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February 7, 2005

Reviving the riverfront | Brewer plans to turn the Eastern Fine mill into a mixed-use development

By Sean Donahue
Last summer, when Brewer officials realized they had almost no chance of finding a paper company or other manufacturer to take over the Eastern Fine Paper Co. mill, they briefly mourned the loss of the century-old piece of the city's identity. Then they decided to think of the vacancy as a chance to reinvent a section of south Brewer (see "Filling the mill," Aug. 2, 2004).

Six months later, city officials have found a developer they hope can shape that new identity. Last month, Brewer selected Michael Stern of Minneapolis to turn the 400,000-square-foot mill into a new mixed-use facility, featuring boutique retail shops, restaurants, bars, office space, artists' studios, condominiums and apartments. The first phase of the project, focused on rehabilitating the site and developing commercial space in the mill, is expected to cost $15 million and to be completed by 2006. The second phase, which would build new condominiums, outlying retail or office buildings and a marina, could cost another $20 million - $30 million.

That scale matches the ambition of town officials like Economic Development Director Drew Sachs, whose goal is to turn Brewer's riverfront into a destination for tourists and locals alike. And though the mixed-use development won't replace lost manufacturing jobs, Sachs and Stern believe the project ˆ— dubbed The Mill at Penobscot Landing ˆ— can give the city something almost as valuable: a sense of excitement.

"One of my primary sources of information came from young, college-age kids who would serve me at a restaurant or worked behind the counter at a retail store," says Stern, who first toured the site and the surrounding area last summer. "I would ask them what they do for fun around here, what's exciting in the Bangor-Brewer area, and almost without exception the answer was, "Well, not a whole lot.'"

That's precisely the assessment Sachs heard while conducting his own survey of local opinion. As part of the planning process, Sachs hosted public meetings and offered tours of the mill site to find out what residents would like to see developed on the 41-acre parcel. Thanks to a common refrain that Brewer needed more entertainment and cultural options, Sachs says, the process helped create the blend of uses reflected in Stern's proposal ˆ— a complex characterized by arts, entertainment, dining, retail and outdoor activities, with some office and residential space scattered in between.

With that model, Brewer is trying something unique among Maine mill renovation projects, which often skew toward commercial office space, like the Bates Mill in Lewiston, or targeted industries, like the proposed biotech center on Saco Island. "We looked around at some other redeveloped mills in the state, and the conclusion we reached ˆ— fortunately or unfortunately ˆ— was that none of those models were entirely applicable here," says Sachs, noting structural limitations of the Eastern Fine site, such as small rooms and multiple additions, that make it more suited for different types of users. "Michael's proposal was the one most in line with what the community wants."

Searching for a developer
Despite having a community vision for the mill, Brewer didn't start out by specifying uses to potential developers. Instead, Sachs wanted developers to send letters of interest and to propose their own concepts for the site. To help spread the word last summer, he asked local law firms and real estate professionals to forward the city's request to people who might have the experience required to take on the project.

That professional grapevine eventually reached Minneapolis, where a lawyer formerly from Maine e-mailed the request to his friend Michael Stern ˆ— who happened to be looking for real estate opportunities outside of the Minneapolis area. During his 20-year career as a developer and real estate investor, Stern has focused on buying and renovating shopping centers and office buildings. He's also managed office, retail and residential properties for other owners.

Though he hasn't tackled an industrial site redevelopment, he says his background in property management, plus his experience planning renovations and developing tenant mixes, will help him plan and market the mill. "I feel like these [real estate experiences] are all transferable skill sets," says Stern, who's hired Greg Duginski, of Midwest Maintenance and Mechanical in Minneapolis, to manage the construction portion of the project.

Stern first came to Brewer in late July to tour the site, and says he immediately saw potential in the mill's size and location ˆ— particularly its substantial river frontage and easy access to I-395. He then began polling residents informally about what they'd like to see in the area, which steered his original proposal toward a mix of restaurants, upscale bars, boutiques, office and residential space.

