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Feature Article, May 2006
Reinventing New England Development
One of the original mall developers is back in play — but it has reinvented itself as a company of companies that’s developing a new generation of projects.
Randall Shearin and Jerrold France
Those in the industry know the name New England Development. But few know that for the past 6 years, after selling most of its mall holdings to Simon Property Group in 1999, New England Development has been incredibly active. Through its efforts with a number of new projects and initiatives — and even companies — New England Development is one of the most active developers in the nation.
For our May issue cover story, Shopping Center Business flew to Boston to meet with New England Development Chairman Steve Karp, President Steve Fischman, and Senior Vice President Doug Karp to see how they’re reinventing New England Development.
Been There Before
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Boston’s CambridgeSide Galleria is a mall that was built around a hotel, office and residential uses in an urban setting. The center proved that dense urban areas could support retail.
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Steve Karp was one of the pioneers of malls in the Northeast. He is also one of the visionaries of the shopping center industry. Known as a creative genius in the industry, he was a master of getting malls and deals done where no one else could. It was this knack that allowed him to develop innovative centers in the 1970s, ‘80s and ’90s, like Boston’s CambridgeSide Galleria, which was a mall built around a hotel, office and residential uses in an urban setting. New England Development was a major player in the industry from the ‘70s to the ‘90s, and was one of the largest shopping center owners and developers in America for several years.
In the late 1990s, Karp and Jerry O’Connor, another mall pioneer, formed the idea to merge the management of their centers to create a larger platform and a large economy of scale. This had never been done before and the thinking at the time was radical. When New England Development’s centers were merged with those of The O’Connor Group, creating an entity called WellsPark Group, one of the nation’s largest privately-held shopping center management companies was formed instantaneously. While The O’Connor Group and New England Development owned their centers separately, WellsPark performed all management, leasing and marketing for the centers.
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New England Development still operates CambridgeSide Galleria, one of the successful centers it developed when the company was involved in the mall arena. Today, it inspires the mixed-use properties that the company is creating.
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In 1999, New England Development sold 14 malls to Simon Property Group for $1.7 billion, effectively disbanding WellsPark. At the time, since New England Development only retained control of four centers, it was thought by the industry that the company was no longer a player in the real estate game. But it was too early to count Steve Karp out.
Company of Companies
Telling the story of New England Development today is different than it would have been 10 years ago. Then, the company was predominantly a mall development and management company that had a few other interests. Today, it is a company comprised of many other companies in addition to its own development functions.
After selling their centers, Steve Karp and Steve Fischman took a look at what they wanted to do next. The doors to New England Development didn’t shut — only the centers were sold, not the company. Always a visionary, Karp realized that real estate development was what he loved to do and what he would continue to do. Along the way of finding more development opportunities for New England Development, Karp created many other opportunities for the company and for other companies over the past 6 years. Today, the company has divisions that are active in everything from mixed-use development to airport retail to resort development to net lease investments to power centers. Its five main areas of concentration are retail, mixed-use, master-planned communities, hotels and alternative real estate investments.
As president of the company, Steve Fischman manages the firm’s activities and directs the complex process that brings Steve Karp’s visions to life. He also oversees New England Development’s investments in other real estate and non-real estate activities.
Prior to joining New England Development 15 years ago, Fischman was a partner at the Boston law firm of Goulston & Storrs, where he specialized in real estate and finance law. He represented developers and owners of all types of real estate including shopping centers, hotels, office projects, housing projects and industrial properties.
Doug Karp joined New England Development in 1999. As senior vice president, he is involved in all aspects of the company’s business. He manages many of the firm’s development projects and serves as asset manager for its hospitality properties. In 1999, he was responsible for overseeing construction of the White Elephant Resort, transforming this 1920s Nantucket property from an eclectic mix of cottages into a premier hotel.
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One of the ambitious mixed-use projects that New England Development is working on is Pier 4 along downtown Boston’s waterfront.
