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

[Crawford]

Originally Posted by Steely Dan

I wouldn't know if it's smart or not.

It's clear it's very stupid. Who would seek to automatically eliminate half of potential applicants?

Your industry might not be one where flexible schedules are the norm, so there would be no such expectation. In industries where it's common practice, and where there's relative gender balance, it would eventually decimate a firm.

[Nouvellecosse]

Originally Posted by Wigs

jmecklenborg among other forumers often just says what he feels instead of having facts to back up claims. That's a real problem in 2024 America.

As one forumer often used to say: anecdotes are not data

Yes it's one of the main issues with discourse nowadays. Well, it isn't exactly a recent phenomenon but one would think we'd have moved beyond that by now. People think of an explanation or narrative that makes sense to them intuitively. Then, they assume that because it seems that this must be confirmation of its correctness. That it "making sense" to them is the only thing needed to prove it to be true. In reality, lots of explanations can seem like they make sense but still be wrong, while the actual state of affairs can be completely unexpected.

[pip]

Originally Posted by Wigs

jmecklenborg among other forumers often just says what he feels instead of having facts to back up claims. That's a real problem in 2024 America.

As one forumer often used to say: anecdotes are not data

And you just proved it is not unique to America

[Crawford]

Originally Posted by Emprise du Lion

We traded stabilizing neighborhoods instead of stabilizing downtown as a whole. It becomes even more obvious as downtown Clayton and the Central West End continue to expand their number of highrises whereas downtown St. Louis has nothing concrete on the table.

Yeah, it seems like STL, as a whole, has some notable successes, and the article might be a bit grim. Downtown is certainly in bad shape, but the city outside the core is arguably doing pretty ok.

[Steely Dan]

Originally Posted by Emprise du Lion

AT&T retained control of the detached parking garage that was formerly connected to 909 Chestnut via skybridges. The skybridges have since been demolished.

Getting people to commute to downtown St. Louis to an office building that now has almost zero onsite parking is a problem.

So, an office building in downtown St. Louis without dedicated accessory parking directly accessed via skywalks essentially has a value of zero?

There are no other public parking garages nearby that would-be users of such a building could use?


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.

[Wigs]

Originally Posted by pip

And you just proved it is not unique to America

Sorry pip: feelings > facts in 'Murrikah

[Wigs]

Originally Posted by Steely Dan

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.

Unlike residential, you have to fill it with tenants to generate value again. Hyper capitalism.

The second it's vacant no one wants the building and it is plagued as a white elephant for the city/region.

In NYC the land value alone would be bonkers. STL not so much

[Crawford]

I'm wondering if MO state govt. is an impediment. MI and OH have extensive subsidies for office conversions and downtown redevelopment. MI has a popular Dem gov., OH has a popular GOP gov. who is more an old-school centrist type. Neither state had anti-urban leadership in recent years. Even when MI had a GOP gov., he was pretty positive towards Detroit.

MO is pretty extreme right, and the legislature favors rural and exurban voters. I'd guess that anything perceived as beneficial to urban centers wouldn't have much legislative success.

[mhays]

I'm confused by the sale price as well. But some factors come to mind, a mix of actual and guesses...

Parking is clearly a big deal, particularly in St. Louis. Yes people can walk to other parking (particularly with fewer workers around), but it would be too much for many tenants, and others would demand lower rents.

The building is on the National Register (huh!!?). That would allow tax credits, but also restrict changes. Depending on the specific components designated, they might not be able to make the entries nicer for example.

It's designed as a one-tenant building. Multi-tenant buildings typically have some work done to partition off utilities, open up common areas, etc. I have no idea what this would cost, maybe not much.

(Edited...there are sidewalk equivalents on the east and west sides of the building, as Crawford noticed.)

I suspect the building would need a substantial shell and core upgrade before leasing, beyond the stuff I mentioned. At least some quality-of-life type stuff. Figure tens of millions.

Then there's the demand issue in general. Can DTSL fill another 1.4 msf of office? Potential buyers were clearly pessimistic.

The building is too thick for efficient residential or hotel uses. It would cost too much to justify the rents it would get.

Basically any type of intensive use would cost several tens of millions even before tenant improvements, and for limited potential return.

[iheartthed]

Originally Posted by Steely Dan

So, an office building in downtown St. Louis without dedicated accessory parking directly accessed via skywalks essentially has a value of zero?

There are no other public parking garages nearby that would-be users of such a building could use?


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.

Detroit was in the same situation in the late 90s and early 00s. Even dedicated parking structures can't flood downtowns with people the same way that rail based mass transit does, which is why so many prewar downtowns failed once they ditched their streetcar systems. Detroit is in better shape than it was 15 years ago, but it stills struggles with the parking conundrum. Huntington Tower, one of the newest office towers in the city of Detroit, had to build a parking structure that was as tall as the office building.

[Crawford]

Originally Posted by iheartthed

Huntington Tower, one of the newest office towers in the city of Detroit, had to build a parking structure that was as tall as the office building.

