July 9, 2018

Hartford's most prolific landlord airs his frustration, optimism for the city

HBJ Photo | Steve Laschever
HBJ Photo | Steve Laschever
Larry Gottesdiener has kept a low profile in Hartford since he lost several office buildings here to foreclosure earlier this decade. But he recently sat down with HBJ for a wide-ranging interview about Northland Investment Corp.'s future in the Capital City. He's shown here standing in front of his most prized Hartford asset, the Hartford 21 luxury apartment tower.
Hartford Mayor Luke Bronin
Michael Freimuth, Executive Director, Capital Region Development Authority (CRDA)

By the Numbers — Northland Investment Corp.

$5B
Total amount Northland has invested nationwide in commercial real estate.

25,500
Total number of apartment units owned by Northland nationwide.

$3.5B
Total amount of development Northland currently has in process, mainly in Boston and Newton, Mass.

Larry Gottesdiener just wants to talk.

The CEO and chairman of Newton, Mass., developer and major downtown Hartford landlord, Northland Investment Corp., boasts about his lavish 36-story apartment tower, Hartford 21.

He talks about the lack of retail demand as the primary reason so many of his downtown storefront retail spaces, contrary to public opinion, are vacant.

And, he certainly wants to discuss what he sees as the dismal prospect for a revitalized downtown arena. If Hartford officials and residents really want an XL Center replacement, he says they ought to consider relocating it next to the ballpark.

Shutting and bulldozing the arena to make room for more apartments and a central public amenity — like a Rockefeller Center-like ice skating rink — could also be a game-changer for the city, he says.

But most of all, Gottesdiener wants to talk about what he insists is an ongoing pattern of poor communication between him and several city and state offices, including the Capital Region Development Authority, the quasi-public financier and economic development arm that rebuffed Northland's planned apartment conversion of the mothballed former YMCA site on Jewell Street and is considering using eminent domain to take control of Northland's XL Center stake.

He's also bitter about what he says are unwarranted potshots lobbed at him by public officials. The latest occurred in May, when it was disclosed the city was threatening fines of $100 a day until certain blight conditions were resolved inside and outside Northland's 11-story former YMCA tower.

Mayor Luke Bronin, in a statement at the time, called Gottesdiener an "absentee landlord'' and insisted that city blight enforcers were "absolutely right'' to pursue action.

Gottesdiener responded that Bronin had "his facts wrong" and that he and Northland have been active in Hartford for 15 years, much longer than Bronin has been mayor.

And, there's been no discussion between Gottesdiener and Gov. Dannel P. Malloy since an inaugural, get-to-know-each-other session years ago in which Gottesdiener said he was met with hostility.

Gottesdiener, 59, recently sat down with the Hartford Business Journal for a rare, wide-ranging interview, discussing myriad issues, including why he chose Hartford (his grandfather was a mailman here), to invest in office space (his biggest mistake), and build apartments (Hartford 21 is his crowning achievement despite an admission it was over-designed and over-engineered).

He held back few punches, saying Hartford's and the state's economies have floundered over the years from a lack of vision and focus on job creation — rather than retention — and from government leaders who largely assume an adversarial stance toward business.

"Hartford could be on the verge of a very exciting period now," Gottesdiener said. "For better or for worse, Hartford has been bailed out. It's on fairly solid (financial) ground. It has all these new amenities. Where is the vision to pull all this together?"

Not everyone agrees with his assessment, of course.

A Malloy spokesperson defended the governor's Hartford economic track record. The two-term Democrat has been a major advocate for investing in the city and has advocated for funding for housing, transportation, transit-oriented development and a fully renovated XL Center.

"From investment in new transportation options — including a new rail line and bus service — and associated transit-oriented development, to the upcoming improvement of Dillon Stadium, to hundreds of new units of housing, to companies like Infosys bringing jobs and economic opportunities to the Capital City, Malloy's vision and commitment to Hartford is paying dividends that will be felt not just today, but by future generations," the governor's spokesperson said.