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Doug Karp brings to New England Development the perspective of a retailer. He co-founded the retail chain Lids with Steve Fischman’s son, Ben, in the late 1990s. After selling Lids in 1999, Doug decided to take his experience in deal making from the retailer side of the table to the development side.
Steve Karp, Steve Fischman, and Doug Karp are all instrumental in how New England Development works. Other key individuals include Dawn Neher, CFO and executive vice president; Greg Sullivan, executive vice president — corporate development; Bruce Herman, executive vice president, controller; and Carol Carbonaro, senior vice president — leasing. From operating marinas and hotels to shopping centers and airport retail, the company has a lot of people running its various businesses.
Reinventing Development
After selling the malls, New England Development knew that it would continue developing properties. They wanted to do more creative projects. One of the malls that the company kept ownership of was CambridgeSide Galleria, the most intricate mall development that the company had ever worked on.
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Wisconsin Place is a 1.1 million-square-foot retail, residential, and office project, New England Development is creating in Chevy Chase, Maryland, in partnership with Boston Properties and Archstone-Smith. Wisconsin Place will include The Shops at Wisconsin Place, featuring 305,000 square feet of retail including Bloomingdale’s, streetfront specialty retail, and a full-service Whole Foods Market. Wisconsin Place will also include 290,000 rentable square feet of Class A office space and 432 luxury apartments. Plans also call for two parks, a community center, and a 1,760-car parking garage as part of the project.
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“At the time it was built, it was one of those projects where people said it would never work because of the tight spaces it was confined to,” says Karp. “But because of its location surrounded by office, residential and the universities, it did.”
Karp loved the challenge of the project, and he knew that anything he did in the future should be challenging. As any developer knows, the larger the risk, the bigger the reward. Mixed-use projects offered that reward, and with large tracts of land in New England hard to come by, Karp saw it as the future. Karp also knew he wanted to continue developing in New England. With the company’s holdings there, it made sense to stay put.
“We had a lot of local knowledge and local relationships in New England,” says Karp. “We decided that we would continue to develop real estate here.”
The biggest concentration for New England Development over the past 6 years has been mixed-use development. The company has five mixed-use projects currently under construction or planning. These aren’t small projects; they’re large undertakings that will take years to develop.
“Mixed-use projects are very difficult to do,” says Karp. “There aren’t many successful mixed-use projects that have been done by retail developers. We have found a little niche for ourselves, we feel.”
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New England Development is creating Wisconsin Place, a 1.1 million-square-foot retail, residential and office project, in Chevy Chase, Maryland.
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In Chevy Chase, Maryland, the company is developing Wisconsin Place, a 1.1 million-square-foot retail, residential, and office project, in partnership with Boston Properties and Archstone-Smith. New England Development is the managing partner. Wisconsin Place will include The Shops at Wisconsin Place featuring 305,000 square feet of retail including Bloomingdale’s, streetfront specialty retail and a full-service Whole Foods Market. Wisconsin Place will also include 290,000 rentable square feet of Class A office space and 432 luxury apartments. Plans also call for two parks, a community center, and a 1,760-car parking garage as part of the project.
New England Development has been working on the project for more than 8 years. The company purchased the land from The May Co. and is developing the project on the property. May planned to rebuild the existing Hecht’s store on another part of the site and have it anchor the retail portion. However, when Federated took over May, the company decided the location — in the center of a high-end shopping district that includes Neiman Marcus, Saks Fifth Avenue, and Tiffany & Co. — would be better for Bloomingdale’s. The first phase of the project, to include the Bloomingdale’s store, will open in 2007.
In Chestnut Hill, Massachusetts, New England Development is creating another mixed-use project. Located near The Atrium Mall and The Mall at Chestnut Hill along Route 9, Chestnut Hill Square will have specialty retail space, lifestyle restaurants and a grocery, as well as 220 condominium units. The site is currently in the permitting phase.
