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Plan for Downtown makeover was born in Chicago
Monday, February 14, 2000 By Dan Fitzpatrick and Tom Barnes, Post-Gazette Staff Writers
Market Place at Fifth and Forbes began quietly along Chicago's Magnificent Mile on a warm spring night in 1996.
Pittsburgh Urban Redevelopment Authority Director Mulugetta Birru strolled the Chicago sidewalks with URA colleagues Dan Frankel, Joe Gariti and Jerry Dettore. In Chicago for an urban development conference, the four had scheduled a meeting at 900 N. Michigan Ave. -- the offices of Urban Retail Properties, a publicly traded development company. Urban Retail executives took the URA team on a tour of their Downtown Chicago holdings. The highlight was Water Tower Place, a seven-level vertical mall that at the time generated nearly half of the retail sales on North Michigan Avenue.
On the first floor were Lord & Taylor and Marshall Field's department stores. Glass elevators carried shoppers between floors. Connected to the shops were an underground parking garage, a 431-room Ritz-Carlton Hotel and 40 floors of luxury condominiums.
"We were really impressed," Dettore recalled.
As they walked along Michigan Avenue, which parallels the shore of Lake Michigan, they passed skyscrapers and a collection of upscale shops. Among the street's ritzy offerings were Tiffany & Co., FAO Schwarz, Crate & Barrel, Polo/Ralph Lauren and Giorgio Armani.
Urban Retail executive Jim Czech pointed to the stores he thought would work in Pittsburgh.
At dinner, talk turned from Michigan Avenue to Downtown Pittsburgh. Back home, Mayor Murphy had a commitment from Lazarus to build a department store at Fifth Avenue and Wood Street. His larger goal was to support Lazarus with a revitalized retail district.
Murphy was not the first Pittsburgh politician to think that way. In the preceding two decades, Mayors Richard Caliguiri and Sophie Masloff proposed several renewal schemes for Fifth and Forbes avenues, but many of their ideas collapsed from oversized ambition or an uncooperative real estate market.
Urban Retail Properties, a Chicago developer, plans to contribute $179 million to the project. Up front, it has agreed to provide the Pittsburgh Urban Redevelopment Authority with a $10 million loan and pay $28 million for the land.
Tenants of Market Place would be expected to provide $195 million for the outfitting of their stores.
The Strategic Investment Fund, a private pool of capital created by the Allegheny Conference on Community Development, would loan the URA $10 million.
Public funds would account for $53.5 million of the project costs, said URA Executive Director Mulugetta Birru. That includes a $17 million loan from the Pittsburgh Development Fund, a $10 million state grant, a $6 million URA grant, $6.5 million in parking tax revenues from a new garage on First Avenue and two new underground garages built for Market Place, and $14 million in tax increment financing from the new Mellon Bank and PNC Bank operations centers.
To pay for the two underground garages, a nonprofit development arm of the URA would issue $27.5 million in revenue bonds. Birru does not consider that to be public money.
Street improvements costing $15.5 million would be paid with city capital budget money. Birru does not count that as part of Market Place's public share because the work was to be done with or without the new project.
HOW THE $480.5 MILLION WILL BE SPENT
Acquiring property and relocating businesses -- $78 million
Demolition of buildings -- $13 million
Facade preservation -- $5 million
Construction of two underground garages -- $33 million
Street work -- $15.5 million
Construction of buildings -- $141 million
Outfitting the interiors of the new stores -- $195 million
HOW THE URA PLANS TO PAY OFF ITS MARKET PLACE DEBT
Because it will receive rent payments from the new stores, Urban Retail Properties has agreed to pay the URA a fee of $3.50 per square foot the first year of operation. The URA would use that to pay off $37 million in loans from the Pittsburgh Development Fund, the Strategic Investment Fund and Urban Retail Properties. If the developer can fill 600,000 square feet with new tenants, that would mean $2.1 million in fees for the first year. The fee would increase by 2 percent a year.
