Wanted: Trigger tenant
Worcester's CitySquare squares off with deal requirements
In the movie Field of Dreams, Kevin Costner was told by a mysterious voice that if he built it, they would come.
A similar voice may have urged Berkley Investments to take on the enormous task of transforming the hulking former Common Outlets in the heart of Worcester's downtown into a more than $500 million mixed-use development. But in the case of luring big tenants to sign on the dotted line for the yet-to-be constructed office and retail space, the firm is facing a difficult chicken-and-the-egg proposition.
That's because no construction on the build-to-suit space can begin until at least 275,000 square feet of space is spoken for by a so-called "trigger tenant (or tenants)," according to Berkley's agreement with the City of Worcester, which was signed nearly one year ago. But getting concrete interest in a project that as of yet only exists as renderings in flashy brochures and DVD presentations is a challenge.
Adding to the difficulty is the fact that the city of Worcester is in the midst of an election season. As a result, some City Council members have not been shy about painting CitySquare as yet another stalled, pie-in-the-sky development project. A rash of public criticism of the project in Worcester has created one tense developer.
Young Park, the head of Berkley Investments, has stepped out of the shadows and into the spotlight in the last week in part to counteract criticism from city politicians that the project is at a standstill.
"As a general comment, I can understand the surprise and the frustration of people that haven't seen the mall come down," Park said. "I think what most people don't focus on is the structure of the deal with the city and the complexities of putting together a project of this type."
The "structure of the deal" that Park refers to is the requirement within the development agreement between the city and Berkley that city support in the form of tax increment financing cannot be released until that all-important "trigger tenant" (or tenants) has signed on the dotted line.
"Those are very tough hurdles to meet all at once," Park said.
Park also points to the flat demand in the city's office market and continually escalating construction costs as another challenge that the firm has faced in trying to secure tenants. Berkley is marketing office space at CitySquare in the mid-$30 per square foot range. That's high for Worcester, but a substantial discount compared to Class A rental rates in Boston, which range from $45 to $65 per square foot, according to the real estate firm Meredith & Grew.
Young Park, president of Berkley Investments.Mass market
Despite acknowledging some challenges, Park is unrelenting in his bullish talk about interest in Worcester, and is calling for CitySquare's critics "to stop doubting us and second-guessing us."
"We're in the trenches and we're selling Worcester every day," Park said. "It's very discouraging to have some of the people of Worcester be so negative about it, when we're trying to be incredibly optimistic."
After several large potential tenants failed to come to fruition, Berkley brought on two brokerage firms: Kelleher & Sadowsky of Worcester to provide the local knowledge base and Jones Lang LaSalle's Boston office to provide a more regional and potentially global pool of candidates. Will Kelleher and Jim Umphrey are the point people at Kelleher & Sadowsky, while Philip DeSimone is the point of contact for JLL.
Umphrey said his team has begun a "mass targeted mailing" to Fortune 100 companies to gauge interest from a broad a spectrum of companies.
Park said Berkley is targeting three main areas in its marketing. One is medical office or lab space, in light of the heavy concentration of the health care industry in the city.
"Major Boston hospitals view Worcester as the next frontier for them," Park said.
Second is the fact that any new office construction in the city would be of Class A caliber, which is currently absent from Worcester's real estate market. The third area is the "institutional market," including state offices and local colleges.
What CitySquare does have at the moment, is a commitment from Portland, Ore.-based Hollywood Theaters to open, as well as a stable roster of tenants, including Flagship Bank and Fallon Clinic, in existing office space. Park said the building as it stands, even though the former Common Outlets are largely vacant, is a money-maker for the firm, thanks in part to parking and rental revenue.
"It's been a great investment for us," he said.
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