In downtown Boston’s waterfront, the company is redeveloping Pier 4, the site of Anthony’s Pier 4 restaurant (once one of the largest volume restaurants in Boston), into a 1.1 million-square-foot mixed-use project that will include hotel, residential, office, retail and civic uses. Pier 4 will benefit from vast investments in roadway improvements and from a new underground transit system that provides direct access to the site.
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In Westwood, Massachusetts, New England Development is partnering with Cabot, Cabot and Forbes and Commonfund Realty, Inc. to develop a visionary 5 million-square-foot, mixed-use project. Westwood Station will include over 1 million square feet of retail space, 1,000 luxury residences, 2 million square feet of office space, and two or more hotels.
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On Route 128 in Westwood, Massachusetts, New England Development is partnering with Cabot, Cabot and Forbes and Commonfund Realty, Inc. to develop a visionary 5 million square-foot, mixed-use project next to the Amtrak/Commuter Rail Station. Poised to transform 135 acres into a distinctive new community, Westwood Station will include over 1 million square feet of retail space, 1,000 luxury residences, 2 million square feet of office space, and two or more hotels.
Westwood Station will feature a large open-air lifestyle center plus a connected power center with large format retailers that will form the heart of the new mixed-use community. It will include an exciting lineup of stores and restaurants, many of which are new to the market.
The uniqueness of the project comes from its namesake, the Route 128 Train Station, which will essentially become integrated with the Westwood Station project. The Route 128 station is the first Amtrak stop outside downtown Boston on the New York line where many suburbanites pick up the train. More than 320,000 passengers board or disembark Amtrak at the station yearly. But they aren’t the only rail passengers; more than 2,100 commuters ride rail trains to and from the Route 128 station daily; they’re able to reach Boston’s Back Bay and Financial District in less than 16 minutes. Westwood Station will enjoy the high traffic that the area already has and become a destination for workers who fill the office buildings. The site is located near Route 128’s junction with Interstate 95.
While most of the company’s mixed-use projects are in the Northeast, Karp says he has looked at other areas and will continue to do so. When the opportunity is right, New England Development will develop in other areas of the country.
Powering Up
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New England Development’s Packard Development division has built many power and community centers in New England. Pictured is Bedford Highlands Shopping Center in Bedford, New Hampshire.
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In addition to its mixed-use properties, New England Development is also active in the development of power centers through its affiliated company, Packard Development. In 2005, one of Karp’s closest friends, Lenny Rudofsky, president of Packard Development, passed away suddenly [see sidebar on page 164]. To continue Rudofsky’s work, Packard Development became part of the New England Development family of companies.
Today, Packard Development is headed by Armen Aftandilian, who understands the industry from engineering to finance, from deal making to construction. He works with New England Development on various aspects of the company’s new developments, including leasing.
About 15 power center projects in the Northeast are currently under development under the Packard Development banner. Packard has four projects under construction in Biddeford and Portland, Maine, and in Claremont, New Hampshire. The company has four projects in the permitting phases in Augusta and Portland, Maine; Leominster, Massachusetts; and Greenland, New Hampshire. It has proposed centers in Bangor, Maine; Groton, Connecticut; and Nashua, New Hampshire. Karp says there are another 10 sites that the company has under option to develop centers in the future.
As with its mixed-use developments, these are not small centers. In the last year, Packard developed Maine Crossing shopping center in South Portland, Maine, for example. The 274,000-square-foot center is anchored by Target, Old Navy, Babies “R” Us, Bed Bath & Beyond, and includes retailers like Men’s Wearhouse and Applebee’s.
Packard and New England Development find a lot of the power center opportunities through the companies’ existing relationships with retailers. Packard has 13 Lowe’s Home Improvement stores completed, under construction, or in permitting. The company also has a long standing relationship with Target. Target located its first store in Maine at Packard’s Maine Crossing. In most cases, Packard has located Target with Lowe’s at its centers. For example, Lowe’s and Target will both anchor Packard’s 520,000-square-foot The Shoppes at Biddeford Crossing in Biddeford, Maine, when the project opens later this year. Other tenants at the center include Old Navy, Best Buy and Linens ‘n Things.
