30% of U.S. office buildings, valued at $1.1T, are obsolete

[meh]

The author of that WSJ article had an apocalypse narrative that he wanted to tell about St. Louis (gosh, how novel) and that's what he did.

A response from Greater St. Louis, Inc.: https://greaterstlinc.com/news/downtowns...l-street-journal-story-downtown-st-louis

Three points in particular:

The Wall Street Journal story focuses heavily on one problem property as the basis of its negative angle on all of Downtown. The focus of the story is a small section of Downtown that includes challenging properties, most notably the Railway Exchange. GSL is working with a potential development team and local and national experts to develop a program of uses and a financing strategy for Railway.  

The Journal story relies on a flawed study from the University of Toronto that only includes a small portion of Downtown St. Louis for its data on economic recovery. The geographic area used for this study doesn’t include major drivers of foot traffic and economic activity Downtown, including the Gateway Arch, CITYPARK Stadium, Enterprise Center, major entertainment and residential districts (Washington Avenue west of Tucker Blvd. and Laclede's Landing, for example), major employers Ameren and Purina, and Union Station.

Data for Downtown’s actual geography shows recovery much greater than study cited in Journal story. Data from Placer.ai — an advanced foot traffic analytics platform that uses geospatial data analysis techniques — for the actual, defined boundaries of the Downtown St. Louis neighborhoods show that Downtown/Downtown West has recovered 82% of its 2019 level of total visitors, far greater than the 53% recovery the University of Toronto study shows for the small sub-section of Downtown St. Louis it surveyed.

Also, from user dbInSouthCity over at urbanstl.com: https://urbanstl.com/the-state-of-downtown-t10215-s5350.html

I spent some time with Konrad [,the author of the WSJ article,] in early March when he was here and spoke with him on the phone in early Feb. from the start he was clear his focus would be on the area that U of Toronto did for its recovery. GSL replicated the same study and came up with 84% recovery in that area. He had data on more restaurants opening than closing since covid and spending data that showed downtown east of Tucker at about 88% of 2019 (inflation adjusted) and Dowtown west at 106% when comparing 2019 to 2023 but he choose not to use it

Of the 4 large vacant buildings downtown:

1) AT&T was just purchased and there is a redevelopment plan. From what I've read, the difficulty has been the conversion of a 1980s 40-story office floor plate with central elevator stack to residential use.

2) The Millennium Hotel is owned by a Singapore-based conglomerate that refuses to do anything with it.

According to Zachary Wilson (manager of development incentives for the city’s nonprofit economic development agency, St. Louis Development Corp.) “There’s been numerous developers that have reached out to SLDC and the city to renovate or do something with this site".

https://www.bizjournals.com/stlouis/news...otel-developers-eminent-domain-city.html

Aldermen are now pursuing eminent domain:

https://www.stltoday.com/news/local/metr...0b05352-e7f2-11ee-8846-9ba6fd00561c.html

3) The Chemical Building has changed hands several times. The problem here seems to be that to get historic tax credits no significant changes can be made to the building, but the single stairwell does not conform to current fire codes, and so another stairwell would have to be constructed somehow without invalidating the tax credits—likely quite expensive.

4) The Railway Exchange is an absolutely massive historic building requiring a complex redevelopment plan. It was purchased in 2017 and then became tied up in litigation until the end of last year:

Hudson Holdings bought the Railway Exchange, its adjacent garage and a surface parking lot for $29.7 million in 2017. Gamma Real Estate Capital agreed to lend Hudson $19.7 million — $5 million of which was put in a “predevelopment reserve fund” that was to be used for work like remediation and demolition related to Hudson’s redevelopment. Hudson would then submit bills, invoices and receipts to Gamma Real Estate, which either approved or denied them, according to court records.

But at some point, Hudson stopped paying contractors. Those companies then filed mechanic’s liens to secure their right to payment, and later sued Hudson and Gamma Real Estate in 2018 after Hudson failed to settle those liens.

