MARKET HIGHLIGHT, JUNE 2008
UPSTATE NEW YORK MARKET HIGHLIGHTS
Buffalo Investment Market
The city of Buffalo and its surrounding submarkets have become a hotspot for commercial real estate development and activity. Canadian investors have shown an interest in the market since the Canadian dollar is at or near par with the U.S. dollar and high technology manufacturing companies are moving into the area due to the educated workforce and the presence of many colleges and universities. In addition, life science innovators have shown a great deal of interest as a result of the city’s growing medical campus and research institute, as well as the colleges and universities, and the agriculture sector, both on the production and processing end, have been moving into the area because of the diverse geographies seen throughout the region. The Western New York retail market vacancy rate has improved over the last 5 years from a high of 18.2 percent in 2003 to the current rate 12.81 percent. Class A office vacancy rates meanwhile increased from 3.53 percent in 2006 to 5.76 percent in 2007. Overall, the industrial vacancy rate in western New York is sitting at 9.7 percent.
Investments in the Buffalo-Niagara region can be seen in almost every facet of the social environment from infrastructure improvements to real estate speculation and from commercial construction to an expanding business world. There are a number of pockets of strong development activity including the Central Business District in the city of Buffalo, near the Buffalo/Niagara International Airport in the Town of Cheektowaga, around the University of Buffalo’s Amherst campus, in the town of Amherst itself and along the Walden Avenue/Union Road retail corridor in the Town of Cheektowaga. The truly exciting element of this activity is that each pocket described is active with different types of real estate development such as: housing near the university; office, hotels and distribution near the airport; retail in the Walden Union area; and office, housing and retail activity are all bubbling downtown. Each area represents a wonderful cross section of opportunity. A number of public and private developments are either underway or recently completed. These include:
• A partnership between Acquest Development Co. and Uniland Development Co. recently completed construction of a 220,000-square-foot office building in the heart of the government district in downtown Buffalo. The $15 million project consists of eight stories totaling 290,000 square feet and also includes a five-level parking garage with room for 650 vehicles.
• Acquest and Uniland also are redeveloping the Thaddeus J. Dulski Federal Office Building downtown into a mixed-use complex. The UniQuest Delaware LLC development team submitted a bid of $6.1 million for the vacant 15-story structure. Preliminary plans for the $63.6 million project call for Class A office space for most of building’s nearly 400,000 square feet of leaseable space. The facility will also feature a mix of retail, residential and hotel space. The development team has already announced that a 15-room, all suites Embassy Suites hotel will fill the hotel spot. Completion of the project is expected late this year.
• The recently constructed 28,000-square-foot National Life building on the corner of Chippewa and Main streets, has been leased up. Professional services have occupied the top two floors and Dunkin’ Donuts has moved into one of the first floor retail spaces, marking its first location in downtown Buffalo. SEFCU, the largest credit union of the Albany region has announced that it is set to occupy the remaining space in the $3.5 million project.
• In early 2006, the Buffalo Common Council approved the construction of an 11-story, 335,000-square-foot office building in downtown Buffalo’s government district. Ellicott Development Co. is slated to begin construction on the roughly $45 million project this fall with a completion date of 2010.
• British developer Bashar Issa acquired the Statler Tower, a downtown-Buffalo architectural landmark, in mid-2006, opening the door to an $80 million-plus effort to convert the building into a residential, hotel and office complex.
• The area’s largest shopping mall is undergoing extensive renovation plans. The Walden Galleria in Cheektowaga is moving ahead on a long-awaited $50 to $60 million renovation. The plans also include the construction of two new buildings and a new five-story parking garage with 1,200 spaces. The newly renovated mall will feature a “boulevard” feel with outside dining and valet parking, and it will look like a series of quaint but upscale store fronts with a “Main Street” atmosphere. Once construction is finished, the mall will offer 260,000 square feet of redeveloped leaseable space and a total of 80,302 square feet of new space. Six high-profile restaurants, all newcomers to upstate New York, are part of the expansion. The new restaurants include Cheesecake Factory, Hyde Park Steakhouse, Bravo! Cucina Italiana, The Melting Pot, Abuelo’s Mexican Food Embassy and Bar Louie. Improv Comedy Club also will join the lineup, offering after-dinner entertainment. That is in addition to the previously announced 16-screen cinema, which will seat 3,000 patrons.
