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

[ColDayMan]

Originally Posted by meh

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).

Oh, I'm well aware Clayton has a far larger office market than Covington (I work in downtown Clayton from time to time), though that's to St. Louis' detriment and Cincinnati's benefit. I was just using Covington has an example of a secondary office market that is appealing without stealing space from the primary core.

And I agree that Clayton isn't Schaumburg in residential architecture. I was just pointing out Covington having a more historic, denser core since it was from the mid-1800's versus Clayton being presumably built in the 1920's and 1930's.

[dchan]

Originally Posted by lio45

"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 researched the different energy codes throughout the U.S. when I worked for a window manufacturer & seller. Missouri is a special case compared with most other states because it has a history & culture of "strong local government". So the whole state basically has no state-mandated building or energy codes except for government buildings. Each municipality or county would adopt their own building and energy codes instead.

[dchan]

Originally Posted by Steely Dan

It all seems so strange to me.

How could a 38 year old 1.4M SF office tower in a major American city be worth virtually nothing?

Can't wrap my head around that.

It's not too difficult to understand for me. There are a few factors at play here.

The U.S. has a shit-ton of land compared with its population. And because the population concentration is tilted towards cities, some land is far more valuable than others. It might not make sense to you because land around Chicago is fairly valuable (though not to the extent of land around NYC, Boston, Bay Area, and Southern Cali). But in many other parts of the country, land can be purchased for basically a pittance.

The area around this building may also not be terribly desirable. Even if the whole area is built-up with large buildings and existing infrastructure, what good value would it have if no one goes here? Value is a concept created and acted upon by us humans. The land has no value for humans if they don't use it.

Another factor is the amount of money required to renovate & upkeep a building to attract tenants who could pay a desired rent. If a building is simply too expensive to upgrade & maintain vs. the rents it could bring in, it will have a low market value (and possibly even a negative market value).

A good comparison here is a used luxury car. It was originally built solidly with plenty of modern luxuries and comforts. But has aged over time, and not so gracefully. Many parts have reached the end of their service life. And the design, luxuries, and comforts that seemed so modern before have become passe. Not to mention that the interior has become fairly worn out over time. So a flagship car that might have cost $90k when new is now worth less than $10k.

In short, luxury cars have high depreciation costs. Likewise, a flagship office building in a not-so-desirable part of a city will also have high depreciation costs, especially if its mechanical systems require extensive updating or replacement before desirable tenants can move in.

[mhays]

Think luxury car that would need a lot of money to fix up before you can rent it out. And there's a question about whether there'd be any renters. And the windows won't roll down, ever.

[edale]

Originally Posted by ColDayMan

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

Mount Vernon is stunning. Probably one of the prettiest, most European looking neighborhoods in the US.

[Emprise du Lion]

Originally Posted by Steely Dan

Downtown St. Louis hasn't built a significant class A building in over 30 years now. Meanwhile, Clayton has built half a dozen of them.

Clayton is winning.

The closest is the PwC Pennant Building at Ballpark Village, but it's only a handful of floors of actual office space vs the parking podium. It was the first new class A space in downtown STL in 30ish years.

There are rumors that the next phase of BPV might include more office though for a large tenant. We shall see though.

Originally Posted by Crawford

Right. I'm not disputing that downtown STL office market is crap, I'm just skeptical that Clayton's presence is some magical kryptonite that permanently prevents downtown STL from being anything other than crap.

Clayton has apparently been an important node for generations. It was getting downtown retail anchors in the 1940's already. STL didn't have this extreme level of core distress until very recently. The office building that just sold for $3.5 million sold for $205 million in 2006.

Originally Posted by Steely Dan

Yeah, not exactly zero sum.

But as stated before, to whatever extent there is a market for new class A commercial office space in an urban setting within metro St. Louis, downtown Clayton has being seeing ALL of that action for the past 25 years or so.

If I'm the city of St. Louis, I'm not happy about that fact.

I would like to point out that downtown St. Louis is still objectively healthier overall than it was in the 90s and early 00s. Its residential population is at an all time high, and it's one of the few parts of the city actually growing. Its office market is another story, but the vacant buildings have been vacant for years (in some cases 10+ years). There's been no mention of the buildings brought back online that were also massive.

As for Clayton, its appeal is simple. Less crime, no 1% tax on employee base, shiny new office space, and closer to the center of gravity of metro St. Louis' ever sprawling yet stagnant population. That center of gravity is continuing to shift west in Missouri. The city is still shrinking, the Metro East overall is slowly shrinking (assuming the Census Bureau didn't botch their counting there like the rest of Illinois, long story...), St. Louis County is (allegedly) slowly shrinking/stagnant. That leaves St. Charles and Jefferson Counties as the growing areas.