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Armen Aftandilian serves as head of Packard Development, a division of New England Development that builds power and community centers.
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Because of Packard’s aggressive development plans, many retailers like to get on board with the developer to locate in a number of its centers. Kohl’s is one of the latest tenants that has approached Packard about helping the retailer expand in New England.
The biggest hurdle for Packard Development in New England is finding land. It has plenty of demand from retailers. In some areas, it is looking at developing multi-level stores and centers to put more on less acreage.
“We have to find a site where we can fit all of the retailers and then get it permitted,” says Aftandilian. “We have to find a site that will work for everybody so it becomes a win-win situation. We’re in partnership with the retailers.”
“It is a major business for us,” adds Karp.
Hotels Lead To Retail
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Twenty years ago, Steve Karp and his wife, Jill, built The Wauwinet hotel in Nantucket, Massachusetts, a premier resort. Today, the hotel — along with two others — is run by Nantucket Island Resorts, a company owned by New England Development.
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Twenty years ago, Steve Karp and his wife, Jill, built The Wauwinet hotel in Nantucket, Massachusetts, a premier resort that is the only Relaix and Chateaux property on the island. Their love of Nantucket led to the purchase of the White Elephant and the Harbor House hotels and eventually to the establishment of Nantucket Island Resorts.
Nantucket Island Resorts, run independently and based on Nantucket, is a collection of premier hospitality and retail properties. In addition to hotels, the company now owns much of the retail space in the island’s historic town center, which features boutique retail, art galleries and restaurants. “Nantucket is a special and unique place,” says Doug Karp. “We’re committed to a vision of the island that maintains the Island’s charm and character.”
With long success in Nantucket over the last 20 years, New England Development is now applying that knowledge to Newburyport, Massachusetts. The company has recently purchased a large portfolio of downtown and waterfront properties in this seaside town, located 30 miles north of Boston, partnering with the Lagasse family, a local owner. It plans to build waterfront residences as well as new restaurants and retail. The retail mix in downtown Newburyport is very local and New England Development plans to keep it that way.
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In addition to hotels, New England Development’s subsidiary, Nantucket Island Resorts, now owns much of the retail space on Nantucket’s historic town center, which features boutique retail, art galleries and restaurants.
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“Our investment in Newburyport is in both the waterfront development and in the retail downtown. We want both to thrive,” says Fischman.
Touching On Retail
One of New England’s growth strategies has been to realize that it can’t do everything itself. It must partner with people who have different strengths in different areas of the business. It has done this through its alternative real estate investments division. Through that division, New England has partnered with several individuals to form other companies that feed New England Development.
New England Development hired Greg Sullivan, formerly chief financial officer of Trizec Hahn, to find alternative investments for the company. To date, Sullivan has found a handful of companies that New England Development has made investments in.
One such business is Stag Capital, headed by former real estate investment banker Ben Butcher. Stag purchases single tenant net leases with all different credits and packages them as a portfolio. When one is selling 20 net leases with a diversity of credit and geography, it becomes a very valuable income portfolio. It is similar to a mutual fund of diversified net leases. So far, Stag has raised over $200 million of equity capital from pension funds which, combined with leverage, results in significant purchasing power.
Another investment has been made in Fairmount Properties. The company was started by a former Developers Diversified employee who had the idea to locate small retail centers near universities, or locate retail on university campuses. New England Development liked the idea and has invested in the company.
“We have a lot of businesses now,” says Fischman. “The way you operate these businesses is that you have a team of terrific people who are running each one and who we work with on a daily basis. We want to leverage our experience with their energy and talent and help them build these businesses.”
