What happens with One Seneca Tower? This 850,000-square-foot virtually empty office building is concerning to many people in our Western New York community. Having run the building for the last 16 years, people frequently ask me what’s going to happen with the building going forward. The simple answer is that it will be a much different building, and that’s not necessarily a bad thing.
Why is the building virtually empty? A few major tenants left, causing a snowball effect. The first to leave was the Canadian Consulate.
The consulate’s psychological presence in the building was much larger than its physical presence (about 4 percent). The consulate was a fixture in the building for 30 years. It was one of the busiest Canadian Consulates in the world because of its proximity to the bulk of Canada’s population. Also, it was very prestigious for Buffalo to host a foreign nation’s diplomatic presence.
The prime minister of Canada reasoned that Canadians would be better served if the immigration function (the driving force for the consulate to be in Buffalo) was performed in Canada, by Canadians and made easier with online applications. As a result, there wasn’t a need for the consulate in Buffalo. There was always a cancellation clause that allowed the Canadian government to cancel the lease if the immigration program was relocated.
HSBC Bank was in discussions to renew its lease in the building (for 650,000 square feet, or 78 percent of the building) or to move into a new building upon the expiration of its lease. The new CEO of HSBC in London didn’t feel the cost of either alternative was justified based on HSBC’s financial performance in the United States. As a result, HSBC consolidated its associates into its downtown Atrium building and its leased space in Depew.
These two departures left Phillips Lytle as the major tenant in the building. Partners in the firm reasoned that they didn’t want to be a tenant in a largely vacant building. Fortunately, they remained committed to the area and became the anchor tenant for the new One Canalside building.
Those three tenants comprised 92 percent of One Seneca Tower’s occupancy. This loss of occupancy prompted the loan servicer to declare a technical default, which was the first step in the foreclosure process. There is a legal process to be followed. It’s not as fast as anyone would like it to be. However, an auction date of Oct. 1 was recently set for One Seneca Tower.
The result of an auction is very unpredictable. A new owner will be established. It could be the lender or it could be any number of parties looking to redevelop the building. The big question is: What would a new owner do?
There are two likely pathways a new owner could travel down:
Office Building: This type of use would be a natural future use for the building. It was designed as an office building and was successful in that use for the last 40 years. No major renovations would be necessary. So, on the surface this makes sense.
The problem is, 850,000 square feet coming back on the market is a big deal. More than likely, the space would have to be discounted to attract tenants. This would have a deleterious effect on older office buildings and could potentially lead to a spate of foreclosures. In addition, there are other pitfalls. An office building is one-dimensional. The building would likely be occupied during the day, Monday through Friday. This would make it hard to attract retail tenants to the building. That leads to the other possibility.
Mixed Use: Things have changed dramatically in downtown Buffalo and along the waterfront over the last 10 or 15 years. Fifteen years ago, nobody was talking about living downtown. That’s changed dramatically. Market-rate housing has taken off and now we’re seeing the beginning of demand for residential ownership that will only increase the overall demand for residential development.
When One Seneca Tower was built, it was the first phase of waterfront redevelopment. There were big plans for more to follow, but nothing happened for 35 years.
Then Rep. Brian Higgins successfully negotiated with the New York Power Authority, providing literally hundreds of millions of dollars to be invested in our waterfront during the relicensing process for the Niagara Power Project. It was hoped that the $50 million public sector investment in Canalside would spur a similar investment from the public sector. Thanks to Kim and Terry Pegula, Benderson Development and others, the private sector investment is four to five times the public sector investment. It now exceeds $200 million, with more underway and planned.
On top of this, Cars Sharing Main Street is reviving each section of Main Street as it moves south from Goodell Street.
All of this investment is happening within a few blocks of One Seneca Tower. As a result, repositioning the building as a mixed-use asset begins to make a lot of sense. A significant amount of the building could remain as office space. However, the possibilities for other uses are numerous. Market-rate housing and high-end residential condominiums are possible. Those types of uses would drive retail, providing potential customers 24/7.
Numerous hotels have been built recently. However, there are very few really high-end hotels in Buffalo. A five-star hotel could work well with the luxury condominiums and share some of the same amenities. The vast plaza areas are a tremendous opportunity now with everything that’s up and running around the building. The size of the building could support several restaurants, and an observation deck isn’t out of the question. The challenge of mixed use is that there’s a significant conversion cost for all of the new uses.
Not everyone is enthralled with the design of One Seneca Tower. Skidmore, Owings and Merrill was the architect. It designed a modernist building typical of the time it was built. By the way, SOM also designed the Albright-Knox Art Gallery addition, which seems to garner more praise as the years go by. The tower may not win any beauty contests, but it’s a wonderful example of form following function.
SOM’s design – placing structural supports in the perimeter and the core, providing for large column-free floors – can suit a variety of uses. The building’s height provides views of Buffalo, Lake Erie and Canada unavailable anywhere else. The inset windows are shaded in the summer and perfectly positioned to soak up the sun’s heat during our lengthy winters. In fact, the building was a perennial Environmental Protection Agency Energy Star recipient, indicating it was one of the most efficient buildings of its size.
Yes, One Seneca Tower will be different going forward. Let’s hope the new owner has a vision that’s consistent with all of the progress we’re finally seeing in downtown Buffalo and along our wonderful new waterfront. The upcoming auction is a significant step toward that future.
Stephen Fitzmaurice was the property manager of One HSBC Center from 1998 until 2003 and its chief operating officer from 2004 until 2014. He is currently a real estate consultant and an assistant adjunct professor at the University at Buffalo’s School of Architecture and Planning, where he teaches property management in the new master’s program in real estate development.