What is it about abandoned power plants that retail developers find attractive? Ask the Cordish Co.
“We certainly love power plants,” says Jon Cordish, vice president of the Baltimore-based developer of retail, lifestyle and entertainment centers. “We're probably suckers for them at this point.”
Cordish says he loves the locations they offer — in or near downtowns that the company wants to build. He also loves the unique settings power plants provide for retail, office and residential tenants.
What's not to love is the years of out-in-the-open partnering with cities and civic organizations. This kind of dealing requires patience and persistence that not all developers can manage.
Cordish Co.'s first power plant redevelopment is the Power Plant, opened in 1997 in Baltimore's Inner Harbor. Last year the developer completed a second power plant retrofit with its $82 million Riverside on the James project in Richmond, Va., featuring residential, office and retail.
Now Cordish Co. is in the process of trying to do the same thing with the historic Hudson and Manhattan Railroad Power House in Jersey City, N.J.
Cordish Co. has also leveraged the notoriety of the Power Plant project in Baltimore with nearby Power Plant Live. The $35 million, two-square-block entertainment district opened in 2001 and 2002 with an outdoor live-music venue, restaurants, bars, clubs and offices. Elsewhere, Cordish Co. has gone so far as to dub a project in southern Virginia Power Plant Hampton Roads, even though the site never hosted a real power plant.
Other developers are finding old power plants attractive as well. Streuver Bros. Eccles & Rouse of Baltimore will redevelop a former power plant on the Providence River in Providence, R.I. The $50 million project will include retail, office, residential and museum space. In Austin, Tex., the 1950s-era Seaholm Power Plant overlooking Town Lake will reopen in 2008. The 110,000-square-foot, public/private project in downtown Austin would include a 20-story residential tower and up to 40,000 square feet of retail.
Power plants aren't the only vintage industrial buildings under consideration for rehab. Westrust Ventures LLC of San Francisco plans a 645,000-square-foot, mixed-use center on 55 acres in San Jose, Calif. A historic industrial site, General Electric's Motor Plant office, will be part of the project. “I think to the extent you can reuse an old facility, it's a positive thing,” says Ricardo Capretta, Westrust managing partner. “It's going to be very interesting — like tying back components of a historic site to new development.”
Retrofitting power plants and other old buildings isn't a project to be undertaken lightly. It requires years of public-private partnering and amending and revising development plans to appease interested parties.
Difficulties in developing these projects include California's required “seismic conversion” to protect the poured-concrete 1930s building against earthquakes. Capretta says he doesn't know how much the earthquake protection will cost yet, but such fixes can run into millions of dollars. The previous owner took care of asbestos removal — another additional cost in many older buildings.
The timetables are longer, negotiation is in the public eye and everybody has an opinion. Your tenant mix must go beyond what will produce the greatest immediate return and accommodate what is best for the broader neighborhood. “You've got to be willing to moderate when you look at tenant mix,” says Cordish. “What type of tenants will create broader secondary spinoff beyond the four walls of the project?”
These considerations make such developments harder for companies dependent on equity capital. Privately held Cordish Co. doesn't use outside equity capital, and it retains ownership of its projects. “These projects need to be managed for the long run,” says Cordish. “These aren't power centers in the suburbs. You can't just open them and run them on autopilot. You have to continually invest in and manage them.”
Cordish Co. markets the Power Plant in Baltimore and other properties, booking entertainment, parties and the like. “We approach each of these projects like an operating business,” Cordish adds.
In the heart
Given the intrinsic difficulties in converting power plants, where does the appeal lie?
Cordish points to several factors. For one, the plants are typically located in urban areas and are good candidates for redevelopment.
“You don't want to tear it down, but it's right in the heart of what you want to turn around,” Cordish notes.
For another, the old brick structures are replete with character. Done right, power plants are unforgettable settings for retail.
“You really stand out from any other development,” says Richard Metsky, partner with Beyer Blinder Belle Architects & Planners LLC. The New York City development firm worked on buildings adjacent to the Cordish's development in Baltimore.
In Jersey City, Cordish is following billions of dollars in private investment. Major housing and commercial developers in the area include Athena, Fisher Brothers, Mack-Cali, Roseland and Donald Trump — the Power House's next-door neighbor — has the first of two residential towers under construction.
The Power House has “wonderful historic value that absolutely needs to be respected but at the same time brought into the 21st century as an attraction,” says Cordish.
The 1906 building, on a one-acre plot with 180-foot-tall smokestacks, once drove trains running under the Hudson River between Jersey City and New York City. Christopher Fiore, development director for the Jersey City Redevelopment Agency, won't discuss possible contamination of the site or earlier reports that the roof leaks and interior fittings have corroded. He's in negotiation with Cordish and awaiting new studies of those issues, he says.
