NEW HAVEN, Conn.—This long-struggling city is finally beginning to see signs of progress from years of economic development efforts by city officials, real-estate developers and Yale University.

In the latest step, a venture of Forest City Enterprises FCEA -1.16% and Concord, Mass.-based developer Winstanley Enterprises is about to break ground on a $50 million project to convert the old Winchester gun factory into a rental apartment building. The 158-unit building is scheduled to open in the summer of 2014, says Abe Naparstek, vice president of Forest City Residential Group.

The project follows a flurry of other developments in recent years that have breathed new life into a city that for decades was in decline despite being home to one of the world’s top universities.

Successes include a new Apple Inc. AAPL -0.91% store in New Haven’s downtown district and a 500-unit rental tower built on a former site of Shartenberg’s Department Store that is more than 95% leased since opening in 2010.

But the rebirth of New Haven is still very much a work in progress. The city’s retail vacancy rate was 12.5% in the third quarter of 2012, far higher than the 7.2% rate in the third quarter of 2007, according to real estate research firm Reis Inc. REIS -1.69% The office vacancy rose to 16.1% in the fourth quarter from 14.2% in the prior year, says Cushman & Wakefield.

Indeed, the Winchester gun factory project also stalled after Forest City took control of the site in 2008 because of lack of financing. It was revived last summer after the state of Connecticut awarded the developers a $4 million grant for “affordable housing.” Forest City is in talks with the city of New Haven for additional financial support, because the brick building has been vacant for decades and asbestos and rehabilitation work will be required.

“It’s millions of dollars of extraordinary costs,” says Mr. Naparstek. “The only reason why it’s possible is that the state of Connecticut and the city of New Haven are able to help support it to make it happen.”

Also, there’s some uncertainty about the future of New Haven because two of the individuals who have been responsible for much of the progress are about to step down from their jobs.

New Haven’s mayor, John DeStefano, Jr. , is serving his 10th consecutive two-year term and said he will not seek re-election in the fall. Yale’s president, Richard Levin, will retire in June after serving since 1993.

Mr. DeStefano said in an interview that he expects the city to continue to grow. “The base of our economy is educational and medical institutions,” he said. “What makes the residential happen is the commercial occupancy of employers, which is coming from the growth of the university and some of the companies.”

New Haven, the second-largest city in Connecticut with around 130,000 people, struggled through the 1990s as residents moved away and downtown retail languished. But in recent years, city officials have started to work much closer with those at Yale to reverse this course.

Yale University has been the anchor of the community for over 300 years and has helped stoke the growth of the city’s healthy biotech and medical businesses. It’s also taken steps to enliven the city by buying single-family houses near its campus and refurbishing them as faculty or graduate student housing.

Yale also owns a total of about 200,000 square feet of retail space, which includes the Apple store, and requires merchants to remain open until 9 p.m., promoting nighttime traffic.

“Yale is on a scale, vis-à-vis the city, where we can have an impact,” says Bruce Alexander, the school’s vice president who oversees its real estate. The school also is building a gleaming new business school designed by architect Norman Foster and two new residential colleges.

Yale was one of the first office tenants at the 80-acre brownfield site now known as Science Park, which includes the old Winchester gun factory.

“It really has been a successful partnership between the city, the university and private investment,” says Carter Winstanley, principal of Winstanley Enterprises, the co-developer of the gun factory. “Could you do these projects without these partnerships? You probably couldn’t.”

Winstanley’s office portfolio of around 1 million square feet of office space among five New Haven office buildings, including 275 Winchester Ave. and the neighboring 25 Science Park and 344 Winchester Ave., is over 95% leased, with rents ranging from high teens to low $20s per square foot.

Forest City, known as the developer of big New York projects like Barclays Center, has two Connecticut projects under way, with the other in Stratford. Units at the Winchester property will include studios, one-bedroom and two-bedroom units, will monthly rent of around $1,800 for a one-bedroom apartment. Twenty percent of the building will be affordable housing. The developers have the option to build an additional 200 units in the next phase.

Forest City is emboldened by the city’s relatively low-vacancy rate among its rental apartments, as well as the success of the project at the former site of Shartenberg’s Department Store, which is named 360 State Street.

That $145 million project, which is the largest apartment building in the state of Connecticut, has attracted a mix of graduate students, middle-aged tenants and employees from Yale medical center. Monthly rents range from around $1,300 for a one-bedroom to $3,000 for a three-bedroom unit. The building is LEED Platinum certified and has a food co-op, Elm Street Market, in its ground floor.

“The educational, medical and health care economy never hesitated,” said Bruce Becker, president of Becker + Becker Associates, developer and architect of the tower. “The New Haven economy’s been growing.”

By Roland Li

February 10, 2013

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