Hartford Business Journal

HARTFORDBUSINESS.COM | July 4, 2022 17 construction, he said. Rents are rising and new inventory fills quickly. Hartford Mayor Luke Bronin compared CRDA's low-interest loans to priming a pump — a boost that will improve the restaurant, retail and culture scene, and create a self- sustaining apartment market. "Demand is strong right now, but part of our thesis is the more we satisfy that demand now the stronger that demand will be long term because people attract people," Bronin said. "The more units you create, the more feet on the street, the more restaurants and bars open, the more quickly that turns into a virtuous circle that drives demand in a sustained way." In Hartford, that cycle was gaining momentum before the COVID-19 pandemic dealt a crippling blow to the retail and restaurant scene. Foot traffic in shops and restaurants has picked up, but nowhere near pre- pandemic levels. Many employers are shedding office space and allowing staff to work from home at least part of the week. "The change in the nature of work and the fact it will probably be quite a few years before our office buildings are filled five days a week makes it that much more important to keep our foot on the gas when it comes to residential development and residential density," Bronin said. Bronin is hopeful the change in work habits might carry hidden benefits. As people are no longer tethered to the office, more might turn to Hartford as an affordable alternative to Boston, New York or other expensive metro areas, he said. Victor W. Nolletti — executive managing director of investments for Institutional Property Advisors, a division of Marcus & Millichap — said CRDA-backed apartments are key to growing the number of residents in Hartford's downtown core. That, in turn, will help make up for some of the reduced office crowd and expand retail and restaurant traffic beyond the traditional work day. "You need the multifamily before you can expand the rest," Nolletti said. "You can open up all the retail you want, but you need to have the bodies there to support it." How many apartments can Hartford absorb? The CRDA was formed with a target of adding 3,000 apartments to downtown Hartford. The agency's practical planning goal is about 5,000. Freimuth said it's possible the city could absorb even more. Apartment developments that have come to market in recent years have occupancies above 90%, he said. "From the market dynamics I see, I don't think we are anywhere close to exhausting that demand," Freimuth said. Monthly apartment rents in downtown Hartford have climbed from $1.50 to $1.75 per square foot a decade ago to about $2.25 to $2.75 per square foot today, Freimuth said. That compares to about $3 to $4 per square foot in Stamford and $3 in New Haven. Developers have required increasingly smaller CRDA loans as rents have climbed, Freimuth said. But rising interest rates and continued supply chain problems could force that trend in the opposite direction, he warned. "We still have a disconnect between what it costs to build and what it's worth upon completion," Freimuth said. "And that's less of an issue in New Haven and not really an issue in, let's say, Stamford." Freimuth said New Haven was forced to adapt its economic strategy earlier than Hartford, which has long been sustained by a strong corporate ecosystem and state office buildings. New Haven is as much as a decade ahead of Hartford in terms of economic repositioning, he said. David Lehman, commissioner of the state Department of Economic and Community Development, noted that New Haven is a growing city, while Hartford lost population over the last decade. "And I think that's what's really driving the demand and there has been more demand for new apartments in New Haven and ones that don't require any type of subsidy because of that tailwind," Lehman said. "A lot of that is the nature of the economy in New Haven, which has the eds and meds, the bioscience cluster continuing to grow. Yale continues to expand its presence and funding around the city. You are seeing lots of forces bring people into New Haven and create jobs there and that's creating tailwinds for the New Haven apartment market." Between 2010 and 2020, New Haven's population grew by about 3%, while Hartford shrank by 3%, according to U.S. Census data. Lehman said Hartford's government-assisted drive to build apartments could lead to greater vibrancy, and that the city needs thousands of more units. "In my mind, you ideally need to put another 10,000 to 20,000 new apartment units downtown," he said. Investors happy with returns Wonder Works Construction Co. and partners have added more than 550 apartments to Hartford in four redeveloped downtown buildings since 2012 under the "Spectra" banner. Daniel Klaynberg, CEO of Spectra Construction and Development, said occupancy stumbled during the onset of COVID-19, forcing renegotiations with lenders. But the properties have bounced back, pleasing investors and paving the way for additional development, he said. Klaynberg is working to finalize the purchase of a municipal building at 525 Main St., and a former firehouse at 275 Pearl St. The properties will be remodeled into 78 apartments, with first-floor retail, over the next two to three years, he said. "Hartford, I think, is positioned well," Klaynberg said. "I think all Will there be a Hartford apartment bubble? By Michael Puffer mpuffer@hartfordbusiness.com A slowdown in Hartford apartment construction following the onset of the pandemic has now turned into a boom that will see thousands of units brought online in 2022 and 2023, said Martin Kenny, CEO of Hartford-based real estate development and investment firm Lexington Partners. That could be a boon for creating a vibrant city and finally catching up with a long-unsatisfied demand, Kenny said. On the other hand, he worries that it could be too much all at one time. "One thing I worry about with downtown Hartford is we have so much going on right now, let's make sure the marketplace can properly digest what's coming through," Kenny said. "The idea of opening all of Bushnell South right now for additional proposals seems a little aggressive. We need orderly growth. We can't have it where there are apartment communities on every corner all of the sudden, because that will create havoc." The Bushnell South master plan calls for 1,200 apartments, new public gathering spaces and more than 63,000 square feet of retail, cultural and commercial space on blocks of parking and underused buildings just south of Bushnell Park. Spinnaker Real Estate Partners – a major partner in that plan – is pursuing a $63.3 million redevelopment of a former state office building at 55 Elm St., within the eastern edge of the development zone. Spinnaker plans to build 278 apartments as well as retail space on that site. The master plan shows Spinnaker eventually building another 456 housing units on parking lots just south of 55 Elm St. According to a recent analysis by Lexington, there are 700 Hartford apartment units under construction, and another 2,889 units that have been proposed or are in planning. Hartford's average monthly rents are up 10% over the past year, from $1,245 to $1,374. That's still behind New Haven. Hartford projects also require construction assistance in the form of tax relief and gap financing through the Capital Regional Development Authority, said Kenny, who is a partner in the $100 million redevelopment of Pratt Street, which will yield several hundred new or refurbished apartments. Overall, Kenny and partners, including LAZ Parking's Alan Lazowski, own more than 550 apartments downtown. Kenny attributed the differences between Hartford and New Haven to the Elm City's blossoming biotech innovation ecosystem and the presence of Yale, which is both assisting the emergence of that sector and has long provided a stream of students and staff with money to spend. Yale's presence also softened for New Haven the blow that COVID-19 dealt to restaurants and other merchants in Hartford, he said. But Hartford has strengths on which to build, including proximity to Bradley International Airport, a still-robust insurance sector and strong colleges and universities, Kenny said. "There is a lot to work with and sell," Kenny said. Martin Kenny Hundreds of new apartments are being added to Pratt Street in downtown Hartford. HBJ FILE PHOTO

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