Buffalo’s tallest building, virtually empty and dark, is now apparently worth less than the average Fortune 500 CEO earns in one year.
The 38-story One Seneca Tower that dominates the downtown Buffalo skyline is worth just $12 million, according to a professional appraisal of One Seneca Tower completed last year during a foreclosure process but only filed with a state court on Friday.
That’s just 14 percent of the $85 million purchase price in 2005, when the 854,430-square-foot building was fully occupied.
It’s also 41 percent less than the city’s assessed value on the building early this year, after two challenges by the court-appointed receiver who controlled the building during the foreclosure process.
And it’s less than half of the $27 million that a New York City investor was willing to pay at the foreclosure auction in October, when the mortgage holders and loan servicer instead took ownership.
By comparison, it’s about the same value as a 1967 dark-red Ferrari delivered to Steve McQueen on the set of the movie “Bullitt.” And it’s just under the average total annual compensation for a top corporate chief executive, according to a Harvard Business School study.
For comparison, Ellicott Development Co. spent $14 million to renovate the eight-story former Fairmont Creamery Building at 199 Scott St., while Jake Schneider spent $13 million on Apartments at the Hub, a 30,000-square-foot adaptive reuse project at 149 Swan St.
And the steel and masonry tower’s value may be even lower now. The giant building was just 5.77 percent occupied by 28 tenants when the appraisal was conducted in September 2014, but the remaining tenants were on short-term, month-to-month or one-year leases, and several have since left.
But the assessed value is often not the same as market value. The building is expected to be worth much more.
“That’s a subjective opinion of value by one or two appraisers,” said Peter Allen Weinmann, a real estate attorney. “You may get five different appraisers to value a single property, and it’s very likely you could get five different values. What it’s worth is what somebody will pay for it.”
The 192-page report, conducted in September 2014, demonstrates the shocking drop in value that the building suffered after going from 95 percent full to 95 percent empty in a matter of months. It also showcases the challenge that the building’s new owners – the mortgage holders and loan servicer that foreclosed on it – will have in recouping their heavy losses and reselling the tower.
The report cited “significant functional obsolescence” for the tower, including “its large size” and the shape of the floors, which limits the actual space available to tenants because of a large central core down the middle of the building. Other “hurdles” included the entry, amenities and infrastructure.
Echoing the recommendations of an Urban Land Institute panel and other experts, the Cushman brokers said in the report that the best future use of the site would be a redevelopment that includes a “high-density” mixed-use project with both office and residential space. But it called the ULI proposal “as speculative as reabsorption of the property as office space,” which it noted would take a long time.
And it said the size and design issues, together with the high vacancy and the “soft office market” in Buffalo, would make it more difficult to market the property to new buyers or users.
Finally, it noted that “there is only moderate demand” for similar rental office space in older properties locally, as the market has seen more activity in new construction and adaptive reuse of historical buildings. And while speculators are most likely to be the buyers for office buildings with high vacancy levels, conversion projects typically require “significant tax incentives, government-sponsored financing or grants.”
“This type of property is most typically purchased by real estate investors who are comfortable with assuming high-risk situations,” the report said. “It is our opinion that the highest and best use of the subject property as improved is for interim hold, until sale to a speculator is ripe.”
Built in 1972 and renovated in 2000, the former One HSBC Center was anchored for most of its history by its two largest tenants, HSBC Bank USA and law firm Phillips Lytle LLP. It was also home to the Canadian Consulate, and a number of other smaller professional and financial firms. Seneca One Realty of New York City acquired it for $85 million in 2005, along with the separate 814-space, four-story parking ramp across Washington Street, which is linked to the tower by a skybridge. But after the consulate closed, and both HSBC and Phillips Lytle moved out in late 2013, the building was left empty. Foreclosure papers were filed in December 2013.
LNR took ownership of the building for $28 million in October at a public foreclosure auction, after Seneca One defaulted on the $91 million loan. A New York City investor had bid up the auction price as far as $27 million before LNR won out by virtue of its holding the mortgage. Bidding at the auction, conducted by Weinmann, had started at $5 million before quickly rising.
LNR is now seeking a “deficiency judgment” against Seneca One Realty for the remaining $65.2 million it is owed on the loan, including interest.
The appraisal was conducted by the Syracuse office of Cushman & Wakefield Inc.’s Valuation & Advisory service, on behalf of LNR Partners Inc., the commercial mortgage special servicer that represented the investors holding the $91 million mortgage on the building. The appraisal did not include the 460-space parking garage below the tower, which the city owns and operates under contract until 2022, but it did consider the ramp across the street.