On this schedule, it would take the URA about 20 years to settle its debts. In reality, though, it will take longer. Urban Retail Properties has agreed to funnel some of its $3.50-per-square-foot fees to AMC Entertainment Inc., a Kansas City-based company that wants to anchor Market Place with an 18-screen theater. The fees would be used to reimburse part of AMC's city amusement tax bill. By law, AMC has to pay a 5 percent amusement tax on all tickets sold. Those taxes still would be paid, but Urban Retail Properties is willing to reimburse AMC for taxes paid on the first 1.5 million movie tickets sold. The cap on reimbursement would be about $300,000 a year.
Urban Retail, realizing the profit potential, was willing to help Murphy give it another try, according to several people who were there that night. As the sun disappeared over Chicago's lakefront, they talked about the inevitable controversy of such a project.
Even so, "I don't think the developer had a sense of how significant [the controversy] might be," Frankel said.
The Murphy plan
What started that night in Chicago is now a $480 million plan to demolish and resurrect several key blocks in the Golden Triangle.
Mayor Murphy and Urban Retail Properties want to replace a string of old buildings with a collection of upscale eateries and boutiques. Shoppers would walk Fifth and Forbes avenues as they do the Magnificent Mile, entering each store from the street. Everything would be open late.
In the block bounded by Fifth, Forbes, Wood and Market Square, there would be an 18-screen movie theater and a 500-car underground garage.
Many of the new shops would be upscale. Tiffany & Co., FAO Schwarz, J. Crew and Crate & Barrel are among the proposed retailers, along with an array of sports bars and music clubs.
Not everyone is sold on the idea, though.
Some building owners are willing to sell, provided the price is right. The URA board approved the first sale last week -- $1.3 million for Pittsburgh Home Savings and Loan Association property at 434-438 Wood St.
But other property owners are vowing to fight. In case Murphy tries to use the city's power of eminent domain to take property against their will, some owners are talking to the Institute for Justice, a nonprofit legal group in Washington, D.C. The TV news show "60 Minutes" may do a segment on the dispute, too.
Opponents of the Murphy plan also enlisted help from historic preservationists, such as Preservation Pittsburgh and the Pittsburgh History & Landmarks Foundation, which want to save some of the older buildings along Fifth and Forbes.
Critics of the Murphy plan also are pressuring City Council, which must approve the project before it can proceed.
Uneasy partnership
Urban Retail Properties, as it turns out, was not the city's first choice for Downtown retail. Nor was Fifth Avenue the preferred location.
Understanding the evolution of Market Place at Fifth and Forbes requires an understanding of how Urban Retail discovered Pittsburgh. It got the city's attention six years ago, when Murphy wanted to fill a patch of land between USX Tower and One Mellon Bank Center known as City Center. At the time, he wanted to build a vertical mall.
Urban Retail's Czech, who used to work for Johnstown developer Crown American, heard about the proposal through Pittsburgh developer Dick Zappala, chief executive of The First City Co. Together, they proposed a five-level, 946,000-square-foot mall that sounded a lot like Water Tower Place.
The city resisted Urban Retail's participation.
"They didn't know Urban," and thus viewed the company with "defensiveness," said Arnie Gefsky, an attorney who represented City Center's main land owner, Marine Midland Bank of Buffalo, N.Y.
The city had another developer in mind -- DeBartolo Corp. of Youngstown, Ohio. It had close ties to Pittsburgh because Edward J. DeBartolo Sr. had owned the Penguins hockey franchise.
Neither the city nor Marine Midland Bank knew of the other's intentions.
"I was not happy with Marine Midland," Birru said. "They were not open with us."
Gefsky denies that. "We were trying to get a deal done. There were all kinds of possibilities and things were happening. Some things they were doing without notifying us. We did not know the city was talking to DeBartolo."
City Center sat vacant.
Nordstrom switcheroo
Despite their allegiances to opposing sides of the City Center debate, both the DeBartolo company and Urban Retail promised to deliver the same shiny package -- a Nordstrom department store.
