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One Seneca Tower has a solid buyer

The Washington, D.C.-based developer whose agreement to buy One Seneca Tower caught Buffalo by surprise Tuesday said it’s a done deal and won’t fall through like prior sales.

Douglas Development Corp., a well-established real estate company in the mid-Atlantic, would not say how much it would pay to LNR Partners to buy the vacant 38-story office tower, which is the tallest privately owned structure in the state outside of New York City.

But the deal, which includes the five-story parking ramp across Washington Street, is expected to close in mid-October. And this time, the buyer insists, the deal will close, as there’s no contingencies remaining and no financing needed other than the developer’s own equity.

“It’s a firm contract. We’re ready to go,” said Douglas Jemal, founder and president of the development firm, in an interview. “This deal’s going down. It’s not a rumor.”

Jemal said he envisions a mixed-use redevelopment of One Seneca – one-third residential, one-third office and one-third hotel, with “lots of retail” on the ground-floor level. He also plans to remake the courtyard area with little building kiosks and other features to break it up and reduce the “very strong windshear,” and may reclad the facade with more glass or other features that are less imposing.

“I want to make the building pedestrian-friendly, and right now it’s not,” he said. “It’s a big massive slate of nothing.”

“The redevelopment will have a tremendous impact on the skyline and we hope to guide the redevelopment to be representative of the ‘new’ Buffalo that we’ve fallen in love with,” Jemal said. “We are excited to see such an exciting renaissance overtake the city and look forward to being a part of the positive change.”

The announcement could represent a significant step forward for the tower, potentially alleviating worries about the building’s future at a time when the rest of downtown Buffalo is seeing renewed interest and investment. With its 1.17 million square feet of total space and 853,000 square feet of leasable space, the tower is far bigger than any other property in Buffalo, and observers fear that dumping that much space on the market would cause rents and property values to tumble.

Instead, developers and other real estate experts – including from the Urban Land Institute – say the building should be redeveloped as a mixed-use facility, with some combination of hotel, restaurant, apartment or condominium, office and retail space. However, they agree that would likely cost in excess of $100 million, not including the purchase price, and say it may require incentives, cash grants or other help from the government to make it work.

And no local developer has stepped forward to date to tackle such a project.

“I’m relieved that what appears to be a solid developer is going to take it on,” said veteran commercial real estate broker George Hamberger of Hunt Real Estate Corp. “A lot of guys around the country that call themselves developers might be able to come up with the money to buy it, but they can’t finish the job. So I was excited that these guys seem legitimate and can really pull it off.”

Jemal didn’t dispute the $100 million projection but said he wasn’t worried, either. His firm redeveloped the historic 23-story CNB Building in Richmond, and is working on three projects in Washington with 1 million square feet each. “We’re familiar with that business,” he said. “This is what we do.”

He said he “absolutely” would pursue public incentives for the project, such as tax breaks, noting that the building redevelopment “needs a lot of money.” But while he’s been in touch with city officials, he said it’s too early to say specifically what he will seek.

“We are pleased with the continued interest in One Seneca Tower,” said Buffalo Mayor Byron W. Brown. “We’ve had preliminary discussions with the developers, who have already shown a commitment to the project and look forward to working with them in the coming months.”

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RELATED: Mayor Brown supports redevelopment of One Seneca Tower over demolition

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To be sure, some people are skeptical. “Let’s see if he closes,” said Paul Ciminelli, CEO of Ciminelli Real Estate Corp., one of the region’s leading developers, who had suggested One Seneca should be demolished.

And Jemal himself has a somewhat colorful background in Washington, where he barely avoided prison time in 2007 after he was convicted of defrauding his longtime business partner and Wall Street lender Morgan Stanley, by using $430,000 in escrow funds designated for fixing up one building to instead purchase another. A federal judge fined him and sentenced him to probation, citing his overwhelming record of good works for the community.

Nevertheless, the news drew sighs of relief and support from many in the community. “If they are able to bring the redevelopment to fruition, it is great news for Buffalo,” said developer Jake Schneider. “We need to see that structure become whole again for the community to reach its fullest potential.”

The purchase represents the first entry into the Buffalo market by Douglas Development, a family-owned firm that bills itself as “one of the most dominant and successful real estate developers in the Washington area,” with a “national reputation as a leader in redevelopment of historical properties.”

The company controls over 9 million square feet of leasable space and over 8 million square feet of developable land, with over 180 properties in Washington, Virginia, Maryland and Pennsylvania. That’s up from less than 250,000 square feet and 15 properties in 1990. It’s best-known for some of its more visible projects in the East End of Washington, including 7th Street Row in Chinatown, the Woodies Building, 1155 F St., the Atlantic Building at 950 F St., 800 F Street, 509 7th St., the Ventana at 912 F St. and the Marlo Building at 901 7th St. The International Spy Museum is located in one of its buildings.

The developer has done office, retail, residential, industrial and mixed-use projects before. However, most are smaller buildings, with the exception of about a half-dozen projects, including 655 New York Avenue, New City DC, the Hecht Warehouse District, and Woodies.

Much of its work centers around urban revitalization, which is what Jemal said attracted him to One Seneca after Pyramid Brokerage Co. contacted him. He compared its importance in Buffalo to Mount Rushmore, the Empire State Building and the Eiffel Tower.

“It’s a very significant building for downtown Buffalo,” he said. “I was very attracted to that property because of the size of it and the challenges that it had. That’s what I love to do. I’m attracted to urban environments that need revitalization.”

Built in 1972 for $50 million as the headquarters for Marine Midland Bank, the complex includes the tower itself as well as two annex buildings known as the West and South wings, plus a 460-space, two-level parking garage underneath. The separate five-story ramp at 177 Washington has 814 spaces.

The building had been nearly full until late 2013, when its two largest tenants – Marine successor HSBC Bank USA and law firm Phillips Lytle LLP – simultaneously decamped for renovated and new office space down the street. Those losses, coupled with the earlier closing of the Canadian consulate and other tenant departures, left the building 95 percent empty, triggering a loan default by the prior owner, Seneca One Realty.

Miami Beach-based loan servicer LNR foreclosed on the building, taking possession of the tower in October 2015 at an auction, followed by the parking ramp in March. It then put both properties up for sale, but has failed to find a buyer. That’s in part because it set stringent terms on the sale process, including a highly abbreviated due-diligence period of just two weeks. At least one prior purchase contract for $27 million fell through as a result, because the buyer, New York City businessman Harvey Kaylie, could not line up enough backing in time. He submitted a second bid, for $9.5 million, but LNR rejected it as too low.

And while other bidders looked at the tower, including billionaire John Catsimatidis, none signed an agreement.

Meanwhile, critics of the building say it’s an obstacle to reinventing the waterfront area, because it effectively cuts off Main Street from Canalside.

But both city and state officials have said they are not in favor of tearing it down because the cost of demolishing it would exceed $30 million to $40 million, and they believe there’s still opportunity to make better use of it – as long as such an initiative is driven by the private sector, not borne by taxpayers.

“Buffalo has become a very attractive city to invest in,” said Howard Zemsky, a prominent Buffalo developer and CEO of Empire State Development Corp., the state’s economic development arm. “We look forward to hearing more details.”

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RELATED: Zemsky favors redevelopment of One Seneca Tower over demolition]

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Jemal said he has no plans to reduce the building’s size. “It’s an iconic building,” he said. “Does it need some lipstick on it, some updates? Absolutely. But the building itself is a magnificent structure.”

email: jepstein@buffnews.com

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