• Buffalo developers Carl Paladino and Frank McGuire have embarked on a $5.5 million overhaul of the idle Courtyard Mall and the former Baker Shoes building located on Main Street in the heart of downtown. The renovation will create 73,000 square feet of office space spread out over two floors along with retail space on the first floor and basement-level parking for 56 vehicles. The second half of 2008 is the expected completion date.
• In the fall of 2007, CityView properties acquired the long-idle building shells at the corner of Genesee and Oak Street, with plans to bring them back to life. There are several ideas on the table for the reuse of the dormant buildings, but in all likelihood, CityView will develop a mixed-use project that will include first-floor retail and restaurant tenants. There are expectations that the upper floors of the three- and four-story structures will be converted to residential and office use.
• CityView has also invested more than $30 million in the top-to-bottom renovation of the Larkin Building at 726 Exchange Street and in the acquisition of a dozen more properties in the area surrounding it. The development firm expects to spend at least $20 million on future projects in the neighborhood. The first step in the plan will be a new 80,000-square-foot office building, which will utilize a portion of a parking lot located directly across Exchange Street from the Larkin Building. The four-story Mill Race Commons building should begin construction in 2008. Their aggressive 10-year plan also includes: a 60,000-square-foot office building at 111 Hydraulic Street, a block north of the Larkin Building; a three-story, mixed-use residential/retail complex on the southeast corner of Seneca and Emslie streets, combining first-floor shops with 21 apartments on the upper floors; 20 new rowhouses on vacant land surrounded by Seneca, Swan and Hagerman streets; and a new retail development along Smith Street, between Seneca and Exchange streets.
• In 2007 a unique sight arose on the banks of Lake Erie just south of the city of Buffalo. Steel Winds, an eight-windmill, wind farm began operating and producing clean renewable electricity. The $40 million wind project marks several firsts in the burgeoning wind industry in the United States, helping to bring attention to the region as well as the wind power business. It is the first urban wind farm in the country and the wind farm is the first of its kind in the United States to be built on a former industrial site and the first to go up along the shores of the American side of the Great Lakes. The project is so successful, the developers of Steel Winds are considering expanding to add another 19 windmills along the site.
• Savarino Construction Services Corp. & Avalon Development have teamed up to develop a $15 million mixed-use project within The Cobblestone District, a neighborhood adjacent to the HSBC Arena. The plans call for primarily office space, however, apartments, retail, and restaurants will also be a part of the project.
• $5 million in renovations is slated for Erie County Court facilities.
• $2.5 million is set aside for the structural rehabilitation of the local National Football League’s, Buffalo Bills’ Ralph Wilson Stadium.
• $1 million in renovations is set for the Buffalo Niagara Convention Center.
• Buffalo is also slated for the construction of a new, high profile Federal Courthouse. Construction began for the approximately $100 million project summer 2007.
The Buffalo-Niagara Region is also seeing an influx of casino gaming. The Seneca Nation of Indians has been in high gear building casinos in both Niagara and Erie County and also the surrounding counties of Western New York.
• In January of 2003, the first Buffalo-Niagara casino came online with the $100 million transformation of the Niagara Falls Convention Center. Adjacent to the convention center casino, on December 31, 2005, the Seneca Nation of Indians opened the doors to the new Seneca Niagara Hotel. As a compliment to the casino completed in 2003, this $200 million investment brought roughly 600 rooms over 26 floors to downtown Niagara Falls.