Gottesdiener says the city and state should partner with Northland, rather than be antagonists, to press Hartford's revitalization.

His critics note that communication is a two-way street and that he and Northland must step up their involvement in Hartford. Gottesdiener, they say, can pick up the phone and set up meetings to discuss his realty holdings.

A long history

At his peak, from the late 1990s through the 2008 near-global financial meltdown, Gottesdiener was downtown Hartford's top land baron, amassing more than a $350 million realty portfolio, including four trophy downtown office towers: CityPlace II; Goodwin Square and its adjoining hotel; Metro Center; and Trumbull Place, 242 Trumbull St., directly opposite Northland's Hartford 21 apartment high-rise — built from the ground up in 2006 for $200 million — and the adjoining XL Center arena.

He said he was originally attracted to Hartford because the state's and city's economies were flat at the time, while the national economy was booming. Commercial real estate was overpriced in much of the United States, but not here, he said.

"I looked at Hartford. It was pretty much economically flat on its back," he said, referring to the mid-to-late '90s. "Prices were unbelievably cheap. And we thought it provided a good contrarian opportunity. Our roots are as a contrarian investor."

He also had a personal connection here. He is a Connecticut native whose grandfather was a Hartford mailman after he got out of World War I. His father was a trainee at G. Fox.

But most of all, Gottesdiener says he saw opportunity in the residential movement brewing downtown.

Things started out well for Gottesdiener in Hartford and he became one of the city's top cheerleaders. In fact, a 2007 New York Times article called him "Hartford's Booster in Chief." He espoused the notion of turning the city into a "24-hour neighborhood" where people "live, work and play." He even expressed a desire to buy and bring back to Hartford an NHL franchise and lead development of a new downtown arena. Northland also managed the XL — formerly the Civic Center — for a number of years.

Post-recession blues

Following the Great Recession, which ravaged the state's and city's economies, things soured for Northland in Hartford. It lost three downtown office buildings to foreclosure — limiting its appetite for future investment here — and shifted its focus and investment capital to high-growth markets, like Boston, Austin, Texas and Florida. Northland also is currently planning a major redevelopment in its Newton, Mass., home base.

Gottesdiener insists he didn't overpay for his Hartford office buildings, but he may have overleveraged, financing 75 percent of each of those properties with debt. In most markets, that would be prudent, he said, but Hartford office rents have not risen in more than two decades, while expenses, including property taxes, have steadily crept up.

The recession wreaked havoc on city property values and Northland's foreclosed properties all had sizable mortgages reaching maturity. Those loans were also securitized, making it difficult to renegotiate terms. Northland lost all three properties — CityPlace II, Goodwin Square and Metro Center — during a two-year stretch in 2011 and 2012.

Gottesdiener said his failed Hartford office investments, which he says have been Northland's only foreclosures in its 27-year history, convinced him to return to his multifamily roots, buying and building housing properties across the United States.

He says they have invested $3.5 billion over the last decade and have holdings in 10 states.

But today, Gottesdiener says he's refocused on Hartford. Contrary to critics who claim he dislikes the city and keeps retail rents high to keep those spaces vacant, he says he hopes to develop more here. It's a chief reason, he says, that none of his Hartford holdings are for sale.

"I love Hartford, so we're happy to be here. But we're very cautious,'' he said.

With the state-led, $550 million financial bailout of the city, the addition of new housing units, UConn's downtown presence, plus rail and other transit options, Hartford is poised, he said, for an economic and cultural rebound. He also sees promise from the success of Dunkin' Donuts Park at the front door of the proposed Downtown North housing, office and retail development.

He says his retail storefronts at XL Center, 242 Trumbull, and the north side of Pratt Street are empty, not due to high rents, but "because there is no demand for retail," other than bank branches. He said Northland has invested more than $10 million in cash and in-kind services to attract and prop up retail tenants over the years, including local fashion retailer Morneault's Stackpole Moore Tryon and Hartford Prints.