Another of its affiliated businesses is MarketPlace Development, a company that develops and manages airport retail. The company is responsible for all of the retail development, leasing and management at Philadelphia International Airport and LaGuardia Airport’s Central Terminal in New York. MarketPlace Development has also managed the development of numerous retail development programs at airports such as San Francisco International Airport and Seattle-Tacoma International Airport. MarketPlace Development, headed by President Paul McGinn, is run as a separate business.
The airport retail business is a unique sector of the retail industry. MarketPlace Development has been a leader in this emerging retail market over the past several years. With many changes in airport operations and in the airline industry since September 11, MarketPlace has demonstrated its expertise by adjusting its airport programs and generating great results in this changing environment.
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(left to right) SCB Publisher Jerry France, Steve Karp, Doug Karp and Steve Fischman.
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A new area of business for New England Development is a company called Enclave Properties. In the 1990s, too many developers built data centers in hopes that companies would locate off-site servers and data transfer and storage activities in the buildings. While the idea was good, the supply of data centers far outpaced demand. However, demand will catch up with supply as technology continues to impact industry. Enclave is targeting underutilized data centers at favorable pricing with the anticipation that demand will catch up to supply.
While none of them individually are a major component of New England Development, all of these companies add up. For the most part, New England Development tries to keep its hands off its investments and trusts the people that it has partnered with to run the businesses to do what they do best. “We give a lot of freedom to the people who are running the particular company,” said Fischman. “We’ll help them when they need it, in addition to financial help.”
“We’ve diversified what we do,” adds Karp. “We see a lot of opportunity in each one of these businesses. Tomorrow, we’ll probably have a new idea.”
Master-planning
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New England Development led a partnership that purchased 3,000 acres of land in Plymouth, Massachusetts, to create The Pinehills, the largest mixed-use new home community in New England. To date, The Pinehills has sold 1,000 homes (by 10 different homebuilders), opened three golf courses (by Rees Jones, Nicklaus Design, and Ben Crenshaw/Bill Core) and started a town center with retail, offices, café, and post office around a traditional New England village green, all the while building on only 30 percent of the land and keeping 70 percent as open space.
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New England Development has been active in other areas of real estate as well. Before the company sold its malls, New England Development led a partnership that purchased 3,000 acres of land in Plymouth, Massachusetts, to create The Pinehills, the largest mixed-use new home community in New England. Managing partner Tony Green worked with the town of Plymouth to zone the property for 3,000 homes, 1.3 million square feet of mixed-use commercial, and up to four golf courses. To date, The Pinehills has sold 1,000 homes (by 10 different homebuilders), opened three golf courses (by Rees Jones, Nicklaus Design, and Ben Crenshaw/Bill Core) and started a town center with retail, offices, café, and post office around a traditional New England village green, all the while building on only 30 percent of the land and keeping 70 percent as open space.
Houses range from $300,000 to $2.5 million. The daily-fee golf courses have been recognized as the only 4.5 and 5 star courses in New England, and The Pinehills has won over 50 local and national awards including master-planning community of the year in 2004 and smart growth community of the year in 2005.
While working in Plymouth, New England Development saw a retail opportunity in the area and has built more than 500,000 square feet of retail space in Plymouth.
New England Development often finds opportunities through relationships. The company knows how to get projects through New England’s tough permitting and zoning process. The company also has long standing relationships with retailers and a track record of successful retail venues, shortening the timeline from tenant commitment to completed and occupied building.
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New England Development owns a lot of retail in Nantucket. The company operates a separate division, Nantucket Island Resorts, run independently and based on Nantucket, that is a collection of premier hospitality and retail properties.
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The company also finds opportunities because of its portfolio. For example, because the company has been involved in Nantucket for so long, it was approached about Newburyport.
“If you are established within a market, you get well known within that market and you get an opportunity to look at projects that other people may not get to see,” says Karp.
Capturing New England
In 1973, Karp read an article in Fortune magazine that reported the fact that New Hampshire would be the second fastest growing state from 1975 to 1985. Karp sat down and figured out where every mall in New Hampshire should be. Over the next 15 years, he built all four malls in the state.