• Seneca Gaming, the New York based business arm of the Seneca Nation of Indians, has also recently constructed a 48,000-square-foot casino and gaming complex in Salamanca. In addition, the Seneca Allegany Casino is expected to create 800 new jobs when it is fully operational.
• The Seneca Nation of Indians also announced its plans to build its final casino in downtown Buffalo. The Seneca Nation purchased 9 acres of land near HSBC arena to build this new destination. Key features of the $333 million casino/hotel complex include, a the three-story casino with 90,000 square feet of gambling floor, 2,000 slot machines, 45 table games, four restaurants, a day spa, and a 22-story hotel with 206 suites, ranging in size from 450 square feet to 2,000 square feet. In addition, 3 acres of the 9-acre casino site will be a public park that will feature a creek, landscaped gardens and walking paths. The project, completed in phases, is anticipated to open summer 2010.
• Cheektowaga’s growing hospitality row, along Genesee Street across from Buffalo Niagara International Airport, is getting another player, an upscale, $15,000,000 aloft hotel. Manga LLC, of Mississauga, Ontario, has filed plans with the Town of Cheektowaga for the proposed seven-story, 149-room hotel, which is set to be built on Burgess Boulevard just off the 4200 block of Genesee Street.
• Immediately adjacent to SUNY College at Buffalo is the H.H. Richardson Complex. While the property does still have an active treatment center for people with mental illness, the structure that dominates the property is the city’s landmark Henry Hobson Richardson building, one of the nation’s most historically significant structures. Underutilized for decades, the site will receive $76 million from the state for the first step in a major restoration plan leading to the complex’s ultimate reuse. Plans include an architectural museum to highlights the region’s built environment.
Life Sciences & Health Services
Representing a consortium of the region’s premier clinical care, life science research and medical education institutions, the Buffalo Niagara Medical Campus (BNMC) is cultivating a world-class medical campus on 100 acres in downtown Buffalo. Construction is complete on the three new structures, which has brought more than 400,000 square feet of state-of-the-art life science research space to the heart of the BNMC in downtown Buffalo. Together these projects represent a strategic effort from New York State, the federal government, private and corporate contributors, as well as local philanthropic interests, reflecting the commitment Buffalo’s future. The BNMC is expected to create roughly 7,000 jobs across the industry over the next decade.
Due to the new medical campus, several high-tech companies have moved into the Buffalo area. Upon completion of the new medical campus, the draw of the new investment brought two new companies to Buffalo to feed off the synergy of the work being done at BNMC. Cleveland BioLabs (CBL) will land in the building on High Street that housed the Hauptman-Woodward Medical Research Institute before it moved to its new building. CBL will become the anchor tenant for an incubator of biomedical companies. PharmIdeas, a Canadian pharmaceutical consulting firm has moved its U.S. operations from North Carolina to Amherst, a Northeastern suburb of the city of Buffalo, citing the opportunities to work with researchers and students at University at Buffalo and Roswell Park Cancer Institute, as well as with local companies.
Other advances and developments in the medical industry are taking shape in the region. The Western New York MRI Center at Genesee Street and Michigan Avenue is currently undergoing an expansion coined the, Western New York Medical Arts Center. Located adjacent to the ramp that links Elm Street with the Kensington Expressway, the second phase, an adjacent two-story building, is scheduled to be completed by the end of the year. The estimate of construction cost of the two buildings, which consists of a combined 30,000 square feet, is $5.5 million. The Women & Children’s Hospital of Buffalo announced a $102 million expansion of their medical center and new ambulatory services center located on Bryant Street. At five floors and 177,000 square feet, the center will be a bit larger than the 150,000 square feet of space in the eight buildings scheduled for demolition as part of the project. Enclosed bridges to the city-owned parking garage behind it and the main hospital would connect the center. The result will be a campus that straddles Hodge Avenue, shifting the main entrance from Bryant Street.
