ADVERTISEMENT

A second major downtown building is facing a loss of tenants and revenue serious enough that its New York City-based owner has written to city, county and state officials asking for help.

Erwin Zafir, who owns Key Center at Fountain Plaza, says the Main Street office building is “at a critical juncture” akin to what the 38-story HSBC tower is confronting: the loss of its major tenants.

In a letter to Buffalo Mayor Byron W. Brown, the managing member of Key Success LLC is seeking government assistance to keep his 423,000-square-foot building financially viable and competitive so it can retain Delaware North Cos.

The Buffalo-based hospitality company is exploring options to move its corporate headquarters and 300 jobs elsewhere in downtown Buffalo. Multiple options are under consideration, including a possible new headquarters to be built by Uniland Development Co. on the current site of the Delaware Court Building on Delaware Avenue.

Zafir did not identify Delaware North by name but said that the building’s largest tenant, “as a condition of renewing its lease and staying in the building,” was demanding a cut in rent and capital improvements that “would only be economically feasible if the same financial incentives were afforded to Key Center that are currently afforded to new projects.”

He said Key Center already has lost occupants and value over the last 13 years because of government policies and tax breaks for other developers that “provide new-build projects with a significant price advantage and render existing buildings non-competitive.”

And the loss of Delaware North could leave it 50 percent vacant, “which will devalue the property by that amount.” So he’s “requesting consideration” from Buffalo, Erie County, the Erie County Industrial Development Agency and the state “to help avert a tremendous dislocation.”

“Key Center is facing a tremendous challenge,” he wrote in the April 25 letter, which was released by the county. “Key Success LLC respectfully requests that any and all tax credits, abatements, grants and allowances available through your agencies and municipalities be made available to Key Center.”

Neither Zafir nor leaders at the city or county level could be reached to comment. Pete Gallivan, spokesman for Empire State Development Corp., declined to comment. But other building owners, not surprisingly, were not supportive of government involvement in the private sector.

“Selective subsidies, whether to induce office development or to prop up an existing building’s profit and loss, is not a good use of public money and does not represent good economic development policy,” said Howard Zemsky, managing partner of Larkin Development Group and co-chairman of the Western New York Regional Economic Development Council. “The laws of supply and demand should be allowed to work.”

“Why don’t we all just go over there once a month and pick up a check?” said David Sweet, president of Main Seneca Corp., who owns the Rand and Main Court buildings downtown. “The whole thing is goofy. It’s unfair competition. You’re in the business, you take the risks.”

The ongoing struggles of Key Center and One HSBC Center illustrate the challenge for commercial real estate developers and large property owners in a market that is generally not growing. Instead of filling space with new businesses and employees, new development projects are competing against existing buildings for the same pool of tenants, which move around based on where they can find the best deal.

The request from Zafir also points up the quandary for developers and building owners, who routinely deride government incentives, tax breaks or other benefits for creating unlevel playing fields. Yet this is the second time a building owner has looked for public-sector help because of the loss of one or more major tenants.

The request from Zafir comes as Seneca One Realty, the New York City-based owners of the One HSBC Center tower, confronts the loss of its top three tenants that together took up more than 90 percent of the building. The group is considering whether to convert the tallest privately owned building in upstate New York into a mixed-use facility, with condominiums, hotel, office and retail space. Due to the cost, a panel of experts from the Urban Land Institute recommended a “public-private partnership,” using some mixture of tax incentives or investments, to make such a conversion work.

Built in 1990, Key Center is actually a two-tower Class A office complex, with a two-story glass atrium encompassing 18,800 square feet of retail space in between. The North Tower has 17 floors, while the South Tower has 13 stories.

Zafir purchased Key Center in 2000 and has since invested millions for capital improvements, renovations and tenant improvements in both that building and its companion facility across Fountain Plaza, the Bank of America Building, which he acquired in 2007. He also hired Ciminelli Real Estate Corp. as the on-site property manager for both, and Ciminelli leased out both buildings.

“I have watched as the city, county and state officials spend taxpayer dollars – my taxpayer dollars – in several ill-conceived attempts at economic development,” Zafir wrote.

“I have witnessed and have been the victim of government agencies pouring incentives into various well-connected developers’ projects. What these well-connected developers did was take the generous tax abatements and pirate actual and potential tenants from our buildings and the buildings of other [downtown] owners to theirs.”

Today, the effective rent in the city is lower than it was 13 years ago, while the market vacancy is higher, he wrote.

“I defy anyone to explain how taking taxpayer dollars to move tenants from a stabilized building to an empty building down the road is called economic development,” he said. “The ripple effect ... will be devastating.”

email: jepstein@buffnews.com