Market Square Arena and Development/Redevelopment and Real Estate & Retail

Market Square development deadline looming

August 28, 2006

Rival developers are dusting off plans for the former Market Square Arena site now that the partnership the city chose for the project appears on the verge of missing the Aug. 31 deadline to buy the land.

The city 2-1/2 years ago selected Market Square Partners LP to build a high-rise condo project on the site. After pushing back deadlines this February for a second time, it told the developer it would not receive additional extensions.

At least two of the five partnerships the city passed over are still interested, including the runner-up, MSA Development Group LLC.

MSA Development, led by Carmel-based Hearthview Residential Inc., also proposed a condo tower. Another group--Near Eastside Renaissance Partners LLC--said it still wants to build a mixed-use project that includes retail, restaurants, housing and a performing arts center.

Principals with Market Square Partners, a partnership of locally based Shrewsberry & Associates LLC and Columbus, Ohio-based Smoot Construction, did not return calls.

But negative signs abound. Two architecture firms that worked on the project have filed liens totaling more than $1.3 million, and the partnership's condo sales office no longer keeps regular hours.

Market Square Partners also pared down its Web site, www.onemarketsquare.com, which used to feature links to pricing information and background on the development team.

A headline on the one-page site still reads, "Ground breaking planned for summer 2006!" But at the bottom, the screen says the site is being updated. It asks visitors to "check back soon for new information."

The $70 million first phase of the project was to include a 226-unit, 31-story tower with units ranging in price from $200,000 to $1.7 million.

In March, the developer told IBJ that buyers had reserved 52 units in the tower. Lenders require contracts--binding agreements secured by a nonrefundable down payment--on 40 percent, or 85, of the tower units to secure financing. Typically, not all reservations convert to contracts.

Justin Ohlemiller, spokesman for Indianapolis Mayor Bart Peterson, wouldn't say if the city has a Plan B.

"We're keenly aware of the deadline approaching and we will be prepared to take action at the appropriate time," he said. "We're committed by contract to the target date of Aug. 31."

Market Square Partners sought no public money for its project, while the other finalist, the Hearthview partnership, had asked for $16.3 million for its $130 million project, which called for a 15-story condo tower, as well as retail and office components.

James Thomas Jr., a partner with Carmel-based Hearthview Residential Inc., said his group still believes in the viability of a high-density residential project on the site. He said the group has alerted the city of its interest but hasn't heard back.

But other developers, including Terry Eaton, chairman of locally based Eaton Investments Ltd., pointed to the winning partnership's problems as evidence high-density residential isn't right for the site.

Eaton is part of Near Eastside Renaissance Partners group. Its proposal included a smaller residential component in two, five-story buildings. They would have retail on the first floor and a total of 72 condos and 152 apartments in the upper floors.

"I don't think the city's ready yet to support the tower concept," Eaton said. "It's too much at one time in one place. If a smaller-scale [residential] project had been approved, I think they'd have built it by now."

Market Square Partners initially said it would begin construction in the fall of 2004.

But late that year, backers announced they had failed to presell enough units to get financing. In response, they tapped Chicago-based Mesa Development to formulate a more marketable mix of condos.

Sales remained disappointing, however, and the partnership won a second extension this spring.

Meanwhile, other condo projects downtown have charged ahead, swelling supply. At least seven condo projects with a total of 287 units opened in the first half of 2006, according to Indianapolis Downtown Inc.

Eaton argues that if lining up the presales necessary for a high-density project was tough in 2004, it would be even tougher now.

"There was a significant pent-up demand [for downtown condos] when that was approved," Eaton said. "Now, there are all types of options and alternatives."

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