Originally Posted by The North One

Pretty much agree that Clayton is the main problem. Maybe when metro STL was healthier they were able to coexist. But Clayton is clearly the parasite here (aside from suburban office sprawl in general). If there was an effort to direct resources to downtown and not Clayton the situation would be much different.

The trend of the last couple of decades are that Midwest city downtown's have gotten exponentially better. It is very odd that downtown STL seemed to have went in the opposite direction as recently as 2013.

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.

Downtown St. Louis has improved over the years, but the article paid little to no mind to what has changed for the better in the last 20 years.

In terms of what you listed, the Railway Exchange is awaiting a redevelopment plan and has been tied up in litigation for years. It's also going to be a pain to redevelop due to fire and water damage.

The Millennium Hotel suffered because the owner refused to do anything with it. They have sat on the property for years refusing to sell it. The city threatened to eminent domain it, and now they're willing to sell it. They were paying security and maintenance to keep it up to minimum standards while allowing cops to use it for training. That's been its life for ages now.

Meanwhile, the Butler Brothers Building, a 735k sq foot historic warehouse / industrial building that sat vacant for years just got turned into apartments in the last year. It's also sitting next to our brand new urban soccer stadium that they removed an interstate exit to build. Additionally, the Jefferson Arms, which is more than a million square feet and has sat vacant for years, is also in the middle of redevelopment / construction with plans for ground floor retail, apartments, and hotel space. Various smaller buildings in downtown St. Louis have also been restored and rehabbed in the same period of time, and yet crickets.

I will fully admit that downtown St. Louis has lagged behind its Midwestern peers for years in downtown redevelopment, but what I don't understand is where the media was when these buildings initially went vacant, rather than jumping on buildings like the AT&T tower 7 years after the fact.

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!!!

The funny thing is that other, much smaller buildings, are selling and being listed for more. The Chemical Building, one of the other previously mentioned problem properties, is being listed for $12 million. It's a complete gut job that requires a second set of stairs for the entire building to bring it up to modern code. A beautiful historic building though.

As for the AT&T tower, AT&T at one point was taking up multiple buildings across several blocks, including the dedicated parking garage that served all said buildings. AT&T downsized to the neighboring skyscraper, but kept the parking that was meant to serve them all. The former AT&T tower now has something like less than 20 dedicated parking spots, and it was designed in the 1980s to serve just one corporate tenant.

Now it faces the issue of an expensive redevelopment to transform it into possible office, retail, and residential, but the guarantee of no parking. Each time a new developer takes over, every news article we get complains about the parking. If we had a stronger office market, maybe this wouldn't be such a dealbreaker, but here we are apparently.

[LAsam]

Originally Posted by Emprise du Lion

As for the AT&T tower, AT&T at one point was taking up multiple buildings across several blocks, including the dedicated parking garage that served all said buildings. AT&T downsized to the neighboring skyscraper, but kept the parking that was meant to serve them all. The former AT&T tower now has something like less than 20 dedicated parking spots, and it was designed in the 1980s to serve just one corporate tenant.

That's an interesting point and could definitely speak to why the value is so diminished. It's odd though that AT&T would need the same amount of parking for a downsized office workforce. I'd think they could work out an arrangement to lease some presumptively excess parking back to whomever takes over the old AT&T tower.

[edale]

Originally Posted by Emprise du Lion

As for Clayton, its appeal is simple. Less crime, no 1% tax on employee base, shiny new office space, and closer to the center of gravity of metro St. Louis' ever sprawling yet stagnant population. That center of gravity is continuing to shift west in Missouri. The city is still shrinking, the Metro East overall is slowly shrinking (assuming the Census Bureau didn't botch their counting there like the rest of Illinois, long story...), St. Louis County is (allegedly) slowly shrinking/stagnant. That leaves St. Charles and Jefferson Counties as the growing areas.

This is something I've posited for a while about Downtown St. Louis. It's increasingly becoming less central in the region, as the money and population continues to drift west. If East St. Louis and the IL side generally was healthier and wealthier, DTSL would no doubt also be healthier. I've seen this first hand with Cincinnati and Northern Kentucky. There is a significant amount of wealth, employment, and regional points of interest (obviously including the intl airport) in Northern Kentucky, and that has helped to keep Downtown Cincinnati and inner core neighborhoods relevant, even as sprawl continues its northern march to Dayton.

