 2023. This review included the benefits and limits of the physical spaces themselves, along with the experiences that UConn has had with particular owners or developers and their position in the marketplace,” University spokeswoman Stephanie Reitz said in an emailed response to questions. 

Reitz said the property needed to meet several conditions: accommodations for between 100 and 300 students; a location close to the downtown campus and other amenities; potential for common spaces and secure entryways; and the ability to be completed and ready for students within three years. UConn short-listed six properties, visited the sites and held conversations with the developers before deciding on the Pratt Street location. 

“UConn is aware that Shelbourne faces challenges regarding some other areas in their business portfolio and that it is working through those fiscal matters,” Reitz added. “It is not unusual right now to see commercial developers such as Shelbourne experiencing financial constraints, given the sharp post-COVID increase in vacancy rates as workplace occupancy trends have changed nationwide. It is also not unusual for some of those issues to manifest in legal actions that generate publicity, but which have no bearing on their other projects.”

On the same day trustees approved the term sheet, the Capital Region Development Authority gave its approval for a $10 million loan to help support the redevelopment — a partnership between Shelbourne, Lexington Partners and LAZ Parking. CRDA doesn’t conduct an RFP as part of its lending process. The state bond commission, which funds the CRDA through bonding, signed off on the loan during its meeting June 7.

CRDA’s Freimuth said the redevelopment authority was drawn to the idea of dormitory housing after seeing the success of similar developments for UConn’s Stamford campus. There, the school leases 900 Washington Blvd., which houses 300 students. (Reitz said the school pays more per bed in Stamford than it will for the Hartford facility because Stamford’s real estate market is “much tighter.”)

“Students, institutions like universities, play intricately into the health of a downtown,” Freimuth said. CRDA aims to repurpose underutilized buildings, protect and sustain state investments and promote diversity in the downtown housing stock, he said. Student housing met all of those goals, “And the students themselves bring a level of activity that we did not have.”

Freimuth noted that CRDA isn’t involved with any of the Shelbourne properties currently in foreclosure. Regardless, he added, each deal exists on its own with individual ownership, banking, taxes, tenants and so on. 

Shelbourne’s Seidenfeld offered a similar explanation.

“Each [property] is its own business. That’s how real estate works,” he said. “It has its own set of investors. It has its own separate loans. They’re not collateralized with each other.”

Freimuth said the proposed dorm property has unpaid tax obligations to the city and the “situation” must be settled before CRDA will fund the loan. Additional due diligence, including construction plans and costs, details of the mortgage financing and UConn’s lease — which requires the Attorney General’s approval — must be finalized before CRDA moves forward. 

A spokesman for the state Office of Policy and Management said CRDA has received the allotment approved by the bond commission, and the loan will have to be repaid to the state. “CRDA is responsible for vetting projects they request from the Bond Commission and is responsible for ensuring that due diligence is done,” spokesman Chris Collibee said in an emailed statement.

Can Hartford be a ‘college town’?

City and state leaders are optimistic about the dormitory project. Alongside a fresh crop of residential developments, the recently approved $145 million renovation of the XL Center, UConn’s plans for research and classroom facilities at the XL Center, and the University of St. Joseph’s addition of student housing at Shelbourne’s Millennium (opening this month), Hartford is looking to a younger crowd to enliven its downtown spaces.

“This is an exciting time for downtown Hartford, and we’re proud of the strong relationship we have with UConn and our downtown campus,” Mayor Arunan Arulampalam said in an emailed statement. 

“Hartford is a college town, and we want students to feel at home and to take advantage of all the amenities and vibrancy our historic Pratt Street corridor has to offer. We’ll continue to work with our partners at UConn and at the state and local level to build on the success and growth of our campus,” the mayor added.

UConn’s Reitz said since opening in 2017, the university’s Hartford campus enrollment has grown 18%. This fall, nearly 600 first-year students are expected to start at UConn-Hartford.

Leaning into the “college town” image has certainly worked elsewhere. Brookings researcher Tracy Hadden Loh pointed to downtown Philadelphia as an example of a city where many older buildings have been converted to the type of housing that attracts students — convenient and affordable, while not exactly spacious or luxurious. 

“One of the things that makes converting offices into housing easier is when you can make the units really small and they can have weird layouts,” Loh said. “Who would be willing to rent a very small unit with a weird layout? Who does that sound like to you?”

In the medium- to long-term, Loh noted, a larger student population can attract businesses that see the students’ presence as readily available talent.

“If you ask employers or firms why they pick a location, the No. 1 thing that most firms say these days is access to talent,” she said. “And students are a key supply pipeline of talent.”

Davarian Baldwin, professor of American Studies and founding director of the Smart Cities Lab at Trinity College, has warned that urban university development should be done carefully and transparently, so as not to displace longtime neighborhood residents and businesses. 

“We celebrate the activity, we celebrate the jobs that are created because you’re bringing in educated individuals that can populate and activate neighborhoods. We also have to ask, ‘At what cost for the long-term legacy residents? At what cost for the working class people that come onto these campuses and clean and serve the food and maintain the grounds?’” Baldwin said. “What happens when they can no longer afford to live where they work and have to increase their commuter costs and are isolated from all of the increased services and amenities that are being concentrated in these campus-development areas?”

While Seidenfeld acknowledged that Shelbourne’s challenges at the moment are “steep,” there’s a lot of potential upside — for the company, for Hartford, and for the state — if everything goes right.

Still, as Seidenfeld said, each property “can’t work in a silo.” The company’s concentration of interests in Hartford’s downtown business district means the success of each property depends on that of the others, even if their finances are separate. And Shelbourne’s languishing office properties, like those in cities around the country right now, could weigh things down.

Said Freimuth: “When you invest in Hartford, you’re getting in at a lower price but you’ve got a tougher run.”