From soccer stadium to 'Superman Building', 'scary' times for big construction projects
The demise of Providence's Fane Tower apartment building may turn out to be an omen for other large construction projects in Rhode Island.
Interest-rate hikes meant to fight inflation are raising the cost of financing big buildings everywhere, from apartment towers to high schools and professional soccer stadiums, throwing balance sheets out of whack and making some developments unaffordable.
And that was before Silicon Valley Bank collapsed, sending shudders through the banking community and tightening lending standards.
On Wednesday, Pawtucket confirmed it is holding off issuing $36 million in bonds for the Tidewater Landing-Rhode Island FC soccer stadium under construction because the developer has not been able to secure private financing needed to complete the project.
The soccer stadium is not alone.
The fate of the $220-million redevelopment of the Industrial Trust tower, or "Superman Building," in downtown Providence is also uncertain.
"Interest rates, supply-chain shortages and [unabated] construction inflation have created challenges for this project and other like projects both regionally and nationally," Bill Fischer, spokesman for Superman Building owner High Rock Development, said in an email Thursday. "We continue to evaluate and work through these challenges. High Rock Development remains fully committed to continuing its work with all stakeholders and advancing this project in order to bring it to reality."
From new schools to golf course redevelopment, in limbo
Other Rhode Island projects could be affected by the combination of climbing construction costs, rising interest rates and tighter lending.
In Johnston, voters last year approved a $215-million school bond last year, and cost increases have already prompted town officials to re-evaluate their plans.
Other school construction projects, such as the new high schools planned in Warwick and Pawtucket, could also face sticker shock.
In East Providence, the City Council in July 2021 approved the redevelopment of the 138-acre Metacomet Golf Course into a complex of shops, apartments, offices and restaurants over the opposition of neighbors.
A year and a half later, it is unclear when work on that project will begin.
"We haven't seen a plan from them yet," East Providence Mayor Roberto DaSilva told The Journal on Tuesday about Metacomet.
Marshall Properties, the developer behind the Metacomet project, did not respond to inquiries.
Economic conditions could also raise the cost of the $165-million building planned to host a new State Health Lab in Providence.
A groundbreaking for the project was held on Oct. 24, but no work has begun.
The 'Superman Building'
Nearly a year after state and city leaders announced a $41-million public financing package for the Superman Building, Rhode Island's tallest building, there has been little outward sign of progress.
Senate President Dominick Ruggerio, a supporter of the Superman Building redevelopment, Thursday said he was concerned the project is up in the air and may need help.
"From what I understand, and I haven't been in any meetings, they are looking for additional money from the state," Ruggerio said. "I don't know how much and I don't know if that is going to happen and what discussions they have had with the governor's office."
When the redevelopment was announced last year, proponents said High Rock would borrow $116 million from private sources to fund work. The cost of that debt is probably much higher now.
In September, High Rock said it planned to begin "demolition activities during the 4th quarter of 2022."
How much has been done?
"The work to redevelop the Superman Building is ongoing, and an enormous amount of work has been achieved to date. Our team has conducted select demolition for engineering and environmental analysis," Fischer said. "Architectural plans have also been completed to such specificity that they now show which direction every door will swing in the building.
In addition, we have been working extensively with a myriad of consultants to finalize necessary information and materials for critical project components, such as the information needed for the Federal Historic Rehabilitation Tax Credit program and project financing. We have also recently completed an extensive process for vetting and selecting a general contractor for the project."
The Superman Building has been vacant since Bank of America left in 2013.
High Rock's redevelopment plan would convert the former bank offices into 285 apartments, 20% of them with some restriction on the rent charged and the income level of the tenants.
Ruggerio said he expected to meet with members of McKee's staff to discuss the status of the project soon.
Paolino on the real-estate arena right now: 'Very scary'
Former Providence Mayor Joseph Paolino, now a real estate investor and owner, called the economic conditions facing real estate "very scary" and reminiscent of skyrocketing mortgage rates in the 1970s.
"We are stopping a lot of our development work for a while," Paolino said. "Construction costs are up 30%."
Paolino said the state should consider transferring tax credits that might have been used by the Fane Tower to the Superman Building. He said the state may also need to backstop interest rates for some big projects to keep them alive.
House Speaker K. Joseph Shekarchi said he had no meetings planned with Superman Building representatives and doesn't know the project's status, but is very concerned about the economy.
"Interest rates are going up and up," Shekarchi told The Journal before Thursday's House session.
This article originally appeared on The Providence Journal: High interest rates pose a dilemma for RI construction projects