He rattled off other tenants, mainly restaurants, that opened but didn't last in various Northland-owned retail spaces — Wireless Zone, Rio Grill, Capital Inc., Tanuki Goten, investment adviser Smith Whiley & Co. and the short-lived Market at Hartford 21 grocery store. He also said that, in 2009, Northland obtained a lease proposal from office-supply chain Staples to occupy 3,526 square feet at Hartford 21, but that deal fizzled.

Lessons learned

Gottesdiener says he learned some valuable business and public relations lessons from his Hartford experiences, ones he vows not to repeat. Northland, for example, has largely moved away from investing in office buildings, he said.

Also, its Hartford retail strategy is to mainly lease to creditworthy tenants.

"That's why we have no tenants," he said. "There are no credit tenants, except banks."

Local retail brokers and city economic development officials have said over the years that Hartford doesn't have enough foot traffic to draw major retailers and that the focus should be on attracting and renting space to small businesses.

Gottesdiener agrees that Hartford needs about 5,000 apartment units downtown — the city currently has about 2,650 being leased or in the construction pipeline, including 1,550 units backed by CRDA — to create a critical mass of residents attractive to bigger retailers.

"I'm an optimist. I'm still optimistic about what Hartford can be,'' Gottesdiener said. "But I'm more realistic about the way in which the city and state conduct their business. They have a tendency to literally chase the job-creators out of the market. That's how we felt when we left."

XL Center's future

Gottesdiener said he wants to be part of this new round of local development. However, a pair of major obstacles loom. One is the XL Center, the aging 16,000-seat arena in downtown's heart that shares part of its Trumbull Street entry frontage with Gottesdiener's Hartford 21.

The other is the mothballed former YMCA high-rise at Jewell and Pearl streets for which Gottesdiener has been unable to pry loose funding for it from CRDA to convert it into apartments.

CRDA's plan for a $250 million XL Center makeover has stirred discussions inside CRDA about a potential eminent-domain takeover of Gottesdiener's "Trumbull block'' — space that includes atrium and adjoining retail/office space that Northland owns — talks that infuriate the developer.

Gottesdiener says the best use for the XL Center — particularly if the renovation funding doesn't come to fruition — may be to raze it and remake the site into another more attractive community amenity. And if XL is torn down, he says he covets a hand in whatever is redeveloped there.

His vision would be to add apartments to the Trumbull and Asylum wings of the development and a complementary tower on the northwest corner of the site, with a public amenity — like a town green or ice-skating rink, a la New York City's Rockefeller Center — in the center.

He said the XL Center is an urban planner's worst nightmare because it "acts as a giant clog in the heart of the city." He's long advocated for moving the arena to a different site. Ideally, he said, the city should have an economic-development plan to link Allyn and Pratt streets and develop empty lots.

But before any decisions are made about the fate of XL and the city's efforts with a Stamford developer — RMS Companies — to remake the Downtown North section surrounding Dunkin' Donuts Park, Gottesdiener says top city and state leaders, plus other downtown landlords, employers and other stakeholders, must ask: Does Hartford really need or want an arena? If so, how many should it seat and where in the city should it be?

That state lawmakers, Gottesdiener says, have been unwilling to fund CRDA's $250 million makeover makes it all the more unreasonable for the agency to go after Northland's linked Hartford 21 Trumbull block parcel because there is no other plan in place.

"They came up with a vision," Gottesdiener said. "It was an intelligent vision; at $250 million, a like-new arena. But they didn't get the money. The legislature has Hartford fatigue. They said, 'Oh, we're not giving it to you. We just gave you $550 million to pay off your bonds.' "

CRDA Executive Director Michael Freimuth said "an arena with sports, entertainment and family events contributes to the quality of life and energy of a downtown."

His agency still backs the XL renovation plan — which calls for construction of a second concourse, new club and premium seating, and additional amenities like restaurants — that was developed in conjunction with an outside consultant that did extensive research on the arena's market.

