Out-of-town investors spending millions on Pittsburgh real estate
February 21, 2016 12:00 AM
Since 2010, out-of-town real estate companies have paid more than $1 billion to acquire more than a dozen high-profile properties in or near Downtown, including such iconic gems as PPG Place seen here in a view from the Boulevard of the Allies.
EQT Plaza was purchased by Raleigh, N.C.-based Highwoods Properties for $99.2 million in 2012.
One Oxford Plaza, shown just below a full moon, is the latest building to be grabbed by an out-of-town buyer — San Francisco-based Shorenstein Properties LLC last month for $148.7 million.
The interior of the Allegheny Center Mall building, which New York-based Faros Properties is turning into a tech hub after paying $48.7 million for it.
No deed transfer taxes were paid in the acquisitions of U.S. Steel Tower, EQT Plaza, and Del Monte Center and the Equitable Resources building (shown above) on North Shore Drive.
By Mark Belko / Pittsburgh Post-Gazette
Investors from Munich to San Francisco are paying big money to gobble up some of Pittsburgh’s most prestigious office towers and then pouring millions of dollars more into re-energizing them.
Since 2010, out-of-town real estate companies have paid more than $1 billion to acquire more than a dozen high-profile properties in or near Downtown, including such iconic gems as U.S. Steel Tower, PPG Place, One Oxford Centre, the Union Trust Building and the former Westinghouse Building.
And they aren’t just sitting on the properties. The firms have invested nearly a quarter of a billion dollars more to bring buildings up to 21st century standards and to add tenant-pleasing amenities.
It shows, local real estate experts say, that Pittsburgh is attracting the kind of big-time real estate investment that in the past has been reserved for more exclusive markets like New York, Boston, Chicago and San Francisco.
“I think it’s a sign that Pittsburgh is finally getting the recognition it deserves for being a very strong, stable market,” said Jonathan Kamin, a local real estate attorney.
But while the investments bring prestige and a shot of adrenaline to some tired-looking office towers, there could be a downside — possible rent increases.
Jonathan Bonime, senior vice president of Fischer and Co., a Downtown real estate firm that represents tenants, said it is unrealistic to expect investors to pour millions in without getting a payback. “No one is going to pay the price to come in, get involved in a new market and make upgrades if they don’t see the opportunity to make more money,” he said.
Jeffrey Ackerman, managing director of real estate services firm CBRE, said large institutional investors are being drawn to Pittsburgh in part because they can get better returns on buildings than in bigger markets where bidding wars have erupted. He said cities like Seattle; Nashville, Tenn.; and Austin, Texas, are experiencing the same phenomenon.
“Investors have a lot of confidence in these [smaller] markets because of how well the local economy is doing, the strong occupancy rates, high absorption and rising rental rates,” he said.
‘Great white shark’
The latest building to be grabbed by an out-of-town buyer is One Oxford, the distinctive 45-story Grant Street skyscraper bought by San Francisco-based Shorenstein Properties LLC last month for $148.7 million.
Shorenstein, one of the country’s oldest and most prestigious real estate investment firms, already has put its name on the tower’s glass doors. It is vowing to make “significant improvements to restore the iconic nature of the building,” including renovations to the lobby and other common areas.
While Shorenstein hasn’t said how much it will spend, it has invested plenty in properties acquired in other cities, including $30 million in 1407 Broadway, a 43-story office tower in New York, and $20 million into Center Plaza, a nine-story office and retail building in Boston.
“What’s really exciting is that Shorenstein is like the great white shark showing up. That says we’ve made it,” said Jeremy Kronman, a CBRE executive vice president.
It’s not the only one investing huge sums in Downtown real estate.
Since buying the iconic PPG Place complex for $179.4 million in 2011 and EQT Plaza for $99.2 million a year later, Raleigh, N.C.-based Highwoods Properties has spent more than $50 million bringing them up to its own internal standards or “Highwoodtizing” them, as it likes to say.
At PPG, that has included a larger ice rink; extensive renovations to the plaza’s jets and LED lighting; two new restaurants with a third under construction; and elevator, lobby and restroom improvements, as well as mechanical, electrical and safety upgrades. It also has completely remodeled the outdoor plaza at EQT Plaza.
A few blocks away, The Davis Companies of Boston is doing its own reclamation project on the historic Union Trust Building, an early 20th century architectural masterpiece built by industrialist Henry Clay Frick.
After buying the Grant Street building at sheriff sale for $14 million, Davis is spending another $60 million to $70 million on a massive overhaul, upgrading the office space to Class A levels, cleaning the exterior, restoring the building’s mansard roof, repolishing brass fixtures and doors, rejuvenating the retail space, and adding underground parking.
Other properties that have seen major outside investment include:
• 11 Stanwix, the former Westinghouse building bought by Munich-based GLL Real Estate Partners for $66.6 million in 2011. It has invested $15 million in improving the outdoor plazas and in upgrading the building’s green features to a LEED Gold rating, the second highest.
• Allegheny Center, which New York-based Faros Properties is turning into a tech hub after paying $48.7 million for it. The firm is spending about another $100 million to renovate it.
• The Koppers Building, which New Jersey-based Rugby Realty acquired for $17.2 million. It has invested another $4 million remodeling common areas, repolishing brass inside and out, adding a fitness center, modernizing elevators, bringing in a restaurant and cigar bar, and making other improvements.
Starting in the late 1980s, Rugby was one of the first outside investors to take a chance on Pittsburgh. Since then it has acquired Downtown jewels like the Gulf Tower, the Frick Building and Koppers, as well as a number of properties in the Cultural District. It also sold 11 Stanwix to GLL.
A more recent investor has been M&J Wilkow, which bought the Art Institute of Pittsburgh building for $9.9 million and 20 Stanwix for $38.1 million. It will spend at least $5 million renovating the latter’s plaza and lobby while adding a fitness center, a tenant lounge and possibly a rooftop deck.
Chicago-based Wilkow, which also owns the Waterfront in Homestead, was drawn here by the economy and the tech, medical, educational and energy sectors, all of which it sees as good job drivers, vice president Marty Sweeney said.
The company specializes in taking properties experiencing some level of distress and repositioning them. It then either sells the properties or enjoys “the cash flow from stabilizing the asset,” Mr. Sweeney said, adding Wilkow is committed to Pittsburgh long term.
Not quick flippers
Some of the building sales have not been without controversy.
No deed transfer taxes were paid in the acquisitions of U.S. Steel Tower, EQT Plaza, and Del Monte Center and the Equitable Resources building on the North Shore because of the way the sales were structured — costing the city, its school district and the state millions of dollars in revenue. With former state Sen. Jim Ferlo taking the lead, the law has since been changed to make it more difficult to structure deals that way.
Nonetheless, Mr. Ackerman said companies like Shorenstein and Highwoods represent upper-echelon investors that have not been active in markets like Pittsburgh until recently. They are known for coming into markets and making large investments to upgrade the quality of the buildings they buy.
“We’re going to get high-quality buildings with high-quality accoutrements going in,” he said.
Such companies tend not to be quick flippers. They usually hold on to properties for at least five to 10 years, Mr. Ackerman said.
But for guys like Mr. Bonime, the investments can represent a double-edged sword. While they can do wonders for the buildings and the amenities provided, there could be a price to pay down the road.
“It shows that [Pittsburgh’s] a healthy rental market and it’s great for landlords, and I think it’s good for the city in the long run. It’s our job to find the best deal we can for our clients,” he said. “Unfortunately, when rates go up, it’s harder on our clients.”
Mark Belko: email@example.com or 412-263-1262.
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