“In some ways, I spent 15 years being my own competitor,” says Karp. “I used to try and figure out where the next mall could be built closest to the mall that I had just built.”
Since New England was a relatively small trade area and the barriers to entry are high, New England Development often found itself building a mall that neighbored a trade area of an existing center that it owned. The company developed Liberty Tree Mall in Danvers, Massachusetts, and later purchased North Shore Mall — located at the next exit away in Peabody, Massachusetts. Karp redeveloped North Shore and improved the center.
“We always thought the competitive center was better in our hands than in someone else’s,” he says now of the purchase.
As he was becoming his own competitor, Karp realized that he was becoming one of the few players in the mall market in the New England states. [Today, as the owner of North Shore Mall and Liberty Tree Mall, as well as other mall properties that New England Development built, Simon Property Group holds that envious position, especially as it has continued to improve upon the centers’ successful track record.]
Karp doesn’t see himself as dominating the market in a single narrow category again, but the illustrations point to the company’s thinking. “We don’t look at each of our businesses as a segment. We look at each individual opportunity,” says Karp. “We see a lot of opportunities and a lot of new business.
Recognized for creating imaginative and high quality real estate developments, New England Development is now leading real estate in the Northeast through mixed-use development, power center development, master-planned development, and in other areas. |
Fast Facts
Who: New England Development
Headquarters: Newton, Massachusetts
Key Executives:
• Stephen R. Karp, Chairman and CEO
• Steven S. Fischman, President and COO
• Dawn K. Neher, Executive Vice President and CFO
• Gregory W. Sullivan, Executive Vice President - Corporate Development
• Bruce M. Herman, Executive Vice President, Controller
• Douglass Karp, Senior Vice President
• Carol Carbonaro, Senior Vice President - Leasing
Projects: The company has 10 million feet of mixed-use projects and power centers underway, a company that develops and manages airport retail, and a resort hotel company. Other holdings include a company that packages single tenant net leases as a portfolio and one that is involved in developing retail on university campuses. |
Lenny Rudofsky: Instrumental in New England Development Then And Now
As chief executive officer of Beaver Builders Ltd., Leonard “Lenny” Rudofsky helped Steve Karp build nearly all of New England Development’s malls in the 1970s, ‘80s and ‘90s. Beaver Builders constructed New England’s landmark centers, like CambridgeSide Galleria in Cambridge, Massachusetts, The Atrium Mall in Chestnut Hill, Northshore Mall in Peabody, Massachusetts, Solomon Pond Mall in Marlborough, Massachusetts, South Shore Plaza in Braintree, Massachusetts, and many others. [Today, Simon Property Group owns and operates The Atrium, Northshore Mall and Solomon Pond Mall.]
In 1990, Rudofsky founded Packard Development Corporation to develop strip shopping centers. His first center was in North Attleboro, Massachusetts, and the company went on to develop centers in Maine and New Hampshire as well. When Rudofsky passed away suddenly in early 2005 at age 63, Packard had a large pipeline of development underway. With the future of the company unclear, New England Development took the company under its wing to continue its mission of developing shopping centers in the Northeast. In some ways, Rudofsky has left his legacy with New England Development in two ways.
“Lenny Rudofsky was one of my best friends,” says Steve Karp. “He was a lifelong business associate and a real people person. This is one way that his work lives on.” |
Helping Children’s Hospital
Steve Karp says his first love these days is the work he does with Children’s Hospital Boston. Karp spends a few days a week on hospital activities and serves as chairman of the hospital’s board. The hospital has an aggressive expansion plan underway, which includes The Karp Family Research Laboratories building. It is the largest pediatric research hospital in the world and also one of the foremost cancer research hospitals in the world.
“It makes all the developments worthwhile, and Children’s Hospital is one of the reasons why I keep doing a lot of the things that I do,” says Karp. |
©2006 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.
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