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

[Wigs]

Originally Posted by meh

The rate has dramatically slowed, and the continued loses are due to Black flight from North St. Louis. The Central Corridor is thriving and South City is stable, with a number of South Side neighborhoods building significant amounts of new housing. At some point the Central/South growth is going to overtake the North loses. Additionally, there's a substantial amount of geospatial investment in the works around the new $2B National Geospatial-Intelligence Agency facility in near North, which will open in 2026. And Washington University is now investing heavily in the West End neighborhood—just above Forest Park north of Delmar Blvd—after reviving the Forest Park Southeast Neighborhood. It's only a matter of time before that neighborhood follows the same trajectory.

That's positive to hear

[lio45]

We really should have bought that St. Louis tower that sold for peanuts, and made it into the headquarters of SSP.

[Steely Dan]

Originally Posted by lio45

We really should have bought that St. Louis tower that sold for peanuts, and made it into the headquarters of SSP.

That's why I have to believe that's it's got some bigger issues going on than just "well, it doesn't have any directly attached accessory parking, so it's value is now zero".

For such a giant piece of urban real estate, $3.6M is essentially free.

It's saying, "this thing is such a ridiculous white elephant, will someone, ANYONE, please take it off our hands?"

If it was really a case of someone trying to give away 1.4M SF of urban real estate for free (without some unknown MAJOR issues going on behind the scenes), I believe that someone with some imagination would've bitten on it to something silly with it, like the local city museum guy, but this time on fucking steroids!!!

[lio45]

Originally Posted by Steely Dan

That's why I have to believe that's it's got some bigger issues going on than just "well, it doesn't have any directly attached accessory parking, so it's value is now zero".

For such a giant piece of urban real estate, $3.6M is essentially free.

It's saying, "this thing is such a ridiculous white elephant, will someone, ANYONE, please take it off our hands?"

If it was really a case of someone trying to give away 1.4M SF of urban real estate for free (without some unknown MAJOR issues going on behind the scenes), I believe that someone with some imagination would've bitten on it to something silly with it, like the local city museum guy, but this time on fucking steroids!!!

It's actually a bit of a white elephant, because it's going to cost a lot in municipal taxes and electricity/heating. It could conceivably have zero market value or even negative market value.

If the City of St. Louis promised me a 10-year tax break, I could have been interested in buying it, but the real problem with that tower as a real estate acquisition is, coming up with $3.6M is only the easy part and the cheap part.

[Wigs]

Lio, what's the cost to replace HVAC systems on 1.4 million square feet?

Near 40 year old systems cannot possibly be as efficient as new. Not to mention electricity costs from probably not having all LED

[meh]

Originally Posted by The North One

I also had no idea that behemoth of a building that is the railway exchange is also vacant. That hotel on the riverfront is vacant too. Really hard to paint a rosy picture of downtown STL. Things are indeed bad, but there's still time to fix it.

See my earlier post:

Originally Posted by meh

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

https://www.bizjournals.com/stlouis/...main-city.html

Aldermen are now pursuing eminent domain:

https://www.stltoday.com/news/local/...6fd00561c.html

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:

https://www.stltoday.com/news/local/...6fd00561c.html

And since they started pursuing eminent domain... well whatd'ya know? It's suddenly for sale:

https://www.loopnet.com/Listing/200-...s-MO/31479933/

From today:


https://urbanstl.com/millennium-hotel-t10036-s275.html

The problem is not lack of interest. In part, the problem is disreputable non-local owners. I don't know why AT&T has lost so much value, but there's nothing structurally wrong with it. There isn't enough office demand to fill it (again, thanks in large part to Clayton), and I suspect its size/configuration make it very difficult/unprofitable to adapt for residential (parking aside) without huge subsidies. The new owner said they'll make the details of their redevelopment plan public later this month.

And some additional perspective:


https://twitter.com/stlrainbow/statu...66956857286694

Here's the one that replaced Cupples 7 (which the owner neglected until it collapsed):


https://skyscraperpage.com/forum/sho...76120&page=134

The media (including STL local media, which is part of the problem) loves the "St. Louis' sky is falling" narrative. It's their go-to anytime they're scraping the barrel.

[The North One]

Wow that was a beautiful pre-war. Could have been made into those apartments. What a shame.

[ColDayMan]

Originally Posted by Steely Dan

Yeah, I can't think of too many other rustbelt suburban municipalities with their own urban, rail transit accessible, office highrise downtowns.