Educational institutions around the region are also making new investments within the Buffalo area. Understanding what a catalyst for economic development a major research institution can be for a region, the University at Buffalo (UB) is aggressively seeking to expand its school. As part of the UB:2020 plan, the school plans to expand on it’s two main campuses as well as downtown in ways that drive and support this region while pursuing competition with other major universities, such as the University at Wisconsin or Ohio State University.
The school recently took its first steps towards this goal. With a high bid of $20.09 million the university’s medical campus gained control of the idle Trico windshield wiper plant on Ellicott Street north of Goodell Street and the former M. Wile apparel manufacturing site on Ellicott south of Goodell. The medical campus will redevelop the Trico site for medical research purposes. The university will take ownership of the M. Wile building as part of its mission to increase its presence in downtown Buffalo. It will house such entities as the university’s Regional Institute, and the acquisition provides space for the medical campus to continue growing the life sciences economy in downtown Buffalo, likely using the newly acquired buildings to also house incubator space for commercialization of products created in conjunction with the school and medical campus entities. In addition, the university has earmarked roughly $7 million for a new center for the School of Management, and it is also planning a $300 million complex on the North Campus that will include residential, retail and service buildings.
In an effort to boost the image of the region, Buffalo leaders have acknowledged that it needs to foster a more livable downtown core. In December 2003, the mayor of Buffalo announced the Queen City Hub plan, which lays out a comprehensive strategy for citywide growth and preservation. Under the plan, 784 residential units with a projected value of $70.5 million would be located in downtown Buffalo in order to build up a critical mass of residents. A study recently conducted by Zimmerman & Volk Associates, Inc., a urban studies firm from New Jersey, found that the central business district can absorb about 375 new apartments, townhouses and condos on an annual basis. Residential investment projects in Buffalo include:
• The former Seneca Paper Company Warehouse was recently converted into the Warehouse Lofts, a 30-unit, $7.6 million multifamily development downtown.
• Targeting young professionals, a developer recently completed a $2.5 million conversion of the former Holling Press complex, which now features 82 apartments.
• Rocco Termini and Signature Development are set to develop Century City Lofts, a $15 million project that will convert a string of badly faded buildings in the heart of downtown to housing and mixed commercial use. Upon completion, the facility will include 42 residential units and ground floor retail.
• Uniland Development is planning a $55 million, 68-unit, 23-story condominium tower on gates Circle. With pricing starting at $450,000 and topping $2 million for penthouse units, the developer is aiming for the small, ultra exclusive market.
• On Main Street in downtown Buffalo, ArtSpace, America’s leading nonprofit real estate developer for the arts, has undertaken a project converting a large vacated warehouse, the Breitweiser Building, to professional/living space. The mission of Artspace Projects is to create, foster, and preserve affordable space for artists and arts organizations. The project will consist of 60 live/work units: 36 in the Breitweiser plus 24 in new construction behind it. In addition, 13,000 square feet of commercial space on the street level of the Breitweiser Building will provide offices and other space for arts organizations and arts-related businesses. The project will preserve the area between the buildings as a common space.
• Buffalo’s proximity to Lake Erie also presents a unique situation many metropolitan areas cannot offer, waterfront residential properties. Currently under construction are new residential addresses located on the Erie Basin Marina. Waterfront Place will consist of a 13-story condominium tower as well as 15 three-story townhouses. The $32 million project is slated for completion this year.
Real estate speculation around the region is also on the rise. Related Companies purchased the Watergate II apartments on the Niagara River for $5.6 million. Kenmore Development recently purchased Kendev Studios for $1.8 million in Kenmore, a village nestled on the northern border of Buffalo. In Amherst, Affinity Realty Partner acquired Sutton Place Apartments for $8.4 million, and a Brooklyn firm acquired the Amherst Garden apartments near Central Park Plaza for $4.75 million. Northland Hidden Village LLC, a New England-based investment group also acquired the104-unit Hidden Village Apartments on Indian Church road for $4.75 million, marking its first real estate involvement in the Buffalo Niagara region.
