Yale Draws Interest to New Haven's Center
(3/4/2011) (From Wall Street Journal) For more than half a century, the downtown central business district of New Haven, Conn., was a blighted area that students from the nearby Yale University campus routinely avoided.
Today, the area is undergoing a renaissance—reversing a flight to the suburbs and bringing people back to the city for jobs, restaurants and new housing options that have hit the market over the past year.
"Frankly, we've arrived," says Bruce Alexander, a former senior vice president for real-estate development company Rouse Co. who is now Yale's vice president for New Haven, State Affairs and Campus Development.
In the 1950s, residents left New Haven in droves, settling in nearby towns like Woodbridge and Branford. Department stores like Shartenberg's and Macy's, which had anchored the central business district, closed up shop and crime rates shot up.
The area morphed into two downtowns: One for Yale students sticking close to campus and the other that featured pornography outlets and pawn shops.
Boarded-up buildings and empty lots abounded until the late 1990s, when the city encouraged the university to buy 16 downtown properties that had been foreclosed upon by the Federal Deposit Insurance Corp. Yale tapped Mr. Alexander to direct a new real-estate division that today owns 270,000 square feet of office and retail space and 500 apartment units.
Yale is now the city's fifth-largest taxpayer, paying $4.3 million in property taxes last year.
Other real-estate investors took a cue from the university. In the late 1990s, Christopher Nicotra began amassing more than 20 properties in the area in the past decade, turning pawn and porn shops into cellphone stores and law offices.
"Yale is to New Haven as Disney World is to Orlando," says Mr. Nicotra, managing member and president of Olympia Properties, a family-owned real-estate development company. "When we saw what Yale was doing, we started to pay attention."
Drawn by lower rents and access to the university's resources, Yale graduates and other entrepreneurs are choosing for the first time in decades to launch their businesses in New Haven instead of traveling to Boston or New York City.
Perhaps the most visible example is Higher One Inc., a technology and payment company focused on higher education that was founded in 2000 by three Yale undergraduates.
Initially operating out of co-founder Miles Lasater's unheated living room, the company has expanded from three employees to 450 in the past decade.
It moved to a small space in downtown New Haven, where it paid part of its rent in company stock, and then to a building in Science Park, an 80-acre former industrial area. In June, the company launched an initial public offering and in December announced plans for a $45 million project to rehabilitate two vacant local buildings for its new headquarters.
"New Haven provides a good quality of life but is much cheaper than being in New York or Boston," says Mr. Lasater, who recently started holding weekly breakfasts for founders of New Haven-based startups.
Still, the city's renaissance has been slow. Owners of office space hardly benefited from the last decade's real-estate boom: Average effective rent per square foot grew modestly through 2006, peaking at 3.3% in 2007, according to real-estate research firm Reis Inc.
"By contrast, office rents in New York boomed by 25% in 2007 before deflating in 2008 and crashing in 2009," says Victor Calanog, Reis director of research .
The city's average effective rent per square foot of retail space—at $13.72 at the end of 2010—was less than one percentage point higher than it was in 1999, according to Reis. Over the past two years, several local businesses have said they were closing, citing recessionary pressures.
And to revitalize empty storefronts in the city's Ninth Square historic district—an area the city has been trying to jump-start for a quarter century—the city and property owners last summer launched a program called Project Storefronts that provides artists and nonprofits with retail space rent-free and other services to help rejuvenate their operations.
However, vacancies for residential units actually declined in New Haven during the recession, with the rental market getting tighter even as national vacancies set new highs.
In the summer, developer Becker + Becker opened 360 State Street, a $190 million, 500-unit residential rental and retail building on State Street. Today it's nearly 50% occupied and a grocery store plans to open on the building's ground floor this summer
Mr. Nicotra also is aiming to get into the rental game. He has drawn up plans for a 26-story residential building on land Olympia currently operates as a parking lot near the New Haven State Street train station.
Developers say the time is right to add residential buildings to the area.
Gateway Community College is currently building a $200 million campus for about 8,000 students, which will open next year. Meanwhile, Yale is building a new school of management on campus to open in 2013.
"I wouldn't have done this 15 years ago but today, there's demand from people coming in from the suburbs to live in what's becoming a very vibrant city," says Bruce Becker, president of Becker + Becker.
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