A little-known downstate real estate developer said he’s prepared to spend more than $150 million to buy and redevelop One Seneca Tower into a mixed-use complex with condos, high-end office space, a hotel and a restaurant, if the building’s new owner agrees to a deal.
Phillip Ruthen of New York City, who says he leads a group of wealthy investors, is the latest in a new line of suitors for Buffalo’s tallest building, which dominates the city skyline from its position at the foot of Main Street.
He has offered to buy the 38-story downtown office building and attached parking ramp for about $50 million, in response to a request for bids by the loan servicing company that foreclosed on the building last October.
The loan servicing company, Miami Beach-based LNR Partners, wants to fast-track a sale, with the aim of completing a transaction by April 30 if possible. The firm, a subsidiary of Starwood Capital Group which represents investors that held a $91 million mortgage on the tower, issued a call for offers last month, and has received several that it is now reviewing, including Ruthen’s.
There’s also another New York City bidder, businessman Harvey Kaylie, who offered as much as $27 million for the tower at last year’s foreclosure auction, and Ruthen said a group of Chinese investors is also in the mix.
A decision on who gets the tower is expected imminently. Commercial real estate agents at global brokerage Cushman & Wakefield and its local affiliate, Pyramid Brokerage Company, either declined to comment or could not be reached.
The future of the landmark building, constructed in 1972 as the headquarters of Marine Midland Bank, has been in doubt since its two lead tenants, HSBC Bank USA and law firm Phillips Lytle LLP, moved out in late 2013.
HSBC, the successor to Marine, consolidated operations down the street in the Atrium and in Depew, while the law firm moved to the top four floors of the new One Canalside building. Other major tenants left as well.
Once valued at $85 million when the prior owners bought it fully occupied in 2005, the tower is now more than 95 percent empty, with only a smattering of tenants on the upper floors. It’s assessed by the city at $20.3 million, but an independent appraisal valued it as low as $12 million.
Even so, Ruthen, managing partner of Global Capital Partners, a Hong Kong-based real estate investment fund, said he’s confident in his bid, at four times that appraisal. “If you view the building the way I view the building, at $50 million, it’s a good deal,” he explained in an exclusive interview with The Buffalo News. “If you don’t view it the way I view it, at $10 million, it’s a bad deal.”
The 46-year-old developer, a Hobart College graduate, said he has spent his career working with partners on real estate projects in New York City, nearby Greenwich, Conn., and Florida. His efforts include giant mansions of 35,000 square feet, restaurants and beachfront multifamily buildings, and he said he has also invested in various operating companies. His firm, which has had investments in Asia, is now focused on the United States, Canada and the Caribbean, and has expertise in construction and development.
He would not identify any of his partners or prior projects by name or even specify their location, citing investors’ privacy and confidentiality, but said he is now under contract for an 80,000-square-foot new construction project in Brooklyn.
But he said he can no longer find properties in those markets where the returns are enough to justify the high prices and risks. And he likes the pride and community spirit that he sees in Western New York. “Buffalo is becoming such an interesting place to invest in,” said Ruthen, who estimated he’s been to the Queen City 20 times in the last three years. “If you guys could get rid of the snow, I’d move there tomorrow.”
One Seneca would be his largest venture by far, and it also would be the first time he would take the lead role in a project, although he said his team includes an “extraordinarily wealthy developer with significant deal experience, with close to a billionaire balance sheet,” whom he declined to identify.
“I’d be the guy flying up to Buffalo twice a week,” he said. “I’m going to be the hands-on guy.”
Ruthen – who said he has unsuccessfully sought to buy the building several times in the last three years, and previously took aim at the Statler Towers – said he and his core investors would put up cash to pay for the purchase, before financing it long-term through multiple lenders or investors. Then they expect to spend more than $100 million over the next few years on a redevelopment plan, including absorbing expected losses in the interim and paying interest expenses.
He said he envisions multiple uses for the tower, in keeping with recommendations by an independent Urban Land Institute panel and most real estate industry experts.
Construction would create hundreds of jobs, which Ruthen said would use local Buffalo labor exclusively. However, the investor group would remain based in New York, and would likely use New York City architectural and engineering firms, solely for logistical reasons. “We’re unbelievably impressed with the level of professionalism with engineering, legal and architectural firms” in Buffalo, he said. But “we don’t want to fly to Buffalo every time we want to sit for a meeting.”
Ruthen said he would start by putting a restaurant back on the top floor. The next five floors could be high-end condominiums, followed by high-end office space for several floors. Then, “in a perfect world,” a hotel would go below that, followed by market-rate condos and “budget-friendly” office space below that. “You want to take advantage of the height and the views for the higher-end, to get that Class A space,” he said.
That could be very attractive for a certain residential population, who would be attracted to luxury high-rise living, with multiple services easily available to them, particularly in the dead of winter.
“I think there are plenty of people in and around Buffalo that don’t want to shovel snow for the rest of their lives,” he said. “It would be nice to be able to live in a condo hotel, where you could call up room service when it’s snowing, or you can have your dry cleaning dropped off. It’s a great lifestyle.”
And he’s confident that market exists here. “There are plenty of people with money in Buffalo. They don’t want to live in Florida, thousands of miles away from their family,” he said. “Buffalo’s the perfect market for that.”
But a project of that scale is also risky for a developer. “If you want to build high-end condos on high-end floors in what was an office building, you’re now in an untested market. You’re a pioneer,” he said. “If you do it right, everyone will call you a genius. If you fall flat on your face, everyone will say they knew it would fail.”
Ruthen said he and his team had initially tried to buy the building in 2013 from Seneca One Realty, the New York City-based investment group led by Mark Karasick that owned it from 2005 until the foreclosure. But Karasick “wasn’t in a position to sell it because the debt was so crushing, and he’s a pretty sophisticated investor in his own right,” Ruthen said. “If he couldn’t make it work, that should speak some volumes.”
Since then, he’s also tried to approach both LNR and the prior mortgage servicer about purchasing the loan directly, and even offered $28 million to buy the note.
But he got no response, “not even a thank-you-for-your-submission letter,” he said. “It was the strangest deal I ever did.”
Doubts about the deal
He said he’s skeptical that LNR really wants to make a deal work right now, citing the servicer’s insistence on a tight 45-day time frame. Any serious buyer will want to engage in complete “due diligence” on the 1.2-million-square-foot building, reviewing any environmental, mechanical and structural issues, and examining details of the remaining leases.
A buyer will also likely want to evaluate what government programs and subsidies might be available to help with the cost of such a mammoth project.
That could take months, not weeks, he said, noting that a single-family house closing usually takes 60 days, and this is much bigger. And no one will start that process if the building is still on the market, without a solid purchase-and-sale agreement in place, he said.
“Nobody is going to seriously engage in this deal until they have control over the building,” Ruthen said. “The scope of that work on this size project is hundreds of thousands of dollars. It’s not insignificant money. We’ve said to them countless times we’re willing to take that commitment, but you have to take the property off the market.”
He suggested that “anyone that has the money isn’t going to agree to their terms and close on time, and anyone that’s offering to close on time isn’t a real buyer.”
“We’d love to buy the building and develop it,” he said. “We have a feeling we’re not going to get it. After you do enough deals, you start to understand what a deal looks and feels like. They’re not acting like someone who wants to sell an asset.”