Friday, December 03, 2004

Hub Housing Boom Echoes In Rhode Island

With soaring Boston home prices, buyers are looking elsewhere

With much of the state within an hour's drive of Boston, Rhode Island boasts New England's lowest labor costs and consequently the region's lowest business costs.

Pawtucket, R.I. — Along the Blackstone River in this old mill city, residents marvel at something few thought they would ever see in Pawtucket's faded downtown: half-million dollar condominiums. But the condos are not only here, they're selling, snapped up as bargains by buyers fleeing Boston's red-hot housing market.

That's what Ranne P. Warner, a Boston developer, counted on when she invested some $17 million to renovate a riverfront mill into Pawtucket's first downtown housing development in 30 years. Her success, in turn, cleared the way for another multimillion-dollar condo project downtown, while growing numbers of professionals and artists are sparking other investments. Among them is a $12 million shopping center in the northern part of Pawtucket, the city's first major commercial development in 20 years.

Pawtucket's revival is just one example of how the Boston metropolitan area is reaching into Rhode Island and helping to transform its economy from one of New England's slowest growing to one of its fastest. After years of trying to carve an economic identity separate from Greater Boston, Rhode Island officials are instead embracing the metro area, promoting their state as an integral part of a region stretching from Manchester, N.H., to Rhode Island's south coast.

In doing so, they are following a well-tested strategy that emphasizes proximity to Greater Boston's universities, talent pool, and entrepreneurial networks, but at lower costs. Rhode Island, in short, is becoming the new New Hampshire.

The strategy has not only lured new residents and businesses south of the border, but has also helped to make Rhode Island's economy the best performing in New England. Rhode Island largely skirted the last recession. It also began its recovery more than a year before the rest of the region and regained all the jobs lost in the downturn in early 2003. Since then, almost every passing month has pushed the state's employment levels to new records.

Massachusetts, in contrast, still has nearly 200,000 fewer jobs than prior to the recession. New Hampshire is still short nearly 4,000 jobs.

With much of the state within an hour's drive of Boston, Rhode Island boasts New England's lowest labor costs and consequently the region's lowest business costs, according to, a West Chester, Pa., research firm. Commercial and industrial real estate costs about one-third less than in Greater Boston, according to CB Richard Ellis-New England, an affiliate of the international commercial real estate firm. Despite the fastest appreciation among the states in the last five years, house prices in Rhode Island remain at least 30 percent lower than the Boston metropolitan area.

Those advantages, combined with a tax breaks for the financial services industry, helped lead Fidelity Investments in the late ‘90s to open a regional center in North Smithfield, where the company's employment has grown 50 percent, to 1,500. Bank of America of Charlotte, N.C., cited tax and cost advantages when it recently announced it would locate a call center, with up to 900 jobs, in East Providence.

Biotech industry

Amgen Inc., a California biotechnology firm, said that lower costs and proximity to Greater Boston's biotech research cluster were added benefits when it decided to invest some $1.5 billion to expand manufacturing facilities in West Greenwich and quadruple employment there, to more than 1,200.

In Pawtucket, Rick Roth relocated his company, Mirror Image Inc. from Cambridge five years ago when he was able to buy and renovate a mill building for less than what two years' rent would have cost in Cambridge. Since beginning operations here, the high-end screen printer, whose clients include Boston's Museum of Fine Arts, has doubled its payroll to 40 jobs, all with company-paid health insurance.

“They say they are business friendly here,” Roth said, “and they really are.”

Certainly, Rhode Island faces challenges. Its state and local tax burden is among New England's highest, according to the Tax Foundation, a Washington research group, while the educational attainment of the adult population is among the region's lowest, according to the US Census Bureau. It has a disproportionately small share of the Boston metro area's high-paying jobs.

Still, Rhode Island's recent economic performance represents a role reversal for a state that has tended to lag behind the rest of New England, while suffering longer and deeper recessions. Historically, Rhode Island depended heavily on single industries, such as textile and jewelry manufacturing, but in recent years the state's economy has diversified into sectors such as financial services and healthcare.

That helped cushion the blow of the last recession, as did a relatively small technology sector. Rhode Island may have missed much of the tech boom, but it also avoided the worst of the bust.

Now economic development officials want to build on that progress. They are sweetening the state's cost advantages with tax incentives, financing for technology start-ups, and a “whatever we can do” attitude toward business. Pawtucket, for example, offers relocating companies low-interest loans to cover moving expenses.

The state is also making investments to connect more closely to Greater Boston. In the last several years, Rhode Island has committed some $400 million in state and federal transportation money to improve and expand commuter rail service between Rhode Island and Boston, including the planned construction of a Warwick station, which will be located 1,300 feet from the T.F. Green Airport.

“Is there such a thing as a Rhode Island economy? No, we're part of the Boston metro economy,” said Kip Bergstrom, executive director of the Rhode Island Economic Policy Council. “You're better off defining yourself as part of an integrated metro area with 8 million people, instead of a separate place with 1 million.”

Helping to drive this integration are Boston's housing prices. As Massachusetts housing prices have risen, so has the flow of people and income across the border, according to analyses of census data by the University of Massachusetts' Donahue Institute.

In the last decade, for example, the number of Rhode Island commuters to Massachusetts grew 21 percent, twice as fast as New Hampshire's commuting population. Meanwhile, the income brought into Rhode Island by residents who work out of state, primarily in Massachusetts, doubled over this period, to a net $1 billion, according to the New England Economic Partnership, a nonprofit forecasting group.

Woonsocket projects

That income is helping to transform border communities. In Woonsocket, another aging industrial city along the Blackstone River, two multimillion-dollar projects to convert riverfront mills into condos are underway, with a target market that includes young professionals from the Interstate 495 technology belt in Massachusetts. Nearby, Brion McGroarty, a Martha's Vineyard restaurateur, is investing hundreds of thousands of dollars to open an upscale seafood restaurant in the downtown area.

Woonsocket officials point to another local project as an example of the new demographic: a Starbuck's coffee shop. “We're perfectly located,” said Mayor Susan Menard, “and we're changing the image of the city.”

Pawtucket's image is also undergoing transformation, driven by an influx of artists lured by low-cost studio space in renovated mills and special district in which artists are eligible for state tax exemptions on art sales and earnings from art work.

Among them is Jen Indreland, a painter who recently moved from Boston into the new riverfront condos. Indreland, who commutes to a day job at Boston University, said the tax breaks were a plus, but the real attraction was getting nearly three times as much space as her one-bedroom condo in the South End for the same price, not to mention a better view.

“It's so luxurious, living on the river,” said Indreland, 33. “The tax break is a bonus, but I just fell in love with it. “

Pawtucket's downtown is still pocked with vacant storefronts.

But as new residents move to the city, people like Richard Kazarian, an antiques dealer and Pawtucket native who returned home via Newport and Boston's Beacon Hill, envision a lively arts and entertainment district.

Elks club

Kazarian has bought and renovated three buildings, including a mechanic's garage that recently became the office of a small design firm relocated from San Francisco. Earlier this year, Kazarian bought his fourth, the former Elks club, a three-story, 1920s-era Italianate building in the city's Times Square.

His idea: fill its storefronts with galleries, coffee shops, and restaurants and perhaps even revive the dinner theater that thrived on the second floor in the heyday of the Elks.

“We can hardly wait to see the future,”' he said. “Sometimes, we just have to squint a bit.”


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