St. Louis Circuit Court ruled in favor of the contractors in 2022, awarding them attorneys’ fees in addition to their liens, and Hudson and Gamma Real Estate appealed that decision.

The state appeals court ruled Tuesday to uphold the circuit court’s decision that contractors’ liens took priority over Gamma Real Estate’s claim to the property, stating that Gamma was “clearly aware” that its loan would be used for construction and therefore waived its priority over the contractors.

...

The appeals court, however, ruled that Custom Construction Solutions only performed work on shoring up the garage and that its liens for the building and parking lot would be invalid.

The lawyer for CannonDesign, Gene Brockland of Amundsen Davis, said in a statement that they were pleased with the court’s ruling.

“Hopefully, the conclusion of this case will pave the way for the Railway Exchange Building to finally get re-developed, and for Cannon to be paid what it has been owed for years,” he said.

https://www.stltoday.com/news/local/metr...0b05352-e7f2-11ee-8846-9ba6fd00561c.html

I believe that Memphis-based Development Services Group, who recently redeveloped the also-massive Butler Brothers Building in Downtown West, has expressed interest in redeveloping Railway Exchange as well. Hopefully something comes of that.

[llamaorama]

Also apparent to anyone who has ever looked at St. Louis on a map or in Google Maps is that it's downtown is not the only commercial or high rise district in the generalized "central" part of the city. There's also buildings stretching west, to the West End, and then there is Clayton, which is effectively a 2nd downtown and has urban things like a light rail station.

[eschaton]

I'm getting real nervous regarding downtown conversions here in Pittsburgh.

My understanding is overall activity downtown is still pretty heathy. We have a small university (Point Park U) located downtown, lots of people pass through the area, the theatre district made a robust recovery post-pandemic, the convention circuit is strong, etc. Yeah, there are more homeless out and about than prior to the pandemic, but it's not that bad.

Still, downtown commercial vacancy is quite high, and the city is doing all it can to streamline the planning process to greenlight conversions as rapidly as possible. The problem is, commercial financing is still all stopped up. Few apartment projects of any sort are getting launched in the city right now, let alone downtown.

So what we're seeing a lot of are projects funded by the Urban Redevelopment Authority getting greenlit. Which means predominantly to entirely affordable housing. They just voted to greenlight financing to convert this building, for example, into 93 senior apartments.

I'm 100% in supportive of affordable housing more broadly. However, housing hundreds, if not thousands, of more low-income people downtown will not help struggling downtown retailers, or fill in vacant storefronts. Downtown retail in general has gotten massively more downscale over the last several years as it is, with predatory cell stores, vape shops, and the like being about the only new things opening.

Worse, given the reputation Downtown has now from those who no longer come here (full of crime, homeless, creepy loiterers, etc), adding a high concentration of low-income housing seems like it's just going to cement the area as a poor neighborhood. Particularly because fringe neighborhoods like the Strip District are thriving in terms of retail and residential development, and even poaching office tenants from Downtown.

[Crawford]

Originally Posted by llamaorama

Also apparent to anyone who has ever looked at St. Louis on a map or in Google Maps is that it's downtown is not the only commercial or high rise district in the generalized "central" part of the city. There's also buildings stretching west, to the West End, and then there is Clayton, which is effectively a 2nd downtown and has urban things like a light rail station.

While true, not sure of the relevance. This is a very common typology in the U.S., shared by Cleveland, Detroit, Kansas City and many others. The cores are historically relatively small, and business centers, cultural venues, universities and wealth centers were frequently dispersed, often along a linear spine, especially with the advent of the auto age.

Look at where Detroit, Cincy, Buffalo and KC build their vast legacy rail terminals. They weren't core terminals. This is an early divergence from the older eastern cities, or European cities.

Downtown St. Louis, just a few years ago, had a thriving shopping mall, and multiple department stores, including a major flagship. This was decades after Detroit lost its last department store. So something changed in recent years.