By October, Stern was one of four developers to submit concepts to the city of Brewer. But dismissing two of those proposals was easy, says Sachs. One wanted to turn the entire facility into condominiums ˆ— which Sachs found unrealistic ˆ— while the other proposed using only part of the space, for warehousing.

With two developers remaining in contention, Sachs then explained specific uses requested by the public, such as entertainment, dining and shopping options different from the national chain development happening along Wilson Avenue in Brewer. The city's economic development office also wanted to set aside space for artists' studios, galleries and performance space, to tie the site into the area's push to develop its creative economy infrastructure.

At that point, in late November, the other remaining developer decided to withdraw his proposal. Stern, on the other hand, says he was happy to add things like artists' space and a nightclub. Still, Sachs says the town didn't award Stern the development contract because he was the last man standing. The city performed a background check on Stern, and spoke to his bankers, investors and tenants, as well as town officials in the communities where he's owned or developed properties, says Sachs.

The city also anticipates tangible financial benefits from Stern's project. At $15 million, phase one of the redevelopment would give the property a valuation close to the $17.5 million it had as a paper mill. That valuation would mean about $300,000 in annual tax revenues for Brewer, Sachs says, before factoring in the permit and licensing fees and other taxes generated by businesses that eventually occupy the mill.

Analyzing the market
First, though, Stern must renovate the site and break up the mill into its retail, arts, restaurant, office and residential components. The exact split among those property types will depend on the demand Stern estimates for each. He's currently conducting a market study to analyze regional demographic and economic factors, as well as real estate market information such as occupancy levels and comparable lease rates. Stern also plans to convene more formal focus groups to continue developing ideas for the right mix of tenants.

Even without that study, though, Stern has a few ideas about what the market will bear. For example, he expects his condominiums to be more moderately priced than the $400,000-$500,000 units he's seen proposed around the area. He's also received several calls from interested would-be tenants, he says, including a brew pub.

Embarking on a big development project without a full accounting of the local real estate marketplace is unusual, admits Stern, but he says the site's waterfront location and the planned mix of uses makes it less risky than if he were attempting to develop a large single-use building. Breaking up the 400,000-square-foot building into smaller portions of office, retail, restaurant and residential space also makes it less likely that the project would create a glut in any one sector of the market, argues Sachs.

That approach makes sense to Carol Epstein, president of Epstein Commercial Real Estate in Bangor, who says the Bangor-Brewer commercial real estate market is generally healthy right now. "[Stern's] strategy is very much a niche strategy, on a scale that's fitting for the marketplace in Brewer," says Epstein.

Funding the project may be a bigger risk factor. Stern expects to invest at least $1 million of his (or his and other private investors') money and to secure traditional bank financing for phase one. But the project needs a fair amount of state and federal funding to help provide lower rents for arts facilities and affordable housing, says Stern (Sachs estimates one- quarter to one-third of the project's cost will come from public sources).

State money may be hard to find, however. "Most funding programs we deal with are centered around manufacturing and the like," says Jack Cashman, commissioner of the Department of Economic and Community Development. "This is a real estate development project, so it's tougher for us to find resources."

Still, Cashman says Stern may be able to use the Maine Seed Capital Tax Credit program to help bring additional private investors into the project. Also, community development block grant funds and some Department of Transportation money may be available to help Brewer pay for public infrastructure around the site.

As he works to assemble a financing package, Stern is considering one more potential risk factor. Even though he's trying to create a facility that offers what local residents said they wanted out of the mill site, he still expects it to take time for the area to shake off its old identity. "This hasn't been a destination site in Brewer, and the mill was such a big part of the community that I think there is still a bit of a pall over the site because of what happened," Stern says. "People need to overcome that perception, and I don't expect it to happen right away, but I believe it's not insurmountable. People will realize that this is going to be a nice place to go."

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