Share this article

print logo

BUYING UP BUFFALO

When the father-son team of Tony and Dan Kissling looked to expand their Manhattan real estate company several years ago, they flew to 10 cities within 400 miles.

After traveling through New England, Pennsylvania, Maryland and even buying an apartment building in Rochester, they ultimately decided on Buffalo.

In less than 2 1/2 years, they've bought $15.8 million worth of the city's best apartments and poured $11 million into renovations.

Now they are turning their attention to office buildings.

Last week, Kissling Interests bought Cathedral Place, on Main Street across from Ellicott Square, for $2.6 million and are starting renovation work.

"Now that we've got a firm footing in the residential area, we started looking around for office space downtown," said Dan Kissling, 26, who runs the Buffalo office. "Certain corporations have a lot of back office work. And the rent in New York City could be $50, $60, $70 or even $80 a square foot. Why not come up here, rent for $12 to $15 a square foot and complete the same work as well as if they were in New York City?"

Kissling Interests plans to buy three more office buildings in downtown Buffalo, but the Kisslings won't reveal which properties until they sign the contracts in a few weeks.

Tony Kissling, 58, is the fourth generation at Kissling Realty Advisors, a Manhattan-based company on Fifth Avenue that owns 19 New York City apartment buildings that contain about 500 apartments and 22 stores. Kissling Interests is co-owned by the father and son and based in Buffalo.

Tony Kissling is the steady hand at the helm, while Dan Kissling supplies energy and enthusiasm. The father's experience tempers his son's optimism.

But both seem to have a knack for spotting a good deal and buying at the right times, said those familiar with the family.

Tony and Dan Kissling have no illusions about the difficulty of getting and keeping tenants in a shrinking city.

"It's a market that's littered with failure. It's a graveyard down there," Dan Kissling said. "So many developers have come in and tried this before."

They know the population has shrunk, that the city has lost jobs, and that the vacancy rate for the best office space in downtown is at a whopping 19 percent.

But they also know that Adelphia Communications is building on the waterfront. That HSBC Bank USA is hiring more people. And that some young people are coming back.

The Kisslings have a fairly straight-forward business plan. They look for bargains in good parts of town -- the mansions along Delaware Avenue or office buildings downtown. On-site parking is a must. They then spend the money they saved on the purchase price to remodel the buildings.

They don't make superficial changes to attract a buyer and quickly flip the property for a profit. They spent millions installing some combination of new windows, floors, countertops, bathrooms and appliances in all their buildings.

With the Colonial Apartments at 401 Delaware Ave., Kissling Interests spent almost twice as much money remodeling the building as the $555,000 they paid for it. The cost of renovations was more than the purchase price for many of the properties they bought.

And then they did something that sounds crazy -- they kept the rents about the same after spending millions on renovations. And the apartments filled up. Less than 2 percent are now vacant.

"It causes the levels of expectation to rise in the community," Tony Kissling said.

And the Kisslings aren't the only outsiders who see a need for more top-quality housing downtown.

Steve McGarvey from Erie, Pa., is spending $45 million transforming the former Trico plant at Washington and Goodell streets into 168 loft apartments on the fifth and six floors with commercial tenants occupying the floors below.

Attracting new businesses

Real estate experts say that the Kissling's success with apartments in both New York City and Buffalo is a strong indication they could be successful with office buildings.

"People at this level are sophisticated enough that it doesn't make much of a difference whether they own apartments or offices," said Jim Militello, president of JR Militello Realty in Buffalo, which specializes in commercial real estate. "People from outside the area are more aggressive because they see what's going on elsewhere in the country and know Buffalo is a deal."

And what a deal it can be.

Chase Manhattan bought Cathedral Place in December 1998 for more than $6 million. They then spent another $3 million on renovations. After a year of negotiations, the Kisslings got it for $2.6 million.

While Kissling Interests has been successful with its 718 apartments, it has run into a stumbling block with its largest commercial property.

Kissling Interests has a contract to buy the 900,000-square-foot Pierce Arrow building for $3.8 million. They plan to turn the monument to Buffalo's industrial heyday into a "telecom hotel," a specialized facility with the electric capacity, fiber-optic cable access and cooling equipment to store computer infrastructure.

An architect spent nearly a month drawing up designs to renovate the building. They've distributed 2,500 glossy brochures about the property and flown prospective tenants to Buffalo on their private plane.

All was going well -- until the telecommunications industry fell off a cliff. Companies that were ready to move, Tony Kissling said, are now waiting for business to improve -- but are still interested in the space.

"It's cyclical," Dan Kissling said. "As soon as things pick up, we'll rent it."

Their plan to fill the office buildings they plan to buy is to lure companies from New York City, where rents are much higher. They had that plan long before the terrorist attacks Sept. 11 that destroyed the twin towers of the World Trade Center and many surrounding buildings -- 10 percent of all office space in Manhattan.

Companies are scrambling to find new offices in downstate New York, New Jersey and Connecticut. No one is considering relocating to Buffalo, but Dan Kissling believes in the reshuffling market, it will be even easier to lure businesses to Buffalo with its low rent and wealth of fiber optic cable running through the city.

Finding a local backer

In the late 1990s, the price of real estate in New York City was at a high point. Tony Kissling thought buying anything was a bad move because prices were high and he didn't think they could go much higher.

Instead he and Dan turned their attention to a 400-mile radius of Manhattan. They eventually settled on Rochester and bought an eight-story apartment building on Chestnut Street with a restaurant.

But as he and Dan became more familiar with the Rochester market, they decided it would be tough to compete with the new garden-style apartments in the city. They also worried about the city's future with rocky times ahead for major employers such as Kodak and Xerox.

But then Tony Kissling talked to G. Gary Berner, an executive vice president and the chief lending officer at First Niagara Bank. First Niagara started doing business with Tony Kissling in the 1980s when it helped New York City savings banks finance part of his loans.

That relationship lead to Berner and Tony and Dan Kissling having breakfast on a cold day in January 1999 at the Radisson Hotel in Cheektowaga to talk about Buffalo's potential.

Dan Kissling remembers what Berner said to this day: "You pick out the buildings. We'll write the checks."

So, they sold the Rochester building for 40 percent more than they paid and turned their attention to Buffalo. But investing here wasn't as easy as they thought -- local banks didn't want to finance their deals.

"Everybody thought we were crazy," Tony Kissling said. "First Niagara was the only bank that backed us from day one."

Having worked with the Kisslings for almost two decades, First Niagara did not have the same skepticism that other banks may have had about outsiders investing in Buffalo, Berner said.

"I knew if they could succeed in the ups and downs of the New York City market, they would succeed in Buffalo," he said.

e-mail: lhaarlander@buffnews.com

There are no comments - be the first to comment