[Crawford]

Originally Posted by eschaton

I'm 100% in supportive of affordable housing more broadly. However, housing hundreds, if not thousands, of more low-income people downtown will not help struggling downtown retailers, or fill in vacant storefronts. Downtown retail in general has gotten massively more downscale over the last several years as it is, with predatory cell stores, vape shops, and the like being about the only new things opening.

Yeah, that seems like a bad idea. Not smart public policy. If they're buildings with an affordable housing component (say 20% or 30%), that's one thing, but if they're mostly filled with moderate and low income households, I'd rather the buildings stay vacant, and hope for better options down the road. Sorry.

In Cleveland, I noticed a massive share of downtown conversions, more than any other city I've encountered. These seem to be market rate conversions, and I saw a fair amount of typical urban-leaning 20-something folks entering/exiting. Given Cleveland's low rents, I'm guessing there's a heavy subsidization of these conversions. They didn't seem to bring much 9-5 energy to the streetscape, with WFH, and weekdays seemed quieter than the weekend, which is worrying.

I'm generally skeptical of mass conversions as a downtown revitalization tool, though realize it's better than nothing.

[Steely Dan]

Originally Posted by Crawford

Downtown St. Louis, just a few years ago, had a thriving shopping mall, and multiple department stores, including a major flagship.

More than just a few years ago.

The Macy's in downtown St. Louis (the former Famous-Barr flagship store) was first significantly downsized in 2006 when Macy's took over, and then shuttered altogether in 2013, over a decade ago now.

Always marching, time is.

[llamaorama]

Originally Posted by Crawford

Downtown St. Louis, just a few years ago, had a thriving shopping mall, and multiple department stores, including a major flagship. This was decades after Detroit lost its last department store. So something changed in recent years.

I think in general we don't put enough weight on the effect of the internet in enabling remote work, online shopping, and ride-sharing apps like Uber. There are fewer day time office workers spending money downtown and using transit. The current decline started around 2010 which was when smart phones and high speed internet really reached 100% saturation.That was the moment when you could go to Walmart and spend $39 to buy a prepaid android phone.

They aren't around to dilute the presence of homeless people which leads to a sense of unease.

When I've ridden public transit in other cities while traveling (always drive when I am at home) my completely honest feeling is that I don't care if there is some gross homeless person on the train doing gross things if they are minding their own business. Only wimps get scared of things like that. But, if I get on a train and I am the only person who doesn't have a tattoo, I feel uncomfortable in a more psychological way, and it's not merely a matter of security but also a feeling like I am in the wrong place in general, like this train is for these other gross poor people and people will think I am also poor and judge me. I know this is classist and bigoted and whatever and from behind a screen on social media people will judge the hell out of this opinion. But be real, you know you've felt this way too.

Also what this means is that all this time, the vagrancy issue in cities isn't solely a policing or security issue. The homeless aren't so much a cause but a symptom. Someone who is homeless who manages to pay the fare to ride a bus and minds their business the entire time has every right to be there, they are not a criminal, they are doing nothing wrong, and a police officer who is riding the bus will not make the bus more "safe" because it was "safe" already. Despite the popular narrative we cannot simply blame "safety" as the reason for problems with urban centers.

Rather it's partially an image and psychology issue, and that's going to be a lot harder to fix.

[wwmiv]

Originally Posted by llamaorama

I think in general we don't put enough weight on the effect of the internet in enabling remote work, online shopping, and ride-sharing apps like Uber. There are fewer day time office workers spending money downtown and using transit.

They aren't around to dilute the presence of homeless people which leads to a sense of unease.

When I've ridden public transit in other cities while traveling (always drive when I am at home) my completely honest feeling is that I don't care if there is some gross homeless person on the train doing gross things if they are minding their own business. But, if I get on a train and I am the only normal person, I feel uncomfortable, and it's not merely a matter of security but also a feeling like I am in the wrong place in general, like this train is for these other gross poor people and people will think I am also poor and judge me. I know this is classist and bigoted and whatever and from behind a screen on social media people will judge the hell out of this opinion. But be real, you know you've felt this way too.

