With Hartford's Front Street Entertainment District finally gaining traction, and most importantly tenants, the opportunity for developer HB Nitkin Group to finally cash in on its investment is getting closer.
But don't expect the Greenwich-based development firm to seek a buyer for its long-awaited 66,000-square-foot mixed-use development any time soon.
Helen Nitkin, who along with her late husband Bradley started the firm more than 25 years ago, said the company plans to be involved with the project over the long haul.
In fact Nitkin, in a recent interview with the Hartford Business Journal, said the firm is raising another $13.5 million fund to help finance Phase II of the development, which will include build out of a 115-unit, five-story apartment complex.
That fund will be on top of the $9 million HB Nitkin Group has already invested in Front Street.
"We are long-term holders of property," Nitkin said. "Our expectation is that we will complete the first phase of Front Street, and the residential component, and hold them for the long term."
For HB Nitkin Group, Front Street has represented a new, interesting and at times frustrating commercial real estate development.
It brought the firm out of its core competency of purchasing and managing existing commercial properties, then repositioning them by upgrading the facilities and tenant mix.
It's a successful business model for the firm, which has amassed a portfolio of more than a dozen strip-, office- and retail-centers in New York, Fairfield County and Greater Hartford, including the Shops at Somerset Square in Glastonbury and the 215,000-square-foot Cromwell Square retail center.
But Front Street was HB Nitkin Group's first ground-up development, taking place in an untested market during one of the weakest economic climates in decades.
The risks were significant, but Helen Nitkin said her husband was committed to a project in Hartford.
"I think in real estate you don't know how markets are going to behave. You can't change the market, you have to work with it," Nitkin said, adding that she views Front Street as a legacy project for her late husband, who died of cancer in 2009.
Bradley Nitkin was diagnosed with cancer just a year after his firm took on Front Street in 2005. The HB Nitkin Group replaced the original proposed developer, Richard Cohen, who was pushed out of the project after the state said he failed to begin construction in a timely manner.
It turns out the first phase of the project, which includes the current 66,000-square-foot entertainment and retail center, wouldn't get built until 2010, after the initial vision for Front Street was significantly scaled back.
Making things more complicated was the economic downturn and a downtown Hartford market that hasn't had a recent history of attracting entertainment venues or national restaurant chains.
As a result, Front Street has stood vacant since 2010.
But that will soon change.
Spotlight Theatres is scheduled to open its doors next week, bringing to downtown its first movie theater in decades. Infinity Hall also recently signed on as a tenant. The Norfolk-based live music venue plans on opening a 600-seat concert hall and restaurant sometime next year.
And a third restaurant tenant has also signed a lease, although Nitkin wouldn't name the tenant. Sources confirmed to the Hartford Business Journal that Capital Grille is that restaurant, but the company is waiting to make its own announcement.
By far the biggest challenge, Nitkin says, has been attracting tenants to a new development in an untested market during a soft economy.
Along with having to take a leap of faith on Hartford, upfront construction costs are higher to build out a newly constructed space.
As a result, negotiations have been prolonged.
During good economic times, Nitkin said getting a tenant signed might take three to six months, but negotiations with Front Street tenants have taken six months to a year, or even longer.
"Negotiations take a long time because we are working with raw space," Nitkin said. "When the economy was weak, restaurants were more inclined to take over pre-existing restaurant space because the capital investment was less. Now that the economy is strengthening and vacant space is being absorbed, restaurants are now looking to us and willing to spend the money they need to."
The two main sticking points in negotiations have been rental rates and tenant improvement allowances, Nitkin said. Without HB Nitkin supplying upfront funds for tenants to build out their space, it would be nearly impossible to convince businesses to open at Front Street, Nitkin admits.
And the firm, Nitkin said, has been generous in helping attract tenants.
Infinity Hall, for example, is getting $1.3 million from the state and an additional $2.9 million from HB Nitkin, which will cover more than half of the $5.2 million price tag to open a music venue.
Some of those funds are coming from a $5 million grant provided by ESPN, which originally proposed to have a presence in Front Street when the project was first pitched more than a decade ago. ESPN eventually backed out after years of delays and changes to the overall concept plan, but did provide the grant money as a gesture of goodwill.
Now that several prime tenants are inked to deals, Nitkin said the project should attract other businesses. With 25,000 square feet of space left to lease, Nitkin said her team is in negotiations with two potential restaurant tenants that specialize in seafood and Mexican cuisines.
More deals could be announced by the end of the year.
"Our strategy is to work on big tenants right now, then assess how much space we have available to determine how many and what kind of small tenants are needed," Nitkin said.
Meanwhile, financing for Phase II of Front Street is finally progressing. Nitkin said her firm is negotiating with two banks interested in financing part of the apartment project, which will also include 27,000 square feet of additional retail space.
The $13.5 million fund HB Nitkin Group is raising will serve as equity for Phase II, and the state has already set aside $12 million for the project.
Nitkin said the development will consist mostly of studios and one-bedroom apartments and will likely be built using stick construction, which is more cost effective than using steel and concrete.
In terms of viewing Front Street as a long-term investment, Nitkin said she expects the development will become cash flow positive by 2016, assuming the apartments are built and leased by then.
After that, the firm will likely look for more long-term financing.
Nitkin said 90 percent of her firm's portfolio properties are typically held long-term, some for as long as 25 years, so the idea of holding and managing Front Street for the foreseeable future isn't out of the ordinary.
Nitkin said the firm isn't working on any other deals right now, because the main focus is to make Front Street a success.
"My husband made a commitment to Hartford so it has always been important to make this project a success," Nitkin said. "He put his imprint on this. It is part of his legacy."