The Penobscot Building, the third tallest building in Detroit (I guess 4th shortly) is more or less vacant/almost worthless largely due to no accessory parking.

Even in a revitalized core Detroit, nothing works without massive attached (or at least extremely convenient) parking. It really is disgusting how we completely turned over the U.S. built-environment to vehicles. Totally dystopian.

[Crawford]

Originally Posted by mhays

There are no sidewalks on the east or west sides of the building. I mean that seriously. You have to cross the street to circle the building. That's because those sides have ramps to the garage and loading dock. The streets might have enough excess space to fix that, but at a cost, and would it be allowed?

I think I see covered thru-arcades, so there is pedestrian access. But yeah, the street-level design is horrible.

[Wigs]

Originally Posted by mhays

It's designed as a one-tenant building. Multi-tenant buildings typically have some work done to partition off utilities, open up common areas, etc. I have no idea what this would cost, maybe not much.

Unless you're planning on filling it with low level, low rent back office or call center type jobs, the old adage "you have to spend money to make money" rings true in office space.
To get it back up to class A standards would cost untold tens of millions.

Being almost 4? decades old could require all new HVAC systems as well.

Or you find a high value tenant like Doug Jemal did in Buffalo in the former HSBC tower, where local M&T Bank wasn't afraid to spend $58M on their floors in the tower for a "tech hub" so the new owner can concentrate their money on the other floors.
The renamed Seneca One tower was around ~$160M transformation when you combine Jemal's investment and M&T's contribution.

It can be prohibitively costly to refurbish these huge behemoths and when there's no current tenants, no income is generated and thus much lower value. Obviously the site specific issues of this particular building is doing it no favors as well.

It's not like NYC or even Toronto where land values alone are extremely high.

[LAsam]

Based on the articles I'm seeing, US Bank was senior lender on AT&T Tower at the $205 million valuation, foreclosed on the building in 2017, and sold to SomeraRoad for $4.1 million in 2022. Can't even imagine how much US Bank lost on this.

Apparently, there are four large vacant buildings in DTSL... 1) AT&T Tower, 2) Chemical Building, 3) Millennium Hotel, and 4) Railway Exchange Building. The following article from last October does a brief overview of each:

https://www.stltoday.com/news/local/...d1728d1ec.html

[edale]

Originally Posted by Crawford

The Penobscot Building, the third tallest building in Detroit (I guess 4th shortly) is more or less vacant/almost worthless largely due to no accessory parking.

Even in a revitalized core Detroit, nothing works without massive attached (or at least extremely convenient) parking. It really is disgusting how we completely turned over the U.S. built-environment to vehicles. Totally dystopian.

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.

[Wigs]

LAsam, funny you should bring up US Bank.
This St. Louis building is so large it's the size of the US Bank skyscraper in downtown LA, ~1.4M square feet. Hard to fathom these office buildings with so much floor space.

Crawford, the estimated downtown parking percentage maps have been updated. Some will gripe over CBD definitions but it's a good approximation anyway
https://parkingreform.org/resources/parking-lot-map/
Examples:
Detroit 31% of land dedicated to parking
Buffalo 30%
St. Louis 27%
Cleveland 25%
Cincinnati 21%
Milwaukee 20%
Chicago 7%
Will be interesting to check back in 5-10 years and see if these numbers have dramatically changed

[mhays]

Originally Posted by Crawford

I think I see covered thru-arcades, so there is pedestrian access. But yeah, the street-level design is horrible.

Yeah, I was wrong on that! Noted above.

[mhays]

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.

This appears to be housing. Totally different situation.

People self-select their housing. If 50% of urban core residents don't have cars, great, 50% are potential tenants in the building.

But offices need to appeal to more people than that. Tenants will employ suburbanites too, and depend on attracting a broad range of employees. If the building has 7,000 employees (a pre-Covid 5 per 1,000 sf) maybe you'd go down to 3,000 spaces (or 1,000 in a transit-heavy city).

[LAsam]

Originally Posted by Wigs

LAsam, funny you should bring up US Bank.
This St. Louis building is so large it's the size of the US Bank skyscraper in downtown LA, ~1.4M square feet. Hard to fathom these office buildings with so much floor space.

Yeah... Wikipedia has that in 2006 AT&T signed a 10-year lease to be the sole tenant. AT&T then announced, in 2013, that they would be vacating the building in 12 months and that they would be not be renewing the lease when it expired in 2017. So it served a purpose at one point... but could very well be obsolete now.

[ColDayMan]

Originally Posted by Steely Dan

So, an office building in downtown St. Louis without dedicated accessory parking directly accessed via skywalks essentially has a value of zero?

There are no other public parking garages nearby that would-be users of such a building could use?


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.

That is very strange. Most of the office towers in downtown Columbus do not have dedicated parking but there are independent parking garages all over so it doesn't matter, much like what edale is talking about with Cincinnati.

I truly find it hard to believe a building not having a dedicated garage would be valued so little.