New owner plans $20M investment to revitalize SouthSide Works

The new owner of SouthSide Works will get more time to develop the last three vacant parcels at the site, including two on the Monongahela riverfront, as part of a major overhaul that could include up to $25 million in investment.

Pittsburgh Urban Redevelopment Authority board members are expected to vote Thursday on whether to give New York-based Somera Road Inc. as much as four more years to develop the prime riverfront properties as the firm works to bring new life to the 34-acre retail, entertainment, residential and office complex.

Somera, a commercial real estate firm that targets distressed assets, took over SouthSide Works, site of a former steel mill, from Soffer Organization, the longtime owner, this summer.

In an interview Tuesday, Ian Ross, Somera founder and managing principal, said the goal is to bring the popular South Side destination back to life, particularly on retail side, which has fallen on hard times with empty storefronts dotting the streetscape.

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Somera, he said, is planning to spend $20 million to $25 million to revitalize the property. As part of its deal with the URA, it also has agreed to invest at least $1 million to upgrade the town square and other public spaces. Mr. Ross said that spending likely will end up closer to $2 million.

He declined to say what plans Somera had for the riverfront parcels, one of which is next to the Hofbrauhaus restaurant while the other is located between the Hyatt House Hotel and an office building.

But Herky Pollock, a CBRE retail broker who has been serving as a consultant to Somera, said the firm is exploring the “highest and best use” for the riverfront land.

“There are many different options in play, and they’re currently evaluating which adds the most to the overall vitality of the project,” he said.

As for the vacant retail spaces within the complex, Mr. Pollock has said in the past that he envisions a mix that includes entertainment, health and wellness, restaurants, and perhaps even daily needs such as a grocery.

Under its agreement with the URA, Soffer had until next July to develop the three remaining parcels. It would have paid $450,000 an acre for the land.

As part of the new deal, the URA, which owns the land, plans to lease the tracts to Somera rather than sell it, with the price increasing the longer it takes to get a project rolling.

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It is giving the firm up until July 1, 2022, to start developing the parcel next to Hofbrauhaus.

If Somera does so by July 20, 2021, it will pay $27,072 an acre each year under a 99-year ground lease. After that, the price per acre goes up to $55,000 until Nov. 1, 2021. And if Somera hasn’t started by then, the price jumps to $91,615 an acre.

Should the firm fail to start by July 1, 2022, the URA has the right to request proposals from other developers for that parcel as well as the one next to the hotel if no work has begun there.

If Somera does start development of the Hofbrauhaus parcel by July 2022, it will have until Oct. 12, 2023, to close on the land next to the Hyatt House Hotel. Annual lease rates for that parcel could vary from $27,072 to $78,209 an acre, depending on when work begins.

“We’re paying more if we take longer,” Mr. Ross said.

As with the other riverfront parcel, if the land next to the hotel is not developed by the deadline, the URA can issue a request for proposals to give others a crack at it.

The agreement also includes a provision to adjust the lease rate for the parcels by 5% every five years.

As for the third undeveloped tract, which is located at Sidney and South 28th streets, the URA will lease it to Somera long term at a nominal rate with a purchase option.

At least initially, Somera plans to activate and maintain a public-oriented space that could include a farmer’s market, a dog park or public art. URA officials said they structured the deal that way for that parcel because it is smaller and more difficult to develop.

Nathan Clark, the URA’s real estate director, said the agency decided on a ground lease rather than a straight sale for the riverfront parcels because it believes there is value in holding on to such assets. They also will provide a steady source of income for the agency.

“It’s not how we have traditionally done real estate. This seemed like a good opportunity to utilize the structure,” he said.

He and Robert Rubinstein, URA director of special projects, said the additional time given to Somera to develop the parcels is appropriate given the level of investment and commitments the firm has made to improve the complex, which has been a showcase for the city in the past.

“We think they have the balance sheet and the expertise to reinvigorate the retail portion,” Mr. Rubinstein said. “Retail is a tough thing. It’s just not here in Pittsburgh, it’s nationally. It’s continuously evolving and needs to be meticulously curated.”

Besides Hofbrauhaus, SouthSide Works is home to The Cheesecake Factory and other restaurants, a movie theater and apartments. It also is the location of the American Eagle headquarters and an Amazon tech hub.

Originally shared on https://www.post-gazette.com/business/2019/09/11/New-owner-investment-SouthSide-Works-retail-pittsburgh-development/stories/201909110090

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