What the sale of PAETEC Holding Corp. means for the city and, more specifically, for downtown is unknown. But what the telecommunications company has meant for both is evident in the widening cavity that was Midtown.
For more than a decade, the 8.6-acre complex presented an almost unfathomable problem, too big and too costly to redevelop — yet an obstacle to any serious rebirth of the center city.
Then, four years ago, came the answer. The state pledged $55 million to demolish Midtown because PAETEC Chief Executive Arunas Chesonis promised a new headquarters in its place.
There was doubt, almost from the beginning, about whether PAETEC would or could deliver. Then, on Monday, with the company seemingly on the verge of making good, came news it would be acquired by Arkansas-based Windstream Corp. in a $2.3 billion buyout.
“Without question, we know we’re going to have a significant presence (in Rochester) for a long time,” said Brent Whittington, chief operating officer of Windstream. As for the new building at Midtown: “It’s way too early to call the play on that.”
Windstream needs to determine what its space needs will be in the Rochester region, he said. That is likely to take several months.
Lt. Gov. Robert Duffy, who was mayor when Chesonis contacted him in 2007 about moving downtown from Perinton, spoke briefly by phone with Windstream President and CEO Jeffery Gardner on Monday evening. Duffy said later he was encouraged by the call, during which he reinforced state and city commitments to maintaining jobs locally and expanding the company’s presence here.
Of PAETEC’s 4,500 employees across the country, about 850 are in the Rochester area. Chesonis had hoped to have at least 1,000 local workers by the time the new headquarters was finished in 2013.
Mayor Thomas Richards also put the focus on maintaining jobs when speaking to the media at City Hall. That, and the city’s improved position with Midtown thanks to a state-funded demolition that likely wouldn’t have been possible without PAETEC, and certainly not in today’s economy.
City officials and others said they will continue to push forward, working to close on the PAETEC deal, assuming that construction will start at least by winter or spring so the building can be built and opened on schedule. A previously scheduled meeting later this week will focus on completing Midtown demolition by year’s end and transitioning to site preparation with new streets and other necessities.
Beyond Midtown, there are dozens of projects ongoing or planned, many of them for housing, both within and immediately outside the Inner Loop.
“It is hard to say more than that now,” said Bret Garwood, the city’s director of business and housing development, referring to the uncertainties that the PAETEC sale has created.
So close
Monday’s development, while not surprising in an industry where mergers and acquisitions are common, was startling nonetheless. PAETEC had released refined designs for the headquarters in late June. The company said, at the time, that it expected to begin construction in October and laid out an initial schedule. Chesonis has repeatedly made the case that PAETEC needed a new headquarters building to bring all its Rochester-area personnel largely under one roof, and that the cost of construction and owning its own building versus what it was paying in rent was largely a wash.
But whether Windstream will need space to accommodate 1,000 or more workers is questionable, particularly because the company expects to see some cost savings from job cuts, Whittington said.
“We’re going to take time together and look at costs versus benefits of the downtown project,” Chesonis said Monday.
Richards plans to contact Windstream as soon as today “to convince them that this is the place to be.” That includes trying to sell them not only on the financial deal worked out with PAETEC, but also on other factors, including Rochester’s low cost of living and a qualified, experienced telecommunications workforce.
Windstream hopes to close on the acquisition within six months. Whittington said the company by then should have a better sense of how the takeover will affect PAETEC’s Rochester workers and what will happen with the downtown construction plans.
When demolition is complete, it will leave Midtown Tower for redevelopment as well as the basement and three-floor steel skeleton of the former Seneca building, which PAETEC planned to reuse. The city might have left the steel regardless of PAETEC, and the framework could always be used by another developer if it comes to that.
To date, more than $60 million in mostly state funds has been spent on Midtown, including acquisition, relocation, asbestos removal and demolition. All that needed to be done whether or not a new corporate headquarters was being built, officials said.
PAETEC and the city signed what is called a land disposition agreement in December, setting out obligations for both and rough timetables moving toward the financial and real estate closing. If the PAETEC acquisition by Windstream goes through, Windstream would assume those commitments and obligations. But there are clauses allowing either side an out, and what recourse the city might have is uncertain.
State and federal money committed to or already spent on Midtown is not at risk, Richards said.
“The success of this particular project, and the success of this community is not dependent on PAETEC,” he said.
But reflecting a day where disappointment and optimism were intertwined, Richards also was realistic about the potential challenges ahead.
“If Windstream decides they don’t want to do this, and they don’t want to be in Rochester, we’re going to have a problem here,” he said.
Losing the ‘wow’
Reaction from downtown developers and investors was reserved, with those involved in Midtown Tower, the Sibley building and the Lincoln Alliance Building all saying it was too soon to speculate or withholding comment altogether until more facts are known.
“The wow factor, I think that is a loss if this project doesn’t move forward,” said Heidi Zimmer-Meyer, president of the Rochester Downtown Development Corp.
“And it is still not a loss, but it’s far less likely that it will (happen) now, it seems to me.”
What might replace it? “It doesn’t look good,” she said.
Not that downtown and a shovel-ready Midtown site are not attractive. The economy is the enemy here, she said, and what it is doing to upstate New York and the ability of investors to get financing. But she, along with Garwood and others, pointed to the number of ongoing projects, easily more than 30, and the success rate the city has had in completing projects despite the difficult financial times.
There is still the yet-to-be-announced location for a new Monroe Community College campus, which will have a significant impact and spin-off development. City officials would be reluctant to offer up Midtown to a tax-exempt development. And MCC President Anne Kress said that is “probably not an option” anyway, as the cost to build a new campus from scratch would be prohibitive.
Rather, the leading candidates for MCC are the Sibley building and part of the Eastman Kodak Co. office complex, with a decision not expected until near the end of the year.
“When you look at the totality of development downtown … you look at all the activity going on around downtown, collectively, you begin to realize that our development progress is not tied to any one particular project,” said Carlos Carballada, the city’s neighborhood and business development commissioner.
Zimmer-Meyer said much the same, but also spoke of the “catalytic value” of a high-energy company like PAETEC.
“I don’t know if it makes it harder (to sell investors on downtown), but PAETEC made it easier because of the sexiness of the project, the average age of their employees, the concentration,” she said.
But the city is at a different place than it was four years ago, “as difficult as that is to see,” Zimmer-Meyer said.
“The disappointment level is going to be high with this (if the headquarters deal collapses), but we are still better off than we were.”
BDSHARP
MDANEMAN
Includes reporting by staff writer James Goodman.
Related Links
An aerial view on Monday of Midtown, the site PAETEC Holding Corp. designated in 2007 as its future headquarters. The site’s future is now uncertain.
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