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DOWNTOWN PITTSBURGH’S LAZARUS STORE GOES MIXED-USE

By Ed McKinley

A plan to transform Pittsburgh’s vacant Lazarus-Macy’s department store into a complex of condominiums, offices and stores could spark the rebirth of a faded but magnificent downtown retail corridor.

Sources say the $50 million project, on Fifth and Forbes avenues and announced in January by Canonsburg, Pa.-based Millcraft Investments, could spur further investment downtown. That’s because the deal represents a show of confidence in the central business district by an experienced local mixed-use developer.

The complex would also create the residential space needed to entice suburbanites back into the city, development officials say. The project may get a grocery, an amenity very much in demand, according to the local press.

“People feel downtown’s time has come,” said Jerome N. Dettore, executive director of the Urban Redevelopment Authority (URA), a city agency that buys distressed properties for resale and channels subsidies to developers. “You are going to begin to see an upswing now.”

Plans for the development, called Piatt Place, after Millcraft Chairman Jack Piatt, call for grafting three stories of mostly midprice residential space onto the eight-year-old, four-story, granite-and-glass building, says Lucas B. Piatt, Jack’s son, the firm’s vice president of real estate. The original store was built with the help of government subsidies.

Stretching the structure skyward will increase total floor space from 240,000 square feet to 300,000, with condominiums constituting that additional space. The fifth floor will house 25 condos, and the sixth and seventh will contain 20 two-story town houses with courtyards.

The fifth-floor condos will range in size from 920 square feet to 2,000 square feet and are expected to sell for between $275,000 and $500,000, Lucas Piatt says. Most of the town houses, with rooftop terraces and multiple balconies, will measure between 2,000 and 2,800 square feet and go for between $600,000 and $850,000. Two units will measure 4,000 square feet and fetch over $1 million dollars each.

“They don’t have river views, but you will really feel like you’re in the city,” said Lucas Piatt, meaning that the units overlook the area’s many venerable churches. Further, he says, across the street is the Duquesne Club, a Romanesque building that dates to 1890.

Residents will not have to fret over city-style parking, though. The Pittsburgh Parking Authority will maintain possession of the site’s existing 500-car underground garage, but Millcraft has arranged to buy 75 spaces to sell with the condos, Lucas Piatt says. Parking will also be available for lease to office tenants.

Retail will dominate the 50,000-square-foot ground floor, but how much of that will be devoted to grocery retail was still unknown at press time. Downtown promoters believe a supermarket in the business district could drive an influx of consumers into the area.

“Grocery stores have been identified as the number one amenity in every survey we’ve ever done about downtown residential, whether it’s potential, existing, or past residents,” said Patty Burk, director of housing and economic development at the Pittsburgh Downtown Partnership, an agency that promotes the central business district.

Right now people who live downtown shop for packaged food at convenience stores, walk to the wholesale food markets nearby for produce and imported products or drive about five miles to the nearest supermarket, says Kathy R. Wallace, sales director at Coldwell Banker’s Pittsburgh Condo Connection.

The local media are rife with reports that Millcraft is negotiating with three supermarket chains, including locally based Giant Eagle, to lease all or much of the first floor. But Daniel Donovan, a Giant Eagle spokesman, downplays it. “There’s nothing in the works,” he said. “There are no plans.” He will say only that “we were approached,” and he points out that the chain’s prototype store measures 75,000 square feet.

The discussions with supermarket chains are “very preliminary,” says Herky Pollock, executive vice president of the local office of CB Richard Ellis, which is handling the retail leasing. “Our vision is to have something that might not be a full-service, full-blown, 50,000-square-foot grocery, but something that is more traditional in an urban setting,” Pollock said, meaning that the store would encompass a smaller space and include prepared food.

The supermarket could share the ground floor with at least one marquee restaurant and perhaps a dry cleaner, a pharmacy, an art gallery or a home furnishings studio, Pollock says. And retailers could lease space above the first floor, he says. But offices may wind up occupying most of the 180,000 square feet of the second, third and fourth levels, according to Lucas Piatt. Tenants on the lower levels could open for business soon, long before the completion of the upper floors within the next three years, the developers say.

Though the area cries out for groceries, the need for office space appears less acute. A study by GVA Oxford, a Pittsburgh real estate firm, puts the downtown office vacancy rate at 18.5 percent.

Millcraft is paying $8.5 million to Federated Department Stores for the old Lazarus building and is paying off the $2 million in subsidies Federated received from the URA for construction of the original Lazarus building.

As much as $11 million more in original costs would come due to the URA if Millcraft sells the building, uses it to generate sufficient profits or raises money through a refinancing, Lucas Piatt says.