Expansions and Relocations
Companies from the Buffalo-Niagara region and outside its borders are beginning to rediscover the Western New York market. An international border, a highly talented labor force, low cost living and a high quality of life create an ideal setting for businesses to expand their market.
Within the last few years, the city of Buffalo identified a shortage of land within the city limits for industrial development. Working with economic development agencies, the city identified a site in south Buffalo, and with a mix of $10 million from state, county, and city sources, converted a former brownfields site into the viable waterfront commerce park, Buffalo Lakeside Commerce Park (BLCP). Tenants of the new park include: CertainTeed, a building materials fabricator that was the first company to move into the park, after they had reached capacity at their plant in Cheektowaga. The company settled into a new $13 million, 266,000-square-foot plant. Following suit, the compressor and systems maker, Cobey Inc., consolidated multiple Buffalo-Niagara locations under one 90,000-square-foot roof in BLCP. Currently employing roughly 70 workers, the move to BLCP may allow for additional expansions as well.
Sonwil Distribution plans to build a distribution center, which upon completion at summer’s end will be the largest project in the park. Sonwil has agreed to buy 54 acres located in South Buffalo on the Lackawanna border, for a 300,000-square-foot warehouse. Economic development officials believe that if Sonwil’s current pace of growth continues, the company is interested in adding a second building of similar size adjacent to the new warehouse, perhaps within 3 years.
New Era Cap Co., a maker of hats for professional sporting teams, has located its world headquarters in the former Federal Reserve Building on Delaware Avenue in downtown Buffalo. In the process, it will add about 240 jobs to its Western New York payroll. The company invested as much as $10 million to convert the financial building into a fun, stadium-themed headquarters featuring a cap museum. The Town of Amherst scored one of its biggest economic development coups with Citigroup’s announcement they will bring 700 jobs to CrossPoint Business Park, with the potential for the creation of another 300 jobs in future years. The deal with Citi has been working its way though local and state economic development circles since early last year. The entire project carries a nearly $30 million price tag. The new 154,000-square-foot building, which should be under construction by early summer, will be a companion to a recently opened 107,000-square-foot building that Citi moved into last year. An estimated 650 people either work or will soon be working in the building.
The waterfront along Lake Erie in Buffalo has long been underutilized, but several developers and retail tenants are aggressively planning projects. A 200,000-square-foot multilevel Bass Pro Shops store is set to anchor the Erie Canal District. Set on the site of the soon-to-be demolished Memorial Auditorium, the store will be the retailer’s first venture into an urban market. The store is expected to be the catalyst for more new development in the city’s inner harbor. Benderson Development is set to develop Canal Side, a 500,000-square-foot project with retail, entertainment, hotel, residential and office space. The $300 million project includes Webster Block and is bounded by Scott, Washington, Perry and Main streets. Canal Side will tie historical attractions with retail, hoping to create a successful waterfront theme attraction, which has proved to be a useful economic development tool in other metro areas. The project will include additional re-watered canals cutting through the area. The first stores should be open for business in 2010.
Work has begun on the reconstruction of the terminus of the Erie Canal in downtown Buffalo’s Inner Harbor. The $46.3 million project will recreate the western end of the Erie Canal, which launched Buffalo’s rise to prominence in the 19th century. When the Erie Canal Harbor opens, it will boast a rewatered and navigable Commercial Slip and replica of a canal-era bridge in its original location, a reconstructed Central Wharf with a festival plaza and original streetscapes. There will be two indoor museums on site, a new Naval and Military History Museum moved adjacent to Veterans Park and an Erie Canal/Great Lakes Museum. There also will be a mix of leisure and recreational activities. In addition, the Erie County Industrial Development Agency (ECIDA) is coordinating the development of roughly 20 smaller to mid-size projects along the waterfront for both the inner and outer harbor. Plans call for aggressive development for public access, cultural attractions, parks, boat launches, bike trails connecting miles of existing trails, nature preserves, infrastructure improvements, and site development for commercial and residential uses.
