Second of three parts
In a region known for affordable real estate, properties on Buffalo’s Medical Campus are selling at unheard of prices.
Consider what the University at Buffalo Foundation paid for properties associated with the new medical school being built on the downtown campus:
• $1.26 million for a 0.26-acre corner lot on Washington Street that last sold for $410,000 in 2005.
• $1.2 million for a slightly larger Washington Street parcel – just over a third of an acre.
• $1.4 million for a Main Street property – this one also just over a third of an acre, but with a building and parking lot on it – assessed at $325,000.
“I wasn’t interested in selling,” said Donald White, owner of the Main Street building. “They offered $400,000 for our parking lot. I said ‘No.’ Then they offered $900,000 for the lot and the building. I said ‘No.’ Then $1.2 million. Then $1.4 million.
“I kept saying ‘No.’ We didn’t want to sell. But when they got to $1.4 million – there is a point where you have to say yes.”
Welcome to the real-life Monopoly game being played on the Buffalo Niagara Medical Campus. A Buffalo News analysis of five years of real estate transactions found property selling for as much as $3 million an acre within the boundaries of the 120-acre Medical Campus. Until recently, Buffalo’s downtown business district had the region’s priciest real estate – at a mere $1 million an acre.
With a limited amount of land available and a handful of deep-pocketed buyers, Medical Campus properties sometimes sell at five to 10 times their assessed value.
“You have people buying property – Kaleida, UB – that don’t have to worry if it makes economic sense like a developer would have to,” said Nick Sinatra, owner of Sinatra & Co. Realty, a development company active in the medical corridor. “That is the only way to explain it. Otherwise, it just doesn’t pencil.”
UB and Kaleida defend their spending. Some property owners, said Laura Hubbard, UB’s vice president for finance and administration, had no interest in selling. Others took advantage of the higher land appraisals resulting from earlier purchases by UB, Kaleida and private developers. And often, the final pieces of a bigger real estate deal carry a premium price, said Johnathan T. Swiatkowski, Kaleida’s chief financial officer.
“These were strategic acquisitions,” Swiatkowski said. “Where there have been strategic needs for property to complete an entire block, so we’d have site control, the market has demanded higher prices.”
The value of property purchased on the Medical Campus, Hubbard and Swiatkowski said, goes beyond the price of individual parcels. The completed Medical Campus, they said, will boost Buffalo’s economy.
“Even though we are not in the development business, what we started has really created an economic driver for development on and around the campus,” Swiatkowski said.
Created in 2001, the Buffalo Niagara Medical Campus occupies 30 city blocks on the northern edge of downtown Buffalo. Bounded by Goodell, Main and North streets and Michigan Avenue, the campus was created around the longtime homes of Buffalo General Medical Center and Roswell Park Cancer Institute. The goal was to turbocharge the health care industry in Buffalo.
The immediate result: $1.34 billion in construction on the Medical Campus proper, not counting the $400 million in development underway outside the campus borders. The biggest projects on the campus: The $375 million UB medical school under construction, the $291 million Gates Vascular Institute that opened in 2012, the planned $270 million John R. Oishei Children’s Hospital and the $100 million Conventus, a medical office and research building that is under construction.
The biggest property price increases occurred in the past five years, according to The News analysis of land transactions, as those large institutions assembled the land needed to build. The analysis identified 30 completed or pending sales on the Medical Campus – totaling $18 million – since 2009. Nine of the properties sold for more than $1 million. All but one sold for more than assessed value; most of the larger sales went for at least three or four times assessed value.
The analysis found skyrocketing values throughout the campus, but property on the Main Street side – particularly land close to the Allen Street Metro Rail station – rose more than land on the Michigan Avenue side of campus.
The analysis also found prices generally rising with each sale, one high-priced sale breeding an even higher one.
The last time any significant medical campus property sold for less than $1 million an acre appears to be in 2005, when two doctors sold three brick buildings located on over an acre of land for $500,000.
UB’s big deals
The UB Foundation’s land purchases are a lesson in economics.
In 2011, UB announced it was fast-tracking a planned move of its medical school to the downtown Medical Campus. In 2012, the UB Foundation made its first land purchase for the new school: a corner lot, just over a quarter acre at 960 Washington St., for $1.26 million. The vacant lot was assessed at $55,700 and had been bought in 2005 for $410,000.
Evergreen Real Estate principal Michael L. Joseph, whose company sold the property to UB, said Evergreen broke even on the deal because there was a 10-story building on the site that Evergreen had demolished.
That sale set the market for the next UB purchase – two-fifths of an acre, also on Washington Street, for $1.2 million. “Michael [Joseph] kind of set the market on what the land was worth,” said Dennis Penman, one of the sellers. “We looked at his transaction as a comparable sale.”
The next piece was a gift: First Niagara Financial Group donated a 0.85-acre parcel at the corner of Main and High streets. The property – with a bank branch on it – was assessed at $360,000. With all the development nearby, it was recently appraised at $2 million, bank officials said.
With that parcel, the land for the medical school building was secured.
UB then paid $1.4 million for a building and parking lot on Main Street next to the existing UB Institute on Addictions building. UB plans to use the property for medical school parking and office space.