Evanston sorta, but it's not very "office-y", it's way further out, it's not at all centrally located within its metro area, and is absolutely miniscule potatoes compared to the loop in terms of office space.

Covington for Cincinnati but much like Jersey City-to-NYC, it's a secondary office district across the water that has minimal effect on Downtown Cincinnati. Downtown Cincinnati has been winning lately stealing companies from Covington due to, get this, the streetcar and "downtown living appeal." Though Covington is now expanding their office district (almost doubling it) onto an old adjacent IRS site. Covington is arguably the most appealing secondary office center in a Midwest metro behind/tied with Evanston. Ya know, rowhouses, 1700's NBDs, topography, pretty architecture, dense-as-fck, blah blah. But still, Covington is not causing Cincinnati's office demise like Clayton is to St. Louis.

But that does make me wonder...Baltimore City and Baltimore County split as well like STL/STL County but Towson is certainly no Clayton. I wonder how Baltimore escaped that "death loop" versus St. Louis.

[pip]

Originally Posted by ColDayMan

Covington for Cincinnati but much like Jersey City-to-NYC, it's a secondary office district across the water that has minimal effect on Downtown Cincinnati. Downtown Cincinnati has been winning lately stealing companies from Covington due to, get this, the streetcar and "downtown living appeal." Though Covington is now expanding their office district (almost doubling it) onto an old adjacent IRS site. Covington is arguably the most appealing secondary office center in a Midwest metro behind/tied with Evanston. Ya know, rowhouses, 1700's NBDs, topography, pretty architecture, dense-as-fck, blah blah. But still, Covington is not causing Cincinnati's office demise like Clayton is to St. Louis.

But that does make me wonder...Baltimore City and Baltimore County split as well like STL/STL County but Towson is certainly no Clayton. I wonder how Baltimore escaped that "death loop" versus St. Louis.

has Baltimore escaped that?

[ColDayMan]

I travel to downtown Baltimore almost every month for work and it seems far healthier office-worker-wise than downtown St. Louis.

[pip]

Ah ok, got it!

How about the rest of the city, if you do go check it out?

[Steely Dan]

Originally Posted by ColDayMan

Covington is arguably the most appealing secondary office center in a Midwest metro behind/tied with Evanston.

And as I mentioned earlier, Evanston is barely even a secondary office market within Chicagoland. It only has about 2M SF office space, which is a drop in the bucket compared to downtown Chicago's 160M SF.

Evanston is also dwarfed by suburban sub-markets like the Oak Brook area (24.5M SF) or the Rosemont area (13M SF) and several others, and all of that stuff is office park sprawl garbage.

Evanston is awesome, bit it's a very minor player in Chicagoland's overall office market.

[mrnyc]

current office conversion news —



More Office Conversions Underway to Revitalize Downtowns

April 11, 2024
2 Minute Read


There has been a notable increase in office-conversion projects over the past six months, as urban office districts undergo a much-needed transformation. Nearly 70 million sq. ft. of office space or 1.7% of total U.S. supply was undergoing conversion to other uses in Q1 2024, up from 60 million sq. ft. or 1.4% of total supply in Q3 2023.

Office-conversion completions are expected to more than double this year over last. And with hundreds more of these projects in the pipeline, many urban office centers are slowly being transformed into more vibrant, commercially diverse districts.

Approximately 120 office-conversion projects nationwide—one-third of them to multifamily—are expected to be completed this year, compared with an annual average of 45 between 2016 and 2023. This pipeline indicates higher-than-average conversion completions over the next several years.

…

Markets with a lot of older office buildings have the most office conversions planned or underway. Cleveland has the highest percentage of its total office inventory (11%) undergoing or planned for conversion, while Houston has the most total square footage at 6.2 million. Eight of the top 10 markets for conversion activity had an office vacancy rate above the 18.6% U.S. average as of Q4 2023.

Downtown Cleveland is a notable example of an office-dense urban market that has benefited from converting outdated and largely vacant office buildings into apartments and hotels. Since 2016, more than 3.5 million sq. ft. of downtown Cleveland office space has been converted to other uses, resulting in an 18% reduction in its total office inventory and reducing its vacancy rate to 17.3% from 19.7%.


more:
https://www.cbre.com/insights/briefs...lize-downtowns

Figure 1: Office Conversions by Construction Status & Estimated Year of Completion


Source: CBRE Research, Q1 2024

[eschaton]

Originally Posted by mrnyc

current office conversion news —



More Office Conversions Underway to Revitalize Downtowns

April 11, 2024
2 Minute Read


There has been a notable increase in office-conversion projects over the past six months, as urban office districts undergo a much-needed transformation. Nearly 70 million sq. ft. of office space or 1.7% of total U.S. supply was undergoing conversion to other uses in Q1 2024, up from 60 million sq. ft. or 1.4% of total supply in Q3 2023.