The waterfront areas of both the inner and outer harbors represent opportunities unparalleled in the region; therefore, continued growth is highly anticipated. These areas have the potential to create market shifts and economic impacts so great that virtually the entire region would be positively affected. Within the inner harbor alone, more than 300,000 visitors per month will be drawn into the downtown area for various reasons. The sales tax revenue generated by such volume is monumental. This growth along continued advancements throughout the rest of the Buffalo-Niagara region promise great things for the future of the city.
— Thomas Kucharski is the president and CEO of Buffalo Niagara Enterprise
Rochester Retail Market
Monroe County and the surrounding greater Rochester area’s retail market continues to be quite active. New and planned construction, touching nearly all geographic areas, has been fueled primarily by big-box retailers and the introduction and/or expansion of regional and national restaurant chains.
In the big-box arena, Super Wal-Mart, Target, Lowe’s and Kohl’s have paved the way for many projects. And, while Super Wal-Mart has faced opposition in some towns, smaller communities such as Brockport, Macedon, Albion, Geneseo, LeRoy and Batavia have embraced the retail giant.
Among the new faces on the restaurant scene are Red Robin, Bonefish Grill, Carabba’s, Famous Dave’s and the more upscale Cheesecake Factory. Several locally owned restaurants have also expanded into multiple locations. And, while the old reliables seem to be in holding patterns, “new reliables,” such as Starbucks, Tim Horton’s and Subway continue to seek more locations. Home-grown pizza parlors have gotten into the act with no less than 10 locally owned pizza restaurants recently expanding their operations.
Another interesting segment of the market is the emergence of the thrift store concept, following on the heels on the “dollar store” explosion of a few years ago. Several not-for-profit groups have begun to flex their retail muscles. Thrifty Shopper, Salvation Army, Volunteers of America, ABVI Goodwill and Flower City Habitat for Humanity’s “Re-Store” are adding new locations and/or transitioning from secondary in-line locations to free-standing sites.
And, after a slow start, Wegmans has had some recent successes in leasing their former Chase-Pitkin stores, with Ashley Furniture and Hobby Lobby each having taken space in the former hardware stores. Wegmans still rules the roost in the local grocery industry, and is currently building its latest store in Henrietta, slated to open later this year. Shop-Rite/Price Rite, a Long Island-based grocer, has entered the market with a boom, reporting one of the best grand openings in company history at what was, ironically, a former Wegmans site.
Geographically, Webster is the “baby-boomer” on the retail scene. At least six retail developments are in the planning, construction, or completion stages, with COR’s 400,000+ square-foot Webster Square leading the way. Interestingly, other “mini-booms” are taking place in smaller towns such as Brockport, Geneseo and Batavia, which has a COR development of its own in the works. In Victor, the area immediately surrounding Eastview Mall is a hot-spot of retail/mixed use development, with multiple projects seeking to feed off of the success of Rochester’s most prominent mall. Of course, Henrietta continues to have a leading retail presence in Monroe County, most evident in Benderson’s 400,000+ square-foot Market Square development. Additionally, several smaller retail projects are scheduled for Henrietta, led by Marketview Commons. Like Elmgrove Crossings in Gates, these developments feature 15,000 to 25,000 square feet of retail space, and meet the needs of those smaller retail/service-oriented tenants whom have fears of being lost within larger retail centers.
Interestingly, urban retail centers in Rochester are also doing quite well. Nearly every urban shopping center is at or near 100 percent occupancy, including Goodman Plaza, which has a planned expansion of nearly 18,000 square feet.
The news on the retail horizon is currently a positive one for the Greater Rochester Area. While not all retail pockets are hot, there is enough activity to warrant regional and national attention, and certainly bodes well for retailers, developers and brokers alike.
— Jim DeHollander is a retail specialist in Pyramid Brokerage Company’s Commercial Real Estate Services Group.
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