By Nancy Guenther Chapman
NORWALK, Conn. – It’s a Norwalk irony: Months after a historic SoNo building was entirely demolished to make room for a wider sidewalk, a chain link fence guards the city’s latest “bombscape,” rendering the sidewalk unusable.
And, as the expanse of dirt scars the downtown vista, there is no indication construction will begin anytime soon.
The construction of 20 North Water St. is pending bank approval of the “numbers,” Rich Redniss of Redniss and Mead said, as he made a pitch to move seven of 11 planned affordable housing units offsite at last week’s zoning commission meeting – a pitch that provided an unprecedented look at a developer’s financing, former commission chairman Joe Santo said.
Spinnaker Real Estate Partners demolished the old Norwalk Co. building to make way for the development. Although historians requested the façade be saved, the city wanted to widen the sidewalk for safety purposes and said it must go.
While it looks like nothing is happening, 338.4 tons of contaminated soil were removed between Sept. 27 and Nov. 1, Redniss said. Spinnaker has ordered $1.7 million of precast concrete for the parking garage, he said, trying to establish the company’s commitment to moving ahead.
Spinnaker needs a $22.6 million bank loan to begin construction, he said, and is investing $12.4 million in equity for the project, which was approved by the commission in February.
“Times have changed,” said Redniss. “This is a lot more equity than I have seen in past years in terms of what developers put into a deal to make it happen.”
To get that loan, the company needs to present figures that show it will get a 7.25 percent return against its equity, Redniss said. That’s “the magic line that you need to present to your lenders to say, ‘Here, this works, please give us the money,’” Redniss said.
That step is done through a pro forma budget summary, a “penciled out” projection of potential profits, making the bold assumption that the development would be rented out in three years, Redniss said.
“Obviously, many, many millions go out before you can collect your first nickel of rent going in,” Redniss said.
The company’s plan hinges on $2,521,920 in rent payments for its apartments, based on an expected $2.47 per square foot per month. That’s high compared to the nearby Corset Factory ($2.18 a square foot), Avalon ($2 a square foot) and Jefferson at 55/77 Water Street apartments ($2.40 a square foot). But there are reasons the company thinks it can get more, including premier amenities such as an indoor movie theater and a rooftop deck, possibly with a putting green.
Commercial income is projected at $657,143, but that’s probably high, Redniss said, as it’s based on $25 a square foot.
“You can’t get the rents,” Redniss said. “We have one lease out. It’s for $27.50 a foot, on the corner property, best spot for retail.”
The only other deal in the works is for the space next to that, at $20 a square foot. “If that trend continues, they’ll get $5 a foot less than the summary, that’s a million (less),” he said.
Income from the parking garage is projected at $193,230. Spinnaker thinks the planned garage is too big, but it’s required by zoning to go with the retail space that is mandated in the development. Thus, the company thinks it is spending $1 million more than it needs to – 72 spaces times $15,000 a space.
Then there are extra costs, some due to city requirements, others created by cost overruns that have already begun to add up.
Revenues are projected to be $3,372,293 a year. Operating expenses are $1,020,800. Net income is projected at $2,351,493 a year.
But debts must be paid; a 30-year loan at 5 percent would cost the company $1,455,440 a year, the summary says.
All of this led the company to try to move its workforce housing units off site, Redniss said, so it could gain more revenue from the space than the affordable units would provide. Moving all 11 off site would mean an estimated 7.23 percent return on the equity, he said, close to the percentage needed to satisfy the bank. Keeping four units on site is a sacrifice as it means a projected equity return of 6.84 percent, well below the 7.25 banks are looking for, Redniss said.
Members of the public were not impressed. “Spinnaker has been in business a long time,” said Courtenay Austin, whose father was on the Zoning Board of Appeals. “They should know what their costs are going to be before they start a project like this. … It looks to me like we may be winding up with another bombsite.”
Zoning commissioners voted 4 to 3 to allow Spinnaker to move several of its affordable housing units off site. Four will remain in the new building. As part of the compromise, Spinnaker agreed to create a 12th unit at one of its properties if a pending deal goes through.
Commissioner Mike Mushak voted no. Before the vote, he said,“We have to think of 95/7. For whatever reason, it just sits there staring us in the face for all of these years. … There is some skepticism about the true commitment to a project.”
Redniss replied, “Developers are in business to make money and to satisfy other goals that they have. In the case of Spinnaker, it’s creating a community. They have a large stake in this area. … You have other developments in town that aren’t going forward. There’s got to be reasons for it.”
The reasons could be the economic cycle, the requirement for affordable housing, or Norwalk’s parking regulations, which are more demanding than surrounding communities, he said.
“It could be any number of things that cause development – after spending millions and millions of dollars – not to go forward, especially if you demolish. Because now your return on your millions and millions of dollars is zero. You don’t have a building you can adaptively reuse. You’ve precluded all of your options. It’s not like they do this lightly.”