[eschaton]

Originally Posted by edale

This is something I've posited for a while about Downtown St. Louis. It's increasingly becoming less central in the region, as the money and population continues to drift west. If East St. Louis and the IL side generally was healthier and wealthier, DTSL would no doubt also be healthier. I've seen this first hand with Cincinnati and Northern Kentucky. There is a significant amount of wealth, employment, and regional points of interest (obviously including the intl airport) in Northern Kentucky, and that has helped to keep Downtown Cincinnati and inner core neighborhoods relevant, even as sprawl continues its northern march to Dayton.

Eh, I dunno. Center City has remained relevant in Philly, despite Camden being a mess, and South Jersey in general being an area declining in population and wealth.

[edale]

Originally Posted by eschaton

Eh, I dunno. Center City has remained relevant in Philly, despite Camden being a mess, and South Jersey in general being an area declining in population and wealth.

South Jersey has a ton of wealth and lots of healthy communities. The IL side of the STL metro is very spread out without much of a center, and as bad as Camden might be, it's 100 times better than East St. Louis, which is probably tied only with Gary, IN for decimation. Philly also never lost in-town wealth like St. Louis did. There's no Rittenhouse Square in St. Louis.

[Crawford]

I think it's a factor, but not a determinative one. St. Louis has a lot more in-town wealth than say, Detroit, and Detroit's CBD is likely even more regionally isolated, but Detroit's core has generally trended better in recent years.

[craigs]

Many US cities have CBDs on or near the edge of their respective metropolitan areas, including cities with CBDs on oceans, lakes, and rivers. St. Louis is not unique in this regard--there must be something more to it than just geography.

[mhays]

Detroit has had multiple corporate giants move in, along with multiple pro teams. A few big decisions by big players can go a looong way.

[edale]

Originally Posted by craigs

Many US cities have CBDs on or near the edge of their respective metropolitan areas, including cities with CBDs on oceans, lakes, and rivers. St. Louis is not unique in this regard--there must be something more to it than just geography.

I don't think anyone has made the argument that Downtown St. Louis' troubles are solely a result of geography.

[iheartthed]

Originally Posted by Crawford

I think it's a factor, but not a determinative one. St. Louis has a lot more in-town wealth than say, Detroit, and Detroit's CBD is likely even more regionally isolated, but Detroit's core has generally trended better in recent years.

Detroit's core is in better shape now, but it's hard to imagine downtown Detroit getting worse than it was in the late 90s, early 00s. They've all been rehabbed now, but there were abandoned skyscrapers in Detroit 20 years ago. I think that's why it's not so hard for me to understand a worthless skyscraper as it may be for people who have never lived in metros like Detroit or St. Louis.

[Steely Dan]

Originally Posted by ColDayMan

Oh, I'm well aware Clayton has a far larger office market than Covington (I work in downtown Clayton from time to time), though that's to St. Louis' detriment and Cincinnati's benefit. I was just using Covington has an example of a secondary office market that is appealing without stealing space from the primary core.

And if Covington had 10M SF of office like Clayton, it might be more of a detriment to Cincy.

Clayton's main threat is that it's not only a traditionally urban node, but it's also fairly substantial one (relatively speaking) for office, unlike these smaller suburban municipalities like Covington and Evanston that are more in the 2M SF range.

Are there any other suburban municipalities in the Midwest that have a traditionally urban downtown with anything approaching 10M SF of office space like Clayton?

[LAsam]

Originally Posted by Steely Dan

Are there any other suburban municipalities in the Midwest that have a traditionally urban downtown with anything approaching 10M SF of office space like Clayton?

St Paul comes to mind first for me... but maybe that's apples to oranges since it isn't really a suburban municipality. It's more of an adjacent urban municipality.

[Steely Dan]

Originally Posted by LAsam

St Paul comes to mind first for me... but maybe that's apples to oranges since it isn't really a suburban municipality. It's more of an adjacent urban municipality.

Good call.

And yeah, I put the twin cities in their own special dual-city basket in my mind.

But still a cromulent example to bring up.

[craigs]

Originally Posted by Steely Dan

Are there any other suburban municipalities in the Midwest that have a traditionally urban downtown with anything approaching 10M SF of office space like Clayton?

Why limit the discussion only to the Midwest? Cambridge to Boston, Bellevue to Seattle, Rosslyn & Arlington to DC--there are other "Claytons" in the country. They just don't loom as large as their respective regional CBDs.

[mhays]

Cambridge is more like Atlanta's Midtown, really an extension of Downtown despite not being typical office centered. Downtown Brooklyn and Arlington too.

Clayton, DT Bellevue, DT San Jose, DT Oakland, and Century City are truly secondary. I'd even put DT St. Paul in that category in terms of the office market though the capital is a special aspect.