Office-conversion completions are expected to more than double this year over last. And with hundreds more of these projects in the pipeline, many urban office centers are slowly being transformed into more vibrant, commercially diverse districts.

Approximately 120 office-conversion projects nationwide—one-third of them to multifamily—are expected to be completed this year, compared with an annual average of 45 between 2016 and 2023. This pipeline indicates higher-than-average conversion completions over the next several years.

…

Markets with a lot of older office buildings have the most office conversions planned or underway. Cleveland has the highest percentage of its total office inventory (11%) undergoing or planned for conversion, while Houston has the most total square footage at 6.2 million. Eight of the top 10 markets for conversion activity had an office vacancy rate above the 18.6% U.S. average as of Q4 2023.

Downtown Cleveland is a notable example of an office-dense urban market that has benefited from converting outdated and largely vacant office buildings into apartments and hotels. Since 2016, more than 3.5 million sq. ft. of downtown Cleveland office space has been converted to other uses, resulting in an 18% reduction in its total office inventory and reducing its vacancy rate to 17.3% from 19.7%.


more:
https://www.cbre.com/insights/briefs...lize-downtowns

Figure 1: Office Conversions by Construction Status & Estimated Year of Completion


Source: CBRE Research, Q1 2024

I notice Cleveland, Cincinnati and Columbus are all among the top markets for conversions, which makes me wonder if some Ohio state tax incentives are playing a role.

[mrnyc]

^ yes there is both tax abatement and also you can sign up to win a historic property incentive as well.

[lio45]

Originally Posted by Wigs

Lio, what's the cost to replace HVAC systems on 1.4 million square feet?

Near 40 year old systems cannot possibly be as efficient as new. Not to mention electricity costs from probably not having all LED

"Not efficient" isn't a problem; what would personally worry me is (given I'm not familiar at all with neither Missouri laws nor City of St. Louis laws) the obligation to swap obsolete systems.

I wouldn't want to attempt a $300M residential conversion project, the only scenario where someone with smaller pockets like me would be interested is to accept that the downtown STL office market is crap, make no major changes to the tower, and try to attract lower-quality commercial tenants by having the rents super low, and hope that I can get in the black ASAP with the building (i.e. get at least enough tenants to cover the utility costs and municipal taxes).

Still very risky though, even though of course it would be nice to own a tower

[ColDayMan]

Originally Posted by pip

Ah ok, got it!

How about the rest of the city, if you do go check it out?

If I have time, I like to check it out. Baltimore and St. Louis both have their troubled "sides" but both also have wonderful intact, healthy neighborhoods. I don't know which, neighborhood-wise, is doing better. If we're strictly going by population stats, I'm going to go with Baltimore.

[pip]

^The Central West End in St. Louis looks hard to beat

[ColDayMan]

Originally Posted by pip

^The Central West End in St. Louis looks hard to beat

I'd argue Mount Vernon + Mid-Town Belvedere would be Baltimore's equivalent and is just as impressive.

[meh]

Originally Posted by ColDayMan

Covington is arguably the most appealing secondary office center in a Midwest metro behind/tied with Evanston. Ya know, rowhouses, 1700's NBDs, topography, pretty architecture, dense-as-fck, blah blah. But still, Covington is not causing Cincinnati's office demise like Clayton is to St. Louis.

I don't know... Clayton has over 4x more office space than Covington and a strong occupancy rate. And Clayton is no slouch architecturally—especially the pre-war multi-family:





Clayton's residential population is small (about half of Covington's), but they've been building town homes and multi-family at a reasonable clip. And there are several high-rise proposals waiting around for interest rates to fall. And, again, the densest part of Clayton is walkably contiguous with the City/Central West End (that includes DT Clayton—I walked it frequently when I worked at Wash U).

Regarding Baltimore, I really like it. It's probably my favorite east coast city after DC. It benefits from a generally higher east coast density and an east coast mentality that is just more comfortable with/used to density. I think Baltimore (and Philly) have historically been much slower/hesitant to demolish "blighted" areas than places like St. Louis and Detroit.