Saturday, August 16, 2008

ADB Reads Craigslist So You Don't Have To

Saw this on Craigslist:

$13,000,000 100 year-old Government Office Building

Barely renovated, 14 half baths.
Comes with own Housing and Redevelopment Authorities, Building Inspection, Planning, and Fire Departments.
OK, maybe not on Craigslist, per se.

I'm having difficulty trying to figure out the logic of selling that building, so bear with me.

I'm assuming that the URA or the City owns the building out right, so there's no outstanding debt on it.* I would also assume that that means that nobody's really paying rent to be in the building, so a sale means that the occupants would have to either (a) have to find new, cheaper space or (b) start ponying up some dough.

I'm also, also assuming that the City/URA can't collect any tax benefits on the depreciation of the building or any of the systems. So, like GE Capital does, it may make sense from a market perspective to have a private owner reap the benefits of owning a building and improvements.

Obviously, the building is tax exempt, so the City/County/School District is missing out on about $163,000 in taxes/year, although only $77,000 of that would go to the City's coffers. That works out to about a value of $1.1 million over thirty years, at a 5% interest rate.

According to the P-G, it costs about $12/square foot to maintain the building,** so the trade off for the Municipality would be that it would have to start paying rent and improvement costs to a private owner now... which, according to the underlying assumption, should be less than $12/sq. ft. That's doesn't really seem reasonable if you think a private company is supposed to, you know, make money off of the building.

Now, I don't know much about Real Estate, but I do know that the Union Trust Building has sat vacant for a long time. I would consider this a comparable building to 200 Ross Street, for lack of a better example at hand. I'm inferring from this that there is, in fact, a high vacancy rate for this kind of office space. I would question, therefore, what the demand to purchase this kind of building would be.

I guess you could boot out HACP/URA/City and turn the whole building into residential condos, but, with the exception of maybe Cyril Wecht, who really wants to spend more time in that part of town than they have to? Ross Street is not exactly the center of Pittsburgh nightlife.

Maybe the sale has something to do with that new, proposed hotel across the street? Is someone trying to get a sweet deal?***

Intuitively, I don't see any real interest in 200 Ross Street and I'm not convinced that the City will be netting any money from its sale and that the net value of the deal is going to be close to zero. That leads me to believe that this is either a feel good, "look-at-us-we're-trying-to-return-publicly-owned-properties-to-the-tax-roles" proposal from the folks in the City-County Building or a cynical "look-at-us-we're-trying-to-return-publicly-owned-properties-to-the-tax-roles-before-an-election-year" proposal from the folks in the City-County Building.

* I mean, if you can't pay off your loans in 56 years, you're probably Bernardo Katz.

** Although, having been down in that building one or two times, I kind of wonder if someone isn't scrimping on the repairs; 12/sq. ft. doesn't sound like enough money.

*** Not that we're implying that anyone would ever do something like this in Pittsburgh, and we will gladly admit that we're grasping at straws here, but this is really the only other new building that's occurring in that part of town since they built the PNC building on First Avenue.


Anonymous said...

someone should nominate it for historic status

Fifth / Forbes said...

Office vacancy rates, even for old office space have been decreasing in the past couple of years. However, Three PNC is set to overwhelm the market and because Reed Smith will be moving to PNC there is going to be more open space.

Also to consider is that Point Park and the AI have taken a decent amount of office space off the tax rolls over the past 10 years or so, but that's a different topic for another post.