South Provo's planned major economic revitalization is going to have to wait until The Boyer Co.'s Southgate Center, a proposed 59-acre mixed-use project to be anchored by Target Corp., gets back on track.
First announced in November 2007, the project, to be located at the intersection of 1860 South and University Avenue, was supposed to have broken ground in spring 2008 and be completed by July, with Target scheduled to open a 138,000-square-foot store in Provo next month.
But all that came to a grinding halt as the nation lurched into the worst economic crisis since the Great Depression as fallout from the housing and financial meltdown spread into retail, manufacturing and other sectors over the past year, causing unemployment to skyrocket and consumer confidence to plummet even further.
But Provo City officials on Thursday were anxious to put a positive spin on the stalled project, saying they hope that it will get back on track once the national economy recovers, hopefully, by the early next year.
"The project is alive and well, but on retail market hold," said Leland Gamette, economic development director for Provo, at an administrative meeting Thursday. "Target and other key retailers are still interested in Provo but are waiting for a return of consumer confidence."
"Southgate has been on hold for the past nine to 10 months," said Lew Swain, senior partner with Salt Lake City-based Boyer, on Thursday. "There is no way to put a calendar date on when we will resume building Southgate because it takes numerous different variables to make the environment acceptable. But we are confident that it is still an excellent development location and one that will eventually be built."
Swain blamed the still tight credit environment, which continues to thwart many developers' efforts to obtain construction financing especially for large commercial projects, as well as weak consumer spending, which made many national retailers scale back their development plans.
"The tight credit market makes it difficult to secure construction loans and retailers to project profitable sales because consumers aren't buying as much. Until those three forces come together in an affordable way, these kinds of large dynamic projects will have to be postponed," Swain said.
Valued at between $75 million and $80 million, the proposed project comprises 459,550 square feet of retail space and 225,000 square feet of office space.
Boyer was in the process of getting $60 million in construction financing from Wachovia Corp. when it was acquired last year by Wells Fargo & Co., he said.
"And then virtually all other lenders said they were also out of the market when the recession worsened. Unless someone is able to write us a check for $60 million, there are virtually no developers today that use internally generated funds to build projects," he said.
Swain said he couldn't comment on how many of Boyer's projects are now on hold. "But most commercial projects across the nation, unless they had funding secured for construction before the recession deteriorated, a good portion of those are now on hold either by the developer, the bank or both," he said.
"The bigger the project, the harder it is to get financing. Banks now prefer to do smaller projects because it diversifies their risk more, in the event one or more projects fail," said Jason Dodge, vice president of brokerage services for CB Richard Ellis.
Similarly, retailers like Target, PetSmart and Sports Authority, which signed letters of intent to open at Southgate, are also on hold. "They are still interested in the project. But when these difficult economic times started, all said they needed to postpone their plans. But when the economy rights itself, we'll try to restart negotiations with them," Swain said.
But Provo City is still moving ahead to prepare the site for a $2.5 million redesign of the 18-hole Reserve at East Bay Golf Course. Provo City is responsible for preparing the site for development, removing the golf course lakes and building replacement wetlands in the area.
"Provo is preparing the golf course to get us positioned and ready to move forward so that we can act very quickly once the market recovers," Gamette said.
Southgate isn't the only project that's on hold. University Tower, a proposed mixed-use retail, office and residential project, to be built on the historic Knight Block on the northeast corner of Center Street and University Avenue, is also stalled.
"The developers of University Tower have been trying to pre-lease that building for over a year. It's a year behind schedule," said Paul Glauser, redevelopment director for Provo.
Even though projects that haven't secured sufficient funding are on hold, Gamette said projects that are funded, like the new Zions Financial Center, a Class A office tower on 200 N. University Ave. in Provo, are moving forward, he said. The new Zions tower is expected to open in spring 2010.