Millcraft will also assume Federated’s obligation to pay $440,000 annually for five years to retire the tax increment financing that helped fund the garage, Lucas Piatt says. The state subsidies that will flow through the URA to Millcraft come to about $3.75 million, says the agency’s Dettore. Of that, $2 million is earmarked to help buy spaces in the underground garage from the parking authority, he says, while $1.7 million is to be used to rebuild curbs, replace sidewalks and touch up the building’s facade.

The total cost of the original building, much of which Federated and government agencies will not recover, came to $70 million, including the parking garage, published reports say. The cost of constructing the above-ground portion of the building that Millcraft is buying came in at about $35 million. At $100 per square foot, the building, not counting the parking garage, would have a value of $24 million, Lucas Piatt says.

Dettore points out that the parking garage aside, the original deal with Federated also converted the old Horne’s department store into retailing space and offices that brought 6,000 jobs downtown.

Some Pittsburgh residents have criticized the URA, saying the arrangement gives government too much control of redevelopment. Many of the same people admit, however, that leaving the private sector to its own devices was not reviving downtown.

The Fifth and Forbes retailing corridor has been the scene of revitalization attempts for years, says Herb Burger, a former advertising executive who now heads the Pittsburgh Task Force, a collection of executives from several agencies who came together two years ago to encourage redevelopment.

Besides bringing the stores back to life, the city wants to entice the residents of outlying areas to move to the district as part of an effort known as the Fifth and Forbes Project. The two avenues are parallel and just a block apart, which determines the width of the narrow district, says Burger. The neighborhood stretches four or five long city blocks along those two streets, he says. Massive two- and three-story retail buildings built between the late 1880s and early 1930s line the streets in parts of the district.

Preservation Pittsburgh, a nonprofit advocacy group that works to protect the region’s historic buildings, categorizes Fifth and Forbes architecture as “high Victorian, Edwardian baroque, classical and art deco.” “Store after store is faced with cream-and-white terra-cotta, giving the district its distinctive image, while a colossal order of Corinthian columns stretches almost an entire block,” the group said in a report.

Fifth and Forbes is located in Pittsburgh’s Golden Triangle, the tip of a peninsula wedged between the Allegheny and Monongahela rivers where they join to form the Ohio. Both avenues feed into Market Square, also known as “The Diamond,” a plaza laid out in 1784 and noted for smaller, 19th century storefronts. More old facades have survived on Market Square than on Fifth and Forbes avenues, says Pittsburgh Condo Connection’s Wallace. The still-successful, 13-level Kaufmann’s department store, built in 1913, anchors the avenues, presenting a blockwide face adorned with a gingerbread-trimmed clock that many local residents associate with shopping trips downtown.

The population of the Golden Triangle, a land area of less than one square mile, has risen from 2,500 in 1990 to 2,700 in January 2006, says Burk of the Downtown Pittsburgh Partnership. Researchers expect the addition of 1,300 housing units there by 2008, she says. Calculating how many people the new residential space will bring to the Golden Triangle can be tricky, though, says Burk, because student housing (Duquesne University is downtown, while The University of Pittsburgh and Carnegie Mellon University are both near downtown) averages 3.9 people per unit, while market rate housing averages 1.3. But “Greater Downtown” — an area covering about two square miles will grow from 8,000 residents today to 11,000 by 2008.

Millcraft’s project is not the only redevelopment helping to increase that population. Just days after the announcement of Piatt Place, Pittsburgh National Corp., parent of Pittsburgh National Bank, unveiled plans for a high-rise with ground-level stores, a 150-room hotel and 30 top-floor condos, says Burger.

In another highly publicized redevelopment, Pittsburgh native and former New York Times style editor Holly Brubach is converting the nine-story, 115-year-old Granite Building next to the Duquesne Club into loft living space, the local press says. Brubach is one of many who have noted Pittsburgh’s emergence as a livable city with a wealth of easily accessible cultural opportunities, according to sources. Memories of its blue-collar past are fading, they say.

Young professionals and empty nesters appreciate the short commutes to downtown offices and the views from their living rooms high above street level. Moreover, developers themselves have no special immunity to urban charms. Millcraft, which made its name in the steel business before becoming a developer best known for the massive Southpointe and Crossroads mixed-use projects well outside Pittsburgh, is one example.

Lucas Piatt grows expansive when describing the excitement of his city. The way he tells it, not much can match the thrill of emerging from the Fort Pitt tunnel by car and getting a sudden dose of skyscrapers, especially when the skyline is flooded with light to celebrate a home game for the NFL world champion Steelers. “You come out on the other side and bang — it’s sitting right there,” he said of the Oz-like view of his own Emerald City.

It is the sort of moment that makes everything worthwhile, he says. “A lot of people my age left Pittsburgh,” said the 29-year-old, “but I stayed, and I’m glad I did. I see a real renaissance happening, and I’m glad to be part of it.”

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