Dan Frohwirth, director of real estate for the Jersey City Economic Development Corp., says the site “looks like Frankenstein's laboratory.” The Power House site scared off a prior developer, Preferred Real Estate Investments of Conshohocken, Penn. The developer of mixed-use real estate properties in the United States, with 12 million square feet under ownership, quit in 2004; reportedly over who would pay an estimated $20 million to relocate a transformer yard on the grounds that still helps run trains. Cordish calmly assures that removal of the transformer yard, being negotiated with Jersey City and the local port authority, will not be an issue.
Particulars for the Power House project in Jersey City — including size, cost and tenant mix — are fluid pending completion of negotiations among Cordish Co., Jersey City and the Port Authority of New York and New Jersey. Jersey City's Fiore says once a deal is worked out the revamped Power House could open in 18 to 24 months.
No fake stacks
The process in New Jersey echoes what Cordish Co. went through during its first go-around in retrofitting the power plant in Baltimore. There, Cordish Co. invested more than $50 million in an old waterfront power plant. The Baltimore Inner Harbor is now a destination, a hotbed of activity with tourists, office workers and city dwellers patronizing Gold's Gym, Hard Rock Café, ESPN Zone and Barnes & Noble.
“The area was not only unproven but the eastern edge of the Inner Harbor was proven as an area that had not succeeded,” says Andrew Frank, executive vice president with Baltimore Development Corp.
In the 1980s, amusement-park operator Six Flags failed to make a go of the old power plant as an entertainment destination. When the Cordish Co. stepped up in 1997, Cordish says, “a number of people told us we were on a fool's errand.”
Beyond the challenges of the area itself, Cordish Co. ran into friction when developing its site plan. The plant featured four smokestacks that ran through the core of the building, which Cordish Co. wanted to remove to free up interior space. But Maryland's state historical preservation agency vetoed the idea. Cordish Co. had to adapt. In Barnes & Noble, builders ultimately ended up cutting openings into one of the 10-foot-thick stacks to fashion a reading room.
Hard Rock is happy with the Power Plant's stacks, high ceilings and original power plant doors on the cafe entrance. “You wouldn't see anything like this at any of the other Hard Rocks out there,” says Ellen Fatigati, sales and marketing manager at the Hard Rock in Baltimore. “It has helped our Hard Rock Café become part of the downtown skyline.”
Hard Rock won't release figures, but Fatigati says in her six years at that location they have experienced a string of record-breaking revenue days. The latest, in August 2006, topped the previous best in July 2005.
Baltimore's 200,000-square-foot Power Plant has been 100 percent occupied from the start, says Cordish.
Cordish Co. has a reputation for being tough negotiators. “We had to get smarter as a result of working with them,” says Frank, “but it's been a great partnership.”
The privately-held Cordish Co. wouldn't state its revenues. However, the company alluded to the positive impact redeveloping power plants has had on the business.
“They can be profitable,” Cordish says. “They certainly are not without significant risk, so I don't think that the returns are disproportionate. People don't remember just how challenging it is to go in and create a market where one doesn't exist.”
The city of Baltimore will soon realize its return on investment. Its 1997 deal with Cordish Co. called for profit-sharing after 10 years. In 2007, the city of Baltimore gets 25 percent of net cash flow. Baltimore Development Corp. officials wouldn't say how much it anticipates.
In its redevelopment of the H&M Power House, neither Cordish Co. nor Jersey City would state whether profit-sharing would be part of their contract.
Jersey City designated a Power House Arts District in 2004 and is providing affordable housing for artists in the neighborhood. Cordish Co. is preparing to dovetail its latest old power plant with that demographic. The Power House may include an art-house theater, a performance venue and art galleries.
“You can't just take what you've been able to do in other cities and export it,” Cordish says. “You've got to go in and respect the specifics of the location.”
Cordish Co. will take its time deciding. Why rush when you've already been at it for seven years? Jersey City Economic Development Corp.'s Frohwirth claims to be the first to have approached Cordish back in 1999. “Every new mayor thinks it was their idea,” Frohwirth grumbles.
In other words, if you're a quick-hitter, in-and-out developer forget power plants. “One has to be very patient and willing to look beyond the four walls of your pure economic self-interest,” Cordish insists. “It's a discipline. It's a mindset that most developers aren't comfortable with. You can't simply just plow ahead.”
What do you do with that abandoned power plant right in the middle of the area you want to redevelop — especially if locals have a sentimental attachment to it?
Incorporate the old plant as a retail center.
Vintage buildings attract destination retail for the uniqueness of the location. But developers must be ready for a years-long partnering process with the city.
The city of Baltimore, Cordish's partner on the original Power Plant, is about to begin collecting 25 percent of the net cash flow from the project.