A Seattle-based chain coveted by developers around the country, Nordstrom wanted to build a store in Pittsburgh.
Because of Pittsburgh's fragmented topography and network of old roads, both DeBartolo and Urban Retail thought they could place Nordstrom in the center of the bullseye -- at City Center.
DeBartolo, in fact, rented two helicopters to show members of the Nordstrom family around the region, stressing Downtown's central location and proximity to many of the region's affluent shoppers.
Eventually, DeBartolo and Urban Retail began talking partnership.
That would soon fall apart, however. The same day Nordstrom family members were in Pittsburgh for the helicopter tour, they visited the Rooney family. The two families were acquainted through the National Football League -- the Nordstroms, at one time, owned the Seattle Seahawks.
"We were told they would talk football," Birru said.
They didn't. Instead, they talked about the Rooneys' plan for a $600 million North Side retail and entertainment complex that would complement Three Rivers Stadium.
In July 1996, the Rooneys announced they had a letter of intent from Nordstrom. With that, the City Center deal was dead.
Urban Retail left town.
Poster board and plastic
The City Center collapse left unanswered the question of how to improve Downtown retailing.
Among those worried about the appearance of Fifth Avenue was PNC Bank, which has its headquarters at Fifth and Wood.
"We were concerned about the disrepair of the adjacent environment on Fifth Avenue," said Gary Saulson, senior vice president for PNC Realty Services. "We have a $100 million investment in our campus and we wanted to protect that."
So, PNC began buying buildings.
In the late 1990s, it paid close to $10 million for a series of properties west of One PNC Plaza and on the north side of Fifth Avenue, giving it control of a strategic block at the heart of the Golden Triangle.
It may be a strategic block for Market Place as well. If Murphy's plan goes forward, many of the new PNC buildings would be razed, the land would be leased to Urban Retail and three-story retail buildings would be built on that block. PNC might eventually build additional offices on top of those stores, Saulson said.
As PNC negotiated to buy the neighboring buildings, Murphy switched strategies, too.
Despite the Rooneys' announcement about a North Side mall, the mayor still wanted Nordstrom and other new shops in the Golden Triangle instead.
His aides urged him to pursue a concept that would surpass the North Side mall in vision and scope. Unconvinced that an enclosed mall would work Downtown, Murphy settled on street-level retailing, with city sidewalks leading customers to the stores.
Remembering Urban Retail Properties from the City Center discussions, Birru arranged the get-together in Chicago.
"That meeting reinforced to me that this is the type of concept Pittsburgh ought to emphasize," Frankel said. "We ought to get away from a mall concept."
After his visit, Birru called Urban Retail executive Czech. "Why not come to Pittsburgh?" Birru said.
Urban's first visit to Downtown Pittsburgh, Birru remembers, was a "beautiful day. Downtown was packed with people." They walked into a crowded Kaufmann's at 1 p.m. They also walked Grant Street, Fifth Avenue and Smithfield Street.
At that time, Murphy was only looking at reshaping one block, bounded by Fifth, Wood, Forbes and Market Square.
Urban Retail told the city it was missing an opportunity to do an even bigger project, said Bob Lenke, senior vice president
By adding the block bounded by Wood, Fifth, Forbes and Smithfield, along with some adjacent properties, the city had a chance "to have a tremendous regional retail and entertainment draw," Lenke said.
"We told the city that taking just a single block [for redevelopment] was not maximizing the potential," he said. "We couldn't get enough critical mass [of attractions] on just that one block."
Urban Retail presented city officials with its first official site plan on Jan. 21, 1997, six months before the two sides would officially agree to work together. The plan, a model made of poster board and plastic, showed a much larger district than the one Murphy would unveil 2 1/2 years later.
It covered all of Market Square and abutted Liberty Avenue. It included more buildings on Forbes. Many of the prospective tenants, though, were national names. The Limited and Urban Outfitters were among the stores on the wish list.
That July, the city and Urban Retail signed an agreement that allowed the developer time to find tenants and study the project further.
