Less than six months after the groundbreaking for one of the state’s biggest redevelopment jobs, construction at the site of the $1.6 billion Quincy Center project has come to a standstill while the first phase of the plan is redesigned to save money.
During a quarterly update to the Quincy City Council Monday, Street-Works LLC’s cofounder Richard Heapes said rising construction costs were becoming a problem for the initial stage of the work, known as Merchants Row, raising questions about the entire project’s future.
Contained within Hancock Street, Cottage Avenue, and Chestnut Street, the block was envisioned as a collection of towering buildings giving way to bustling street-level retail. It was initially estimated to cost $130 million, but soaring construction expenses would have raised the cost to more than $170 million, Heapes said in an e-mail.
That caused the developers in September to downsize a planned 15-story high-rise into a six-story structure. Now, construction will be put on hold while designers rework the plans.
“This project was not going to work financially,” Heapes told city councilors of the initial proposal. “We felt there was, in essence, some ground to take a breath and look at redesign.”
Though the project is a public-private partnership, with the city using $50 million in state grants and loans to prepare the downtown for redevelopment, all the initial construction work will be privately financed.
The city will buy back the public infrastructure with money generated by the new development.
According to Heapes, private investors expect a 7 to 8 percent return on their investment. With rising construction prices, he said, that rate of return was dwindling.
“As costs went up, [investors] were even lowering their rates a little beyond what they normally do,’’ Heapes said after the meeting. “What happened was every time we would recheck prices, they would go up again, and [our investors] said we can’t make a commitment until we know that will be stable.”
A redesign, which will take up more space on the block, switch from a two-story below-grade parking lot to only one, and have shorter buildings, is intended to reduce costs, Heapes said. Twining Properties, a New York-based real estate firm, has been brought on board to help move the project along.
Assistant City Solicitor Paul Hines said he expected the redesign to occur over the winter, with new permitting applications to be submitted in the spring.
Despite the setback, other aspects of the project are continuing to progress, according to city and project officials. They promise announcements of new tenants, deals, and progress in 2014, and say they will offers details on plans for a movie theater, hotel, and grocery store elsewhere in the sprawling development.
Councilors said they were disappointed that part of the project would be stalled, but added that they remain upbeat about the project.
“It is our first step. It has to be the best step,” Councilor Brian McNamee said. “It sets the tone for the entire project. If that’s not a perfect success, we’re not going to be able to go any further.”
Mayor Thomas Koch of Quincy said he hopes the delays will ultimately result in a better project.
“The program and project, nothing moves fast enough for me,” Koch said Tuesday. “I live in a two-year term, I’d like to see vertical construction as soon as we can, and I expect to in the spring when we get this resolved. But reality sets in . . . it will continue to evolve and continue to change.”