UB’s Hubbard said the same thing as the building’s owner, Donald White: “This was not someone who wanted to sell,” she said. “It was an important site for us.”
The total price tag of the three properties the UB Foundation purchased – 1031 Main St., 960 Washington St. and the Roosevelt lot – was $3.86 million for about one acre of land and a building assessed at about $285,000. When the bank donation is included, the university ended up with about two acres of property as well as some parking and office space for $3.86 million – less than UB anticipated spending, Hubbard said.
“It is difficult, when you are a public institution like UB,” Hubbard said. “You don’t get the most advantageous negotiating position. Everyone knows you are coming. Everyone knows the site you want.”
Most private developers are unwilling or unable to pay the through-the-roof prices on the Medical Campus, leaving most on-campus deals to educational and medical institutions. Paul Ciminelli is different.
Ciminelli is one of only a few private developers to join the on-campus Monopoly game, and the only one considered a major player. His family had an early stake in the campus, buying what turned out to be a key property well before prices skyrocketed.
In 1993, a Ciminelli family company bought an outdated medical office building at 50 High St. In 2007, it cleared the land, anticipating it would one day be used for a large medical office building. Instead, 50 High eventually became part of a land swap with Kaleida. The new Children’s Hospital will be built, in part, on the land Ciminelli owned. Meanwhile, Ciminelli is building the seven-story, 300,000-square-foot Conventus office-research building on Kaleida-owned land. Ciminelli has a long-term ground lease with Kaleida for the property.
Ciminelli Real Estate in 2010 also bought the former Langston Hughes Building, across from Conventus, for $1.9 million.
“It was my dad’s vision,” Ciminelli said, referring to his father, Frank’s, early interest in what is now Medical Campus property.
“He has always had tremendous insight when it comes to real estate,” Ciminelli continued. “He can see the possibilities of a property by identifying certain variables. So back in the ’90s, before the Medical Campus was even thought of, my father recognized the potential of the 50 High St. property because of its strategic location adjacent to the then-Buffalo General Hospital and its close proximity to downtown Buffalo.”
Historic tax credits
The other private development on the Medical Campus proper: historic buildings that come with a sizable tax credit.
There aren’t a lot of historic buildings left on the 120-acre Medical Campus. The biggest is the Trico building at Ellicott and Goodell streets. Krog Corp. of Orchard Park bought the building from a Buffalo economic development agency for $45,000. Krog intends to invest $50 million into the building, turning the empty industrial property into hotel, residential and retail space.
Renovating a historic property comes with tax credits that offset as much as 40 percent of renovation costs. With that help, said company chief Peter Krog, “all of a sudden it makes sense.”
Nick Sinatra, the former Bush administration aide who is investing in medical corridor real estate, is developing the former Phoenix Brewery building at 835 Washington St. using historic tax credits.
Sinatra bought the building, which was being used largely to warehouse antiques, for $1.78 million after what he called “touchy negotiations.”
Joseph V. Parlato, a Buffalo property owner and antiques dealer, paid just under $100,000 for the property in 1999. Sinatra said the price is in line with other similar-sized buildings in the city. He plans to spend $3.5 million to convert the 134-year-old Phoenix into luxury apartments with indoor parking.
Said Sinatra: “Tax credits make the deal work.”
The Medical Campus prices, while unusual for Buffalo, aren’t out of whack with the value of the properties, Ciminelli said.
The $3.86 million UB spent for about one acre of medical school and related property, Ciminelli pointed out, is just 1 percent of the $375 million project. The $1.9 million he spent to buy the Langston Hughes property across the street from Conventus is less costly in the context of a 250,000-square-foot, $75 million building planned for the site, he said.
Said Dennis Penman, who now works for Ciminelli Real Estate: “You have to look at land-to-building costs.”
Projects have greater value if they are connected to Metro Rail and nearby buildings. The Metro Rail station, Conventus, UB medical school, Children’s Hospital, Buffalo General Hospital, Gates Vascular Institute and Roswell Park Cancer Institute all will be connected by tunnels or skybridges.
Properties on the southern half of the Medical Campus hold less value because they aren’t connected. Larger properties also tend to have lower per-square-foot prices. It is the small, strategically located holdouts that bring the highest prices, Penman said.
That may explain why more than an acre of land on the Michigan Avenue side of the campus has been on the market for more than a year. Pharmacists John Vinti and Thomas Caldwell bought 14 small, primarily vacant residential lots and foreclosed properties on Michigan Avenue and Maple Street over two decades dating back to the 1990s. The two planned to build a pharmacy on the site if ever forced to leave the building they were renting nearby on Michigan Avenue, Caldwell said. But that never happened, and the pharmacists retired.
The 14 parcels – not contiguous because of a house on Maple Street and one on Michigan – cost the pharmacists about $100,000 to purchase, demolish and maintain, Caldwell said. The asking price now is $2.4 million.
Caldwell said the asking price might be a little high, but said they have received several good offers, though for only a portion of the property. They want to sell it as one piece, he said.
“I think it’s just a wait and see,” Caldwell said. “We’re not in any hurry.”
Buffalo News reporter Jonathan D. Epstein contributed to this report. email: firstname.lastname@example.org
Coming tomorrow: Investors start to discover the Fruit Belt.