By Rocco Termini
The recent concern about the soon-to-be vacant HSBC building is justified but the solution is questionable. The Urban Land Institute’s recent comments that it would take large amounts of public money to reinvent the building ignores the real problem facing the downtown office market.
Why should the taxpayers of Western New York be asked to bail out a New York City financial institution that financed the building using poor judgment? The bigger problem is that there are 10 substantial office buildings downtown that are half empty and on the verge of financial collapse.
Bailing out HSBC does not solve the problem – it only exacerbates the problem. We need to let market forces determine the fate of the HSBC building. If market forces are allowed to work, one of two things will happen:
• The financial institution holding the mortgage will foreclose on the property and it will be sold for 30 cents on the dollar.
• The financial institute will negotiate with One Seneca, write down the mortgage to 30 cents on the dollar and reduce One Seneca’s carrying cost.
Either way will result in 900,000 square feet of office space being placed on the market at drastically reduced rates. This may not be such a bad problem.
The real problem facing Buffalo is that there is a lack of demand for B and C office space. If we look closely, it is not that there is a lack of demand for office space but a lack of demand for old, inefficient space. This is proven if we study what has happened at Larkinville.
The developers who created Larkinville built more than 500,000 square feet of cool Class A office space and leased almost 100 percent of the space. Simple economics tells us that it is not a lack of demand but a lack of supply.
If the HSBC building re-emerges with lower debt, the owners can then lower their rates and attract tenants away from the B and C buildings. The B and C buildings will then empty out and one of three things will happen to them:
• They will be foreclosed on and resold at drastically reduced values.
• The present owners will convert them into mixed-use projects.
• They will be sold and the new owner will convert them into mixed-use projects.
Will there be some temporary disruptions in the marketplace? Sure, but that is the cost we must pay to retool downtown to the 21st century. The real demand downtown is for cool, first-class offices and loft-style apartments.
Let’s not look at the foreclosure of the HSBC building as a disaster but as an opportunity to reinvent downtown. We are at the crossroads – we can continue the status quo or we can begin to think outside the box.
Rocco Termini is president of Signature Development in Buffalo.