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Updated: January 24, 2022 focus on commercial real estate

Downsized: Shrinking developments around Polar Park raise concerns about the stadium payoff plan

Photo | Edd Cote The proposed developments in the Polar Park tax district stem out of Kelley Square and surround the stadium.

When the main mixed-use development inside Polar Park’s special tax district, which is designed to help pay off the cost of the $160-million ballpark in Worcester, faced delays and downsizing, two new developments were proposed to fill in any gaps. Now, one of those two lifeboats appears to be about half the size of what it was initially promised.

On Dec. 17, new plans regarding The Cove – an ambitious mixed-use housing project on Green Street – were submitted to the Worcester Planning Board, nearly halving the original proposal from 318 units to 173.

Located at the site of the former Cove Music Hall, the project has been in the works since January 2021, and started out as a 13-story residential skyscraper anchored by a bowling alley, which would have been the tallest building built in Worcester in more than three decades. The reduced plans came roughly two weeks after Worcester developer Churchill James, owned by Thomas Keane and Harry DiLeo, bought the site for more than $3 million from the City of Worcester.

It’s not the first time a development has changed course, especially given the constant unknowns of the coronavirus pandemic, but The Cove holds particular importance in the city as it is one of three key developments whose property taxes go toward paying Polar Park’s bonds. City officials remain confident the ballpark tax district will generate enough revenue to pay off the stadium cost, but now with the main development delayed yet again and the third development proposal only committed to a smaller first-phase plan, concerns are being raised the City of Worcester might have to expand the tax district again to pay for its stadium debt, which would pull away resources for other government services.

“There’s a huge amount of risk, and the city is on the hook for all these bonds, whether the taxes come or not,” said Victor Matheson, a sports economist and professor at College of the Holy Cross in Worcester. “We’ve seen a lot of downside risk here, and things did not go perfectly; but the city is still on the hook for the bills as if everything did go perfectly.”

Why the downsize?

When the ballpark was first pitched, a big part of the 30-year pay-off strategy relied on Madison Properties, a Boston-based development firm with plans to construct two hotels, office space, and hundreds of housing units. In fall 2020, Madison announced its developments would be significantly delayed and downsized, raising concerns about diminished tax revenue.

At that point, the motive for the announcement of downsizing was relatively clear. COVID-19 had been raging for six months, turning the office, retail, and hotel markets on their heads, even though construction had been delayed for the initially proposed January 2021 opening date well before the pandemic began.

“The hotel world is a lot different today than it was when we first started talking about all this three years ago,” said Madison Properties President Denis Dowdle, whose revised plan removed one of the two proposed hotels. “We’re trying to adapt with the times and find something that's a good long-term fit for the site.”

The reasoning behind The Cove’s reduction, however, is more of a question mark.

”It’s somewhat surprising that you’re seeing something scale back at a time when we’ve clearly got high increasing prices for housing,” said economist Matheson.

One potential factor could be materials costs, which have fluctuated throughout the pandemic. The cost of steel has more than doubled since September 2020, according to the U.S. Bureau of Labor Statistics, while lumber prices have been falling significantly since mid-2021.

“We took this opportunity to transition from an expensive steel high-rise to a wood frame construction type that is more budget conscious and attainable to the middle market renter,” John Tocco, a development leader on The Cove project, said in a statement.

Churchill James postponed its Jan. 12 planning board hearing to the beginning of February, and DiLeo and Keane did not return requests for comment on this story.

Rendering | Courtesy of Worcester Planning Board
The proposal for The Cove development has shrunk from 13 stories to seven stories.

The bottom line: Implications for Polar Park’s bill

The question now is: Will the three developments be large enough and completed fast enough to pay off Worcester’s bill for Polar Park?

“While we continue to navigate the changes in the pandemic and the real estate market, we are still anticipating that the [tax district] will have a significant return on investment over the life of the project,” said Worcester’s chief development officer, Peter Dunn, in a statement.

The projects are not officially assessed until after improvements are made, but Dunn estimated The Cove will be valued at more than $40 million upon completion.

The Madison Properties development is continuing to meet delays. Its first phase, a roughly 228-unit residential complex, is still under construction. It was originally slated to open September 2021, then pushed to September 2022, and Dowdle most recently told WBJ it will open in mid-2023.

Because of the multiple delays on Madison’s various projects, the City’s agreement with Dowdle says Madison has to make targeted tax payments on certain buildings, regardless of whether they get built, including the Left Field Building immediately behind Polar Park.

Dunn estimated Madison’s first residential property will be assessed at $40 million, a significant figure compared to the $49.3-million combined value of Madison’s office building, Left Field Building, hotel, and second residential building, which was estimated in a September 2020 report.

The third proposed major mixed-use project in the Polar Park tax district is the redevelopment of the former Table Talk Pies headquarters on Kelley Square. Dunn estimates that 400-residential-unit project called Table Talk Lofts will be valued at $60 million.

So far, developer Boston Capital has remained on schedule and on budget, but the company has committed to only the first phase of the multi-phase project, which is 83 of the 400 proposed units.

Overlooked costs

Matheson, of Holy Cross, said the delays and abridgements of the district’s developments prove it’s difficult for the City to hold developers accountable.

“The only real recourse the city has in terms of stadium issues is simply to keep expanding the amount of the city that is subject to a tax to pay for that stadium,” said Matheson.

The City’s first expansion of the ballpark taxing district came in January 2020, after construction costs on the stadium increased by 30%. The tax district has stayed the same since that time.

Another expansion of the district, Matheson said, could have negative consequences for the city, as more tax dollars are funneled toward the ballpark and away from public services like schools and roads.

The Worcester economist raised concerns about the residential nature of the developments, noting they will bring in an influx of residents, which will create new strains on city services not accounted for in the ballpark’s cost analysis.

“Normally, when you build a big apartment building, you put a bunch of taxes on that building so that you can pay for the services of the people in that building,” he said. “That was never done as part of the analysis of the ballpark.”

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