Also what this means is that all this time, the vagrancy issue in cities isn't solely a policing or security issue. The homeless aren't so much a cause but a symptom. Someone who is homeless who manages to pay the fare to ride a bus and minds their business the entire time has every right to be there, they are not a criminal, they are doing nothing wrong, and a police officer who is riding the bus will not make the bus more "safe" because it was "safe" already. Despite the popular narrative we cannot simply blame "safety" as the reason for problems with urban centers.

Rather it's partially an image and psychology issue, and that's going to be a lot harder to fix.

I’m a big enough person to admit this, too. It’s sad, it’s truth, and it’s the harsh reality of the world.

+1

[mrnyc]

Originally Posted by Crawford

Office conversions aren't really a municipal bragging point. It means the office space is dead in the water. A downtown with mass conversions is one where owners have no hope of recovery.

I'm not against office conversions, but when every other building is being converted, that's actually a really bad sign. Historic conversions can be pretty cool, but when 70's-era stuff is being mass-converted, that's generally not good.

nonsense -- that cart is ahead of its horse.

long empty or underutilzed buildings were already a bad sign.

you would rather buildings continue to sit empty?

re-peopling downtown via converting any and every empty building via tax abatement and historic credits is a smart move.

when new office buildings are needed so what, they easier to build than residential anyway. and they don't have to be sherwin williams hq quality.

cleveland has been very thoughtful and has been doing this as best it can around downtown longer and harder than most, starting in the warehouse district and flats in the late 1980s and 1990s, euclid avenue in the oughties and around public square more currently. its been nothing but a good thing -- see the links -- with more to come.

[Crawford]

Originally Posted by mrnyc

you would rather buildings continue to sit empty?

If there's hope of recovery, yes.

If there isn't, then I'm ok with residential conversions, but it's generally a troubling sign.

CBDs should have high intensity uses like office, hotel, etc. They shouldn't be dominated by residential uses, which don't generate sufficient activity, even at very high densities.

The UES, the densest neighborhood in the developed world, is pretty quiet (for Manhattan standards) during M-F weekday hours. Residential isn't enough. Business areas need mixed-use and need to limit conversions, where possible. At minimum it's better to reserve the first few floors for nonresidential uses, whether office, medical, institutional, etc.

[iheartthed]

Originally Posted by edale

Curiously, this doesn't appear to be much of an issue in Cincinnati. Many(most?) of the recent historic conversions don't have attached parking. There have even been several new builds downtown and in OTR that have been built with either zero or just a handful of parking spaces. This building, for example, has no parking included. Of course, there are a ton of parking options in downtown Cincinnati that people can lease monthly spots at, and I'm sure including parking in a building allows for developers to charge higher rents, but it doesn't seem to be as big a concern as other places. The city got rid of parking minimums around the the streetcar line, and I think now has been expanded to basically the entire urban core/basin.

In the case of Detroit, banks have required dedicated parking in order to finance both commercial and residential development projects in downtown Detroit. It's a weird catch 22, since 1) surface parking devalues land and 2) parking structures make projects more expensive, but it has been a common theme as Detroit has struggled to revive its downtown.

[mrnyc]

Originally Posted by Crawford

If there's hope of recovery, yes.

If there isn't, then I'm ok with residential conversions, but it's generally a troubling sign.

CBDs should have high intensity uses like office, hotel, etc. They shouldn't be dominated by residential uses, which don't generate sufficient activity, even at very high densities.

