The city has approved plans to raze most of its 50-acre center and replace it with $289 million in new infrastructure and $1.3 billion of new private housing, retail, offices, entertainment, hotels and parking. The private builder, Street-Works Development of White Plains, will pay for the public improvements upfront.
Once Street-Works installs the utilities, roadways, parking and landscaping; builds a number of new buildings and leases 50 to 75 percent of the space, the city will assume responsibility for the infrastructure bill by selling general obligations bonds. Some income from the property will flow to the city to cover interest on the debt, amortize the principal and generate extra money for city coffers.
“We couldn’t afford to do this on our own, this quickly,” Mayor Thomas P. Koch said. But after 30 years of wanting to revitalize a downtown drained of businesses, shopping and housing by outlying neighborhoods, he said, “we’ve established a relationship of trust with Street-Works.” In 2005 the developer started planning what is to be called New Quincy Center. In January it signed a master agreement with the city to codify the plan and set milestones it must meet before Quincy floats the bonds.
This is a reversal of the traditional urban development model, in which municipalities pay for public improvements before the private sector starts construction. And it could be a template in an era when state and federal agencies are retreating from ambitious redevelopment projects.
“In the 21st century, innovative mayors will have to redefine development rules, and it’s commendable that this mayor is willing to take the risk,” said Thomas Murphy, a senior fellow at the Urban Land Institute and a former mayor of Pittsburgh. “If Quincy succeeds, it’s a game changer.”
But the consequences of failure can be significant. In downtown Boston, for instance, there is a gaping block-size hole where Vornado Realty Trust and Gale International halted construction of a large mixed-use project, One Franklin.
“The bigger projects are, the more difficult and fragile they are,” said George J. Fantini Jr., the chairman of Fantini & Gorga, a commercial real estate mortgage broker based in Boston. “For a project to succeed, each building has to be feasible in its own right.”
Ken Narva, a partner in Street-Works, said the risk in Quincy was minimized by the city’s easy access to mass transit, the broad scope of the project, a strong local economy and the lack of a vital urban center elsewhere on the South Shore. “We’re building a new neighborhood, not a project,” he said.
The plan is to build, in increments, 3.5 million square feet of new space: 1,200 rental and condominium apartments, 625,000 square feet of retail, two hotels and entertainment; 1.5 million square feet of offices for higher education, health care, professionals and businesses; and parking for 5,500 vehicles.
Ten years of construction will start mid-2012, first on the infrastructure and then in mid-2013 on the buildings. The first group of buildings, 1.3 million square feet valued at about $700 million, will include approximately 300 apartments, 325,000 square feet for retailers, 350,000 square feet of offices, a hotel and parking for about 2,000 cars.
Before construction starts, Street-Works estimates it will have spent $50 million of its own funds, as well as money raised from Quincy Mutual Fire Insurance Company, Ronus Properties of Atlanta and others. For construction financing the developer plans to take the city bond guarantee and its signed leases to the private equity and debt markets for institutional and traditional loans, Mr. Narva said. He and his partner, Richard Heapes, are talking to potential joint venture partners to develop at least 12 of the 25 new buildings with financing they raise themselves.
“The underlying premise is that Quincy is a great location,” Mr. Narva said. “Its mass transit is a main driver of value creation.” Quincy Center has a Red Line subway stop, six stops from downtown Boston and 10 from Cambridge. The city is on a main highway, Interstate 93, and has 27 miles of waterfront. “The developer is here because of the T stop,” said Mayor Koch, referring to the transit system, who said he was impressed when he visited Street-Works’ Blue Back Square project in West Hartford, Conn. He said he hoped to secure another $50 million in state and federal grants for infrastructure work.
New Quincy Center will offer what many empty nesters and young workers say they prefer: a walkable, urban place to live, work and play. But this type of overhaul would not succeed everywhere, said Gregory Bialecki, the state secretary of housing and economic development.
It may work here because Quincy is willing to make a big financial commitment; the developer has a long-term plan with the flexibility to survive a few market cycles; and since the fall of 2009 the regional South Shore economy has performed well, creating jobs in sectors that are driving the overall state economy like health care, higher education and financial services. Further, Mr. Bialecki said, “that everyone has skin in the game from the start is a strong sign it will work.”
Whether it does, “rests on how much space Quincy can absorb” said Gleb Nechayev, an economist with CBRE Econometric Advisors. Because Quincy added 6.8 percent more housing units and 4.8 percent more residents from 2000 to 2010, he said, “the project has a good chance of success.”
By mid-2013, the Quincy region is expected to return to peak employment, with the jobless rate dipping below 7 percent for the first time since early 2009, said Michael Lynch, an economist at IHS Global Insight. “By the time buildings come online, the economy will be in much better shape to handle them,” he said.
By early next year Street-Works hopes to have letters of intent for a cinema; at least 300,000 square feet of offices for education, health care and businesses; and 100,000 square feet of large format retailing, Mr. Narva said.
If the plan fails, Mayor Koch said, “the city walks away with more than it had five years ago.”
If it succeeds, Mr. Narva said, “we’ll feel good about creating a great urban place and make a lot of money.”
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