Repositioning Buildings Not A Quick Fix To Sluggish Office Market
The repositioning and redevelopment of vacant, aging suburban office buildings is often touted as a way to inject life and capital into areas with sluggish commercial real estate markets. But the developers who have taken these types of makeovers on say they are extremely expensive and not always the right fit.
In the once-booming state of Connecticut, for example, Fairfield County continues to struggle with high levels of office vacancy, a hangover from a mass corporate exodus from the state. In the first quarter, Fairfield’s vacancy was at 24%, according to Cushman & Wakefield.
The injections of foreign capital into projects in the suburban markets, as well as demand for residential product and how places like Stamford will cope with its new realities were all topics of discussion at Bisnow’s Fairfield and Westchester State of the Market event Wednesday.
“Stamford has become a place of its own right, it’s [no longer 100%] dependent on New York,” said Spinnaker Real Estate Partners CEO Clay Fowler in discussing the outlook for the area. “Could there be a halt? Sure. Could there be a little softness? Maybe ... [but] I'm bullish on Stamford."
With vast amounts of unrented space available, locals have suggested repositioning of buildings is a smart way for the area to readjust. It is already happening in some places.
In Stamford, for example, the former Clairol headquarters at 1 Blachley Road has been converted into a Chelsea Piers Athletic Club and the NBC Sports headquarters. One of the six buildings in the High Ridge Office Park is being considered as a Life Time Fitness facility and the former GE Capital headquarters at 260 Long Ridge Road is home to a medical center.
Despite the success stories, developers and lenders are still wary, fully aware that, in practice, repositioning old office buildings is not always that easy. Mill Creek Residential Trust Senior Managing Director Russell Tepper said that, in his experience, it can often be as costly as a ground-up construction, except a repositioned building can ultimately result in a less-than-ideal product.
“You can just imagine how difficult it might be to take a building like this, and any ones around here, and fit it out for an apartment that is typically 35 feet deep, and 20 to 25 feet wide,” Tepper said. “So we’ve found it very challenging. We’ve focused more attention on [repositioning] warehouse buildings and retail centers.”
The circumstances need to be right for a total refurbishment to be worthwhile, Fowler said.
“It’s not efficient unless the building has particular characteristics and it’s really well located, and you can’t replace it,” he said.
The Cappelli Organization is redoing the historic Stamford Post Office, and CEO Bruce Berg said the company has signed a day care center for the lower level and is in talks with a company to take office space in the building. The building could just be a special case.
“It happens to be a beautiful space,” he said. "But a lot of the other buildings just don’t have a reuse for residential, you've got to tear them down."
Optimistic developers and brokers have said suburban areas like Westchester and Fairfield will benefit from an influx of millennials and from demand from younger companies looking to stake their flag where there are cheaper rents.
But like most of the country, landlords here are under pressure to fit out their buildings with extensive amenities and modern spaces that office tenants now demand.
At 677 Washington Blvd. in Stamford — where Bisnow's event took place — the 700K SF building once home to the world’s largest trading floor has been empty since USB left in 2016.
George Comfort & Sons CEO Peter Duncan said his firm saw the building as a great opportunity because UBS spent so much money building it. He estimates the structure cost more to build than most New York City buildings on a per-square-foot basis.
Despite the building's inherent qualities and history, George Comfort is focusing not just on the building itself, but the entire area, to market it to future tenants.
He said there is also 800K SF of development rights attached to the building, so the firm is considering building a boutique hotel on the Washington Boulevard side and will make an effort to activate the retail on the Federal Street side to create a more walkable area.
“We’re trying to redevelop the whole area, and not just the building. So we have a ways to go, but we are making progress,” he said.