The UES, the densest neighborhood in the developed world, is pretty quiet (for Manhattan standards) during M-F weekday hours. Residential isn't enough. Business areas need mixed-use and need to limit conversions, where possible. At minimum it's better to reserve the first few floors for nonresidential uses, whether office, medical, institutional, etc.

lol if only downtown cleveland gets to ues levels of pedestrian activity.

as i said, you have the cart before the horse, many of these buildings were struggling since the rust belt era dive and they are finally methodically being put back to public use. in fact locals got the state to develop a historic tax credit award process to help move some of it along that has been quite a success all over the state. that is nothing but wise.

if downtown is not made into an attractive and liveable place then there is no hope to bring more business in. and its working already, for example cross country mortgage came into downtown from the suburbs into a big rehabbed warehouse. so so far so good, even if its at the usual midwestern cleveland glacial pace.

[eschaton]

Originally Posted by Crawford

I'm generally skeptical of mass conversions as a downtown revitalization tool, though realize it's better than nothing.

The most successful case of this in North America was Vancouver, which boosted downtown living to such an extent it crowded out office users. Now Downtown Vancouver is a mostly residential neighborhood and (at least pre-pandemic) workers had to reverse commute to fringe or suburban office clusters for work.

[LAsam]

^Has Canada seen the same impact as the US on office occupancies, and general vibrancy of downtown areas, since COVID and the increase in hybrid/work-from home? Maybe this was addressed earlier in the thread...

[iheartthed]

Originally Posted by Crawford

If there's hope of recovery, yes.

If there isn't, then I'm ok with residential conversions, but it's generally a troubling sign.

CBDs should have high intensity uses like office, hotel, etc. They shouldn't be dominated by residential uses, which don't generate sufficient activity, even at very high densities.

The UES, the densest neighborhood in the developed world, is pretty quiet (for Manhattan standards) during M-F weekday hours. Residential isn't enough. Business areas need mixed-use and need to limit conversions, where possible. At minimum it's better to reserve the first few floors for nonresidential uses, whether office, medical, institutional, etc.

Yeah, it's definitely a troubling sign. Converting office buildings to residential doesn't seem so much different than when warehouses and factories in many cities were converted into lofts as industrial operations moved away from U.S. cities.

[dchan]

Originally Posted by Crawford

The UES, the densest neighborhood in the developed world, is pretty quiet (for Manhattan standards) during M-F weekday hours. Residential isn't enough. Business areas need mixed-use and need to limit conversions, where possible. At minimum it's better to reserve the first few floors for nonresidential uses, whether office, medical, institutional, etc.

I find the UES plenty packed during daytime weekday working hours.

I would consider it closer to a mixed-used neighborhood than a purely residential neighborhood due to the big presence of large hospitals like NYP-Weill Cornell, HSS, Memorial Sloan, Lenox Hill, Metropolitan, and Mount Sinai (the last two a bit further north than UES, but I'll include them). Don't underestimate the huge influx of hospital staff, patients, and students into the neighborhood.

In addition, there are colleges (like Hunter), primary schools (public and private), plenty of public/private practice clinics, businesses of all sorts, and plenty of restaurants & services. When schools empty out, you can hardly find space on the sidewalks to walk around.

Almost any other city in the US and much of the world would kill to have the weekday foot traffic of the UES even in their CBD.

I've worked in an actual residential neighborhood that had a fairly substantial commercial street (South Slope, BK, with 5th Av being the commercial street). That area is definitely more of a dead zone, and I struggle to understand how restaurants manage to stay in business there without a good weekday lunch or dinner crowd.

[Steely Dan]

Originally Posted by Crawford

Yeah, that seems like a bad idea. Not smart public policy. If they're buildings with an affordable housing component (say 20% or 30%), that's one thing, but if they're mostly filled with moderate and low income households, I'd rather the buildings stay vacant, and hope for better options down the road. Sorry.

Yeah, mixing incomes in these conversions is absolutely the better way to go.

A 25/75 affordable/market rate split seems about right, and that's the rough ratio Chicago is using for its LaSalle Street Initiative to subsidize conversions of unused/underused office properties in the heart of the loop.

[Crawford]

Originally Posted by dchan

I find the UES plenty packed during daytime weekday working hours.

Almost any other city in the US and much of the world would kill to have the weekday foot traffic of the UES even in their CBD.

