From the WSJ Real Estate Archives

Providence's Look
Is Poised to Change

by Maura Webber Sadovi
Special to The Wall Street Journal Online
September 08, 2005

About 10 years ago, Rhode Island's capital finished getting a makeover. Rivers that long ago had been turned into underground canals and paved over were uncovered and landscaped; railroad tracks that had left the city divided and gritty were relocated. Now Providence is in the midst of a $2.8 billion building boom that is poised to change the city's look again.

Construction began in December on the city's first new office building in about 16 years, the $80 million headquarters for Gtech Holdings Corp. The lottery-systems company will relocate from suburban West Greenwich, R.I., next year. But most of the new construction is in residential and hotel buildings. Developers are betting there's enough demand for downtown living to absorb hundreds of new condos now on tap, including a $105 million, 35-story condominium tower called One Ten that would be the state's tallest building.

[Providence Photo]
The look of Providence is set to change amid a building boom that includes such high-profile projects as Gtech Holdings' planned headquarters.
While USAA Real Estate Co. of San Antonio and Commonwealth Ventures LLC will develop and lease most of the new 10-story office building to Gtech, the jury is still out on whether the flurry of residential construction will overwhelm the demand. Developers in Providence will be delivering the new supply of condos into a largely untested market -- unlike the condo binges in larger cities such as Miami and Chicago. "We're wondering if we're getting to the point of saturation," said Thomas E. Deller, director of Providence's Department of Planning and Development.

Already, tax incentives that encourage developers to convert historic commercial buildings have helped add about 1,500 new residential units, largely rental, to downtown since 2002, Mr. Deller said. An additional 1,000 units, mostly condominiums, are planned.

Construction is expected to begin this fall on One Ten, the 130-unit tower being developed by BlueChip Properties LLC of Needham, Mass., in partnership with O'Connor Capital Partners of New York. Units in the project, to be completed in 2008, are slated to sell for between $500,000 and $2.5 million.

Providence's growing population, reputation for arts and culture, and wealth of universities and colleges, as well as its affordability in comparison to nearby Boston, make it an attractive place for condo development, said Eamon O'Marah, a BlueChip managing partner. "Investors have rediscovered what a remarkable city it is," Mr. O'Marah said. The median home price in the Providence area was $291,600 in the second quarter, well below the $418,500 median in the Boston area, according to the National Association of Realtors.

Procaccianti Group of Cranston, R.I., bought the 364-room Westin Providence downtown from the Rhode Island Convention Center Authority in April. The developers plan to add a 30-story tower nearby that will include 200 more guest rooms as well as 107 luxury residential units on the top floors.

The new units are coming into a market with few existing condos. But the area's apartment vacancy rate for professionally managed units rose in the second quarter from a year earlier, partly due to increased supply, though rents are also rising, according to Torto Wheaton Research in Boston and M/PF YieldStar in Carrollton, Texas. Gleb Nechayev, an economist with Torto Wheaton, said vacancies were still comparatively low, though investor interest in condo units could damp apartment demand.

The rash of construction comes as the industrial and office sectors are improving, driven by job growth in the business services, health-care and educational sectors. Rental rates in the office and industrial sectors rose at the end of 2004 from the end of 2003, while vacancies fell, according to CB Richard Ellis/New England.

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