Friday, July 23, 2010
By Mark Belko, Pittsburgh Post-Gazette
The way things are going, the Golden Triangle just might become one gigantic "for sale" sign.
All over Downtown, buildings are going up for sale almost as fast as LeBron James jerseys in Cleveland.
And not just any old building. Some of Pittsburgh's signature real estate is on the block -- from Macy's (formerly Kaufmann's) department store to Gateway Center, the linchpin of the city's first renaissance.
Others up for sale include the Henry W. Oliver Building; the Regional Enterprise Tower, formerly the Alcoa building; EQT Tower, once known as Dominion Tower; and the American Red Cross of Southwestern Pennsylvania building.
And that doesn't even count some of the smaller properties that have hit the market recently.
What's next? The County Courthouse? PPG Place? U.S. Steel Tower?
The surge in sales has made newspaper headlines and even attracted the attention of City Hall. Aides to Mayor Luke Ravenstahl have consulted with local real estate brokers seeking to determine what is driving the phenomenon.
Yarone Zober, Mr. Ravenstahl's chief of staff, said officials have been assured that, overall, the jump in listings is more a sign of the market's vibrancy than anything else.
"By and large, when I talk to people in the industry, the answer is that people are selling in Pittsburgh because they want to sell high," he said.
Experts appear to be divided on just what is fueling the sales binge. Some, like Mr. Zober, believe it is a sign of a robust real estate market. One contrarian sees owners cashing in before the bottom falls out because of fears of a prolonged recession.
Others see it as almost coincidence, with a variety of factors at work rather than a single motivating force.
"There's nothing in the water, if you will. There's logic behind each of these," said Aaron Stauber, the president of New York-based Rugby Realty, which has extensive property holdings in Pittsburgh.
Mr. Stauber believes that in the case of Gateway Center and the EQT Tower, the owners are looking to cash in after upgrading their properties.
Both the Gateway Center complex, with four buildings, and EQT Tower, now the headquarters of utility EQT, have high occupancy rates and are well positioned for a sale, he said.
"The properties are at a position where the highest value can be gained [in a sale]," he said.
Mr. Stauber said some sellers may have held off in listing their real estate over the last few years because of the recession and the credit crunch. With the financial markets stabilizing, he said, now might be a good time to sell.
"For those properties, it's like a pent-up demand situation. They may have come to the market three years ago under normal circumstances," he said.
The fact that the buildings are for sale may be an indication that "we're finally starting to see the market open up," he said.
In a recent interview, Gary Horwitz, president of Los Angeles-based Hertz Investment Group, the owner of Gateway Center, said the firm believes it is an "opportune time" to go to the market and turn a profit because of the demand for quality assets and the strength of the local real estate market.
He called Pittsburgh one of the top five real estate markets in the country right now. Hertz purchased the buildings in Gateway Center for $55 million in 2004. The occupancy rate is now about 85 percent. Mr. Horwitz would not disclose an asking price.
"I think nationally there's a shortage of quality buildings on the market. There's a tremendous amount of cash sitting on the sidelines waiting for quality. This building is going to be well received. It's in a quality city and a quality asset," he said.
Macy's is another which has said it is seeking to capitalize on the strong market Downtown while at the same time looking for someone to better use some of the empty space in the landmark building at Fifth Avenue and Smithfield Street. Even with a sale, the department store is expected to remain in the building.
On the other hand, Mr. Stauber believes the Oliver Building and the Regional Enterprise Tower, with lower occupancy rates, face different issues. One factor that may be driving the sale of the Oliver Building, he said, is the loss of the K&L Gates law firm, which moved to One Oliver Plaza, now K&L Gates Center, in March.
"Those are properties where something needs to happen. They need to be repositioned. Either the current owners will reposition them or the new owners will reposition them," he said.
Mr. Stauber, who has made a living turning around underachieving properties, said he will "take a look" at both buildings. Whether he has any further interest, he said, is "subject to further review."
At the same time, Rugby Realty may put the Manor Building on Forbes Avenue on the market again, he noted. The firm offered the 11-story structure for sale in 2008, but ended up pulling it off the market because of the recession.
Herky Pollock, an executive vice president for real estate brokerage CB Richard Ellis/Pittsburgh, said the central business district has seen an increase in rental rates and net absorption over the last few years.
That, he added, "bodes well for future potential investors and it allows owners to reap the benefits of these increases."
"You'd be hard pressed to find a city outside of Chicago, New York or Boston that has experienced the stability and growth that Pittsburgh has experienced in the last five years," he said.
According to CB Richard Ellis, the office vacancy rate Downtown in the first quarter was 12.2 percent, one of the lowest in the Pittsburgh market. The average lease rate for Class A office space was $23.70, the highest in the market.
While some see the wave of buildings for sale as a good indicator, Tom Sullivan, a commercial broker for Pennsylvania Commercial Real Estate, isn't one of them.
He maintained that some owners may be selling because they are worried about a prolonged recession and see rental rates plunging and occupancy dipping over the next few years.
"I don't believe it is because it's such a robust market. I think these people see it as it's not going to get much better than it is today," he said.
Mr. Sullivan believes a proposal to sell off city parking authority garages and city meters to help stabilize the city pension fund would only make matters worse, since parking rates would increase dramatically over the next five years. That could deter people from wanting to work Downtown and cause businesses to look for locations in the suburbs.
He said that, in his experience, one of the biggest issues in trying to land tenants for buildings Downtown is the cost of parking.
"If they do anything close to what they're talking about, there's going to be a greater exodus Downtown," he said.
But Mr. Zober said the parking authority owns only 25 percent of the spaces Downtown. The rest are in private hands and generally charge higher daily rates than the city.
"This is a way for us to get even with the private market," he said. "Hopefully, it will have a negligible effect rather than a great effect. If we controlled 100 percent of the parking Downtown, I would understand the concern."
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