In one sense, Pittsburgh's resurgence can be measured by its Downtown skyline -- not so much by the names atop its skyscrapers but by those on the property deeds to them.
More and more, out-of-town investors are gobbling up prominent real estate Downtown, drawn by a host of factors, from high occupancy rates to the diversity of the local economy.
In fact, a Pittsburgh Post-Gazette review of high-profile building sales Downtown and on the North Shore since 2011 found that 10 of 13 have gone to out-of-town buyers, including such landmarks as the U.S. Steel Tower and the PPG Place complex.
Another three properties currently under agreement to be sold, including Liberty Center and the accompanying Westin Convention Center Hotel, also are being purchased by outside investors.
That wasn't so much the case 20 years ago, when a lot of the buyers and sellers of properties Downtown had local roots, said Jeffrey Ackerman, managing director of CBRE's Pittsburgh office.
The real estate firm began seeing increased interest in properties Downtown from out-of-towners several years ago. Mr. Ackerman said he now gets several calls a week from institutional investors looking for opportunities in the city.
"I think Pittsburgh has clearly emerged as one of the markets that has captured a lot of interest from institutional investors," he said. "We're now considered in the same breath with Minneapolis, Seattle, Austin and Charlotte."
Mr. Ackerman and other real estate experts say Pittsburgh's appeal is broadly based in Downtown's tightening occupancy levels and increasing rental rates, a stable real estate market not prone to wild swings, and the diversity of an economy no longer tied to the fortunes of a single sector like manufacturing.
The interest from outside investors "tells me that people are looking at Pittsburgh with a different view," said Gerry McLaughlin, executive managing director of the Newmark Grubb Knight Frank real estate firm.
"They're looking at a city that's growing, an up-and-coming city. Investors are looking for those kinds of towns. They want to get in on the ground floor and they want to take advantage of any upside that occurs," he said.
While Downtown real estate has drawn interest from outside institutional investors from time to time in the past, it wasn't "to the extent we are seeing today," Mr. McLaughlin added.
"It was one of the things I think Pittsburgh was missing for a long time. I think it's very positive," he said.
Jon P. Harrigan, CEO of Pennsylvania Commercial Real Estate Inc., Downtown, said large national companies have been reluctant in the past to invest in Pittsburgh real estate because of uncertainty over the economic environment and other concerns, even the hilly topography.
But that's changing.
"I believe Pittsburgh is finally becoming a target for many national investors," he said. "You have many large investment concerns looking to diversify a portfolio. Considering that the Pittsburgh real estate market is on the rise, they're looking to put a portion of their assets in real estate."
Mr. Ackerman said it was rare to see a large real estate investment trust, or REIT, like Highwoods Properties investing in Downtown in the past. While REITs made deals in the suburbs, they usually have avoided Pittsburgh's city center, he said.
That began to turn when Highwoods of Raleigh, N.C., bought the six-building PPG complex, one of the city's most distinctive properties, from Pittsburgh's Hillman Co. for $179.4 million in 2011. About 15 months later, it acquired 32-story EQT Plaza on Liberty Avenue, expanding its footprint in the city by 40 percent in a little more than a year.
Ed Fritsch, Highwoods CEO and president, said the company became enamored with Pittsburgh after doing its due diligence and discovering a city far different than its classic stereotype as an aging, smoke-filled, Rust Belt mill town.
Highwoods compared Pittsburgh not only to the cities it was doing business in but also to the top 10 real estate markets in the country based on the money invested, a list that included such notables as Boston, Houston, New York and Washington, D.C.
What it found was that Pittsburgh consistently outperformed all of them in a host of categories that included unemployment, the number of Fortune 500 companies per 25 million square feet of office space, cost of living, net absorption of office space, rent growth within the office sector, and proximity to major markets less than 500 miles away.
"The more statistics we looked at, the more comfortable we became that it was a golden opportunity," he said. "We felt that we found something that a lot of others had yet to discover."