I've worked in an actual residential neighborhood that had a fairly substantial commercial street (South Slope, BK, with 5th Av being the commercial street). That area is definitely more of a dead zone, and I struggle to understand how restaurants manage to stay in business there without a good weekday lunch or dinner crowd.

Yeah, the parts of the UES that are most busy are those where there's a large mixed-use component. 86th Street is very busy due to two major subway stations, tons of retail, the Met and many private schools. The hospital complexes are big traffic generators. And yeah, the Hunter neighborhood, also with retail and busy subway hub.

But again, mixed-use. Solid residential areas tend to be quiet. East End Ave. is dense but quiet. Riverside Drive is dense but quiet. I'm in brownstone Brooklyn, and it's dense (not Manhattan dense but dense) but quiet M-F during workday hours. The restaurants here in Park Slope have likely benefitted from WFH, with families eating out earlier and with more frequency, and with larger lunchtime crowds. But it's still pretty quiet, with not enough mixed-use, except around the hospital and subway stations.

[eschaton]

Originally Posted by Crawford

Yeah, the parts of the UES that are most busy are those where there's a large mixed-use component. 86th Street is very busy due to two major subway stations, tons of retail, the Met and many private schools. The hospital complexes are big traffic generators. And yeah, the Hunter neighborhood, also with retail and busy subway hub.

But again, mixed-use. Solid residential areas tend to be quiet. East End Ave. is dense but quiet. Riverside Drive is dense but quiet. I'm in brownstone Brooklyn, and it's dense (not Manhattan dense but dense) but quiet M-F during workday hours. The restaurants here in Park Slope have likely benefitted from WFH, with families eating out earlier and with more frequency, and with larger lunchtime crowds.

Sure, but downtown areas will never convert to 100% residential. There will always be tourists, event-goers, possibly students if a campus is nearby, people just passing through the area with a transfer on transit, etc. So even in the unlikely event that 100% of the office jobs vaporized, it still wouldn't be just ground-floor commercial with residential above.

[Nouvellecosse]

Originally Posted by eschaton

I'm getting real nervous regarding downtown conversions here in Pittsburgh.

My understanding is overall activity downtown is still pretty heathy. We have a small university (Point Park U) located downtown, lots of people pass through the area, the theatre district made a robust recovery post-pandemic, the convention circuit is strong, etc. Yeah, there are more homeless out and about than prior to the pandemic, but it's not that bad.

Still, downtown commercial vacancy is quite high, and the city is doing all it can to streamline the planning process to greenlight conversions as rapidly as possible. The problem is, commercial financing is still all stopped up. Few apartment projects of any sort are getting launched in the city right now, let alone downtown.

So what we're seeing a lot of are projects funded by the Urban Redevelopment Authority getting greenlit. Which means predominantly to entirely affordable housing. They just voted to greenlight financing to convert this building, for example, into 93 senior apartments.

I'm 100% in supportive of affordable housing more broadly. However, housing hundreds, if not thousands, of more low-income people downtown will not help struggling downtown retailers, or fill in vacant storefronts. Downtown retail in general has gotten massively more downscale over the last several years as it is, with predatory cell stores, vape shops, and the like being about the only new things opening.

Worse, given the reputation Downtown has now from those who no longer come here (full of crime, homeless, creepy loiterers, etc), adding a high concentration of low-income housing seems like it's just going to cement the area as a poor neighborhood. Particularly because fringe neighborhoods like the Strip District are thriving in terms of retail and residential development, and even poaching office tenants from Downtown.

I think it really depends on the city. In some cities the downtown is the least affordable part of town, if not in terms of unit prices then at least in terms of price per sq ft. So adding more affordable housing even in the form of large projects is a net positive. But if a downtown is already fairly affordable and doesn't have an issue of lower income people being excluded then adding large amounts of low income housing there would create too great a concentration. So basically it isn't great to have too great an imbalance in either direction.