They also agreed to keep the work quiet and out of public view.
The company
The vow of secrecy was a good fit for Urban Retail, a conservative company that prefers not to talk about its plans until shovels hit the dirt.
It has yet to sign a final development agreement, but Urban Retail is promising $179 million in land acquisition and construction costs. Of that, $38 million would be paid up front. With city approval, it would own several blocks of prime real estate in the heart of Downtown.
Some worry about ceding that much control to one property owner, especially an out-of-town company that remains a mystery to many people. (See related story above.)
Shattered dreams
If Urban Retail succeeds in Pittsburgh, it will do so where others have failed.
In the 1980s, Mayor Caliguiri hoped to build a people mover to connect the Grant Street area near the new One Mellon Bank Center to the Civic Arena.
That never happened, but Caliguiri did oversee the conversion of the former Warner movie theater on Fifth into Warner Centre, an in-town mall with restaurants and shops.
Caliguiri's top aide was David Matter. After Matter joined Oxford Development Co. in the late 1980s, he was involved in plans for the "Pittsburgh Centre," which in today's parlance might be called "Fourth and Forbes."
It was to be an enclosed mall from Wood Street to the Kaufmann's garage on Cherry Way. The garage would have been demolished and replaced with underground parking. Other buildings also would have gone, but Oxford would have kept the historic Fourth Avenue facades of the old financial buildings, in an area sometimes called "Pittsburgh's Wall Street."
"Those kinds of projects had taken place in other cities, such as St. Louis Centre, anchored by a department store of the May Co.," parent of Kaufmann's, Matter said.
But rising interest rates and a poor real estate market in the late 1980s kept investors away and the project never made it beyond blueprints.
In the early 1990s, Mayor Masloff took a more modest approach to improving Fifth Avenue.
Again, the attempt was unsuccessful.
Masloff wanted to beautify the street with a new surface, sidewalks and curbs. She wanted to plant trees, hang colorful banners on poles and redo building facades. She also wanted to create "inlets" in the sidewalk so buses could pull over and pick up passengers without blocking traffic.
"We had beautiful plans," Masloff said. "We thought it would be a start [on renewal] without being too costly. The first section [to be beautified] was to be Fifth Avenue from Grant to Smithfield."
But she wanted building owners to help pay for the work in front of their buildings, an idea that didn't go over well.
Another major problem was the vaults beneath sidewalks that many store owners were using for storage or even as extensions of their stores.
To simplify reconstruction of the street and sidewalk, the city wanted to fill in the vaults, but some owners objected. So a more sophisticated method of propping up the street surface had to be developed, delaying the work for several years.
Joseph Sabino Mistick, a former chairman of the Zoning Board of Adjustment who became Masloff's top aide, said he considered using vacant second and third floors of buildings along Fifth and Forbes as loft apartments or offices.
"We focused on the use of existing buildings, not demolition," Mistick said. "But when you use that approach, there are some difficult fire- and safety-code problems."
Mistick also recalled the city's effort to get Macy's to locate in the vicinity of Grant and Sixth Avenue.
"We were pushing hard for a Macy's," he said. "They even gave Sophie a 6-foot-long Macy's credit card as a symbol of the fact Macy's wanted to come here."
Macy's never arrived.
When Murphy became mayor in January 1994, development was at the top of his to-do list.
Two years ago, he was able to carry out the Fifth Avenue street resurfacing and sidewalk replacement that Masloff talked about. But the rest of the Masloff plan wasn't accomplished.
Murphy's street resurfacing angered some business owners on lower Fifth Avenue because customers had trouble reaching them.
But that irritation is nothing compared with how upset some Downtown merchants and property owners are over Murphy's current redevelopment plan.
"I'm not giving up without a fight," said Dr. Edward Diamond, an optometrist whose family for 150 years has owned the Wood Street building where he works.
"We survived the flood of 1936 and we were burned to the ground in 1948. Now I'm told the city is going to take my building and put another business in its place. This is confiscation without representation."
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