Despite all of the talk about Pittsburgh's aging population, Highwoods discovered that the median age between 2000 and 2010 dropped from 35.5 to 33.2 while the median age in the United States increased from 35.3 to 37.2. It also learned that the number of 20- to 24-year-olds in Pittsburgh increased by 22 percent during the same time period.
"What that says is that younger people are finding Pittsburgh a really cool place to be," he said, adding that appears to be borne out in the explosion in residential development Downtown.
Highwoods' gamble appears to be paying off. Since buying PPG Place, it has increased the occupancy rate from 81.2 percent to more than 92 percent. "It has proven to be a very good investment on behalf of our shareholders," he said.
In the process, Mr. Fritsch became a cheerleader for Pittsburgh, championing the city to investors wondering what the heck he was doing putting their money in a Downtown office building.
"Most of the institutions that operate investment funds, a lot of them had the same mental image of Pittsburgh that we did before we got in and did our due diligence," he said.
Unlike the days of big steel, the city now has a diverse economy with its financial services, energy, education, medical and information technology sectors and is no longer dependent on one or two core industries, he said.
"We are waving the Pittsburgh flag that it's one of the best business communities, one of the most diverse economic communities in the country. And we think it's one of the best office markets," he said.
Mr. Fritsch added that Highwoods isn't looking to make a quick buck in Pittsburgh and then get out. He said it wants to become a "respected component of the business community" and expects both the PPG and EQT investments to be long-term ones.
"We definitely have an appetite to continually grow a footprint in the Pittsburgh area," he said.
'I love doing business here'
Aaron Stauber, president of Rugby Realty, based in New Rochelle, N.Y., began investing in Downtown in the late 1980s long before it was fashionable to do so. Since then, he has become one of Downtown's most active investors. He has acquired a number of properties in the Cultural District as well as stalwarts like Gulf Tower, the Frick Building and the former Manor Building.
Mr. Stauber sold 11 Stanwix St., the former Westinghouse Building, to Munich-based GLL Real Estate Partners, a real estate funds management group with more than $4 billion in investments in Europe and the United States, for $66.6 million in 2011. He believes the sale "opened the door for big funds like Highwoods to come in and at least start looking at Pittsburgh."
While his company is based in New York, Mr. Stauber is living in Pittsburgh this summer and continues to invest money in the region.
"I just came to love the city. I love the people. I love doing business here. I tell [people] it's the greatest city in the world and I believe that, too. It really is an incredible city," he said.
Although the surge in outside investment can be viewed as a sign of the city's health, Mr. Harrigan sees a potential downside. He said dealings with large institutional investors may prove to be far more impersonal than those with local owners who are known by name.
"Especially when you deal with these retirement funds, you have an asset manager who is very distant in terms of proximity and interest. All they're interested in is reaching a certain pro forma number," he said. "The interests of the long-term tenants tend to be somewhat marginalized."
The new investment also could have an impact on lease rates, Mr. Harrigan said. Downtown rents, he said, have been running 20 to 50 percent lower than those in other large cities. He suspects one reason Pittsburgh is attracting interest from outside investors is that they see an "opportunity to increase their revenues" through higher rents.
"Pittsburgh tenants have received a break on rental rates for many, many years and I think you're going to see that slowly drawing to a conclusion," he said.
While interest by outside investors appears to be on the uptick, that does not mean local buyers are being aced out.
The Post-Gazette review, for instance, found that most of the sales involving smaller buildings Downtown have gone to local buyers. Local companies have figured in some high-profile sales as well. PNC Financial Services Group bought the Lord & Taylor building on Smithfield Street, McKnight Realty Partners purchased the Henry W. Oliver Building on Smithfield, and the Elmhurst Group acquired 915 Fort Duquesne Blvd.
Still, Mr. Stauber believes interest from outside investors in Pittsburgh real estate will continue to grow in the years ahead.
"It's not a fluke. It's a trend," he said.
Mr. Fritsch is hoping he's wrong, that the strengths of the Pittsburgh market will go largely unnoticed, if only for selfish reasons.
"We don't want this great secret to get out," he said.
Mark Belko: firstname.lastname@example.org or 412-263-1262. First Published June 23, 2013 4:00 AM