Freimuth said whether or not his agency pushes the state legislature for the funding again next year will depend on the potential sale of the building. CRDA, at the request of lawmakers, put XL Center up for bid in the spring with hopes of finding a private buyer. Only one bidder, Chicago's Oak Street Real Estate Capital, responded to the June 29 offer deadline. That proposal is under review.

In the meantime, Freimuth insists it's important for CRDA to control the entire XL Center property.

Northland's Trumbull block, Freimuth said, is crucial to the short-term operations and long-term redevelopment of the arena. The retail space, for example, includes a three-story, 192,000-square-foot parcel that would be needed to expand XL Center's current footprint. A 2015 study conducted by SCI Architects concluded that at least 100,000 square feet of additional space would be necessary to bring the XL Center up to modern-venue standards.

Freimuth said CRDA's board gave him the authority in February to negotiate purchase of the property, but he and Northland haven't been able to come to terms on price. CRDA paid for an appraisal of the property, which Gottesdiener says was too low.

CRDA is still considering eminent domain, Freimuth said. The agency has $40 million from the state legislature to make that happen.

Gottesdiener said that money is better spent making much-needed upgrades to the arena. He also noted that CRDA, which pays Northland to rent XL Center's atrium space, is not always timely with its payments.

Meantime, Mayor Bronin said he agrees there are many possibilities for the XL Center site. But no matter what ultimately goes there, "we all need to recognize that the existing facility is obsolete and needs to be renovated or torn down."

"And no matter what," the mayor said, "we better be prepared to make a significant investment to ensure that we don't end up with an empty shell or a yawning hole in the middle of our Capital City. That's why it makes sense to consolidate and simplify the XL Center's complicated ownership structure."

YMCA property

Northland's Jewell Street property is another touchy subject. The long-vacant building is considered a prime target for redevelopment into apartments.

In 2015, Northland proposed a $70 million conversion of the building into a seven-story, 200-unit apartment complex and it asked CRDA for $25 million (including $5 million for demolition), but its overtures were turned down.

Freimuth said via email the proposal "was too expensive per unit in public subsidy, not of the right scale for the site and had a series of design concerns." He added that CRDA "remains open to a refined proposal."

However, Gottesdiener said his subsidy ask — approximately $100,000 per unit, minus the $5 million for demolition — was in line with other CRDA-backed projects: 179 Allyn St. (63 units) received $6.5 million in CRDA funding, or $103,000 per unit; 81 Arch St. (53 units) received $5.6 million in CRDA funding, or $103,700 per unit; and the Front Street lofts (121 units) received $12 million in funding, or $99,100 per unit, records show.

The problem, Freimuth said, is that Northland wanted a large grant, whereas the Allyn Street project, for example, received a partial loan. And while Front Street lofts did receive a state grant, the project pre-dates CRDA, he said, and was a legacy of Adriaens Landing.

It was a similar type of grant that Northland received from the Capital City Economic Development Authority — the predecessor to CRDA — to help finance its Hartford 21 apartment tower in the early 2000s, Freimuth said.

Gottesdiener said he's upset because he received little feedback on his 2015 proposal.

Meantime, tension over the Jewell Street site was ratcheted up after the city's blight enforcement office last summer began citing the building for numerous violations. That sparked a tense war of words between Bronin and Gottesdiener this spring.

Contacted after Gottesdiener's interview with HBJ, Bronin, through a city hall spokesman, emailed that "we would love to work with Northland to reimagine their properties, … ."

"But whether it's for tax advantages or because of the way their deals are structured," Bronin said, "they've made a conscious choice to leave their properties vacant and lifeless — despite having creative and willing partners in both the city and CRDA, and despite the new energy and activity that you can feel and see in Hartford today."

Gottesdiener insists CRDA and the city should be treating him as a partner. He's also not backing away from future Hartford projects. In fact, he says his other downtown holdings — 100 Allyn St. and 242 Trumbull St. — are ideal for apartment conversions, but there's no clear project timeline.

"We're not interested in exiting Hartford," Gottesdiener said. "We actually think there's room for optimism."

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