Signature Associates

Well-known office properties in metro Detroit up for grabs

Blink and you miss it.

In the past week, nearly 800,000 square feet of office space across four well-known properties in Troy and Pontiac became available if you have the scratch.

Toss in the Fisher Building and the former UAW-GM Center for Human Resources in Detroit for good measure, and you have six buildings over 100,000 square feet — some vacant, some well leased — totaling 1.8 million square feet in the market for fresh ownership in metro Detroit the last 30 days or so, according to a survey of listings on CoStar Group Inc., a Washington, D.C.-based real estate information service.

That’s a lot of large buildings go up for new ownership in a short period of time.

The listings aren’t necessarily related or driven by a single cause, but whether they sell and to whom has implications for an office market, like others, that has been turned upside down by the COVID-19 global pandemic.

“I think we are heading for some Armageddon moments on the office side with more vacancy to contend with,” said AJ Weiner, managing director in the Royal Oak office of Chicago-based brokerage house JLL. “Suburban Detroit has yet to feel the full weight of the contraction that’s going to occur as a result of COVID. Heading into COVID as a regional office market, we were already overbuilt, that was already a challenge. We have an overbuilt market, and we have to find a way to collectively right-size it.”

According to a second-quarter report from the local office of New York City-based Newmark Knight Frank, the vacancy rate in metro Detroit’s office market increased to 16.8 percent from 16.5 percent in the first quarter as some 181,000 square feet became available. It’s also nearly 2 percentage points higher than it was a year ago, at 14.9 percent vacant.

The office market has about 78.6 million square feet leasing for an average rate of $20.34 per square foot per year.

“There is a significant (a never-before-seen occurrence) amount of sublease space on the market that, with most burning off within three to five years, when landlords will need to look to fill this vacant space,” said Steve Morris, managing principal of Farmington Hills-based Axis Advisors LLC.

The four buildings that hit the market in the last week are as follows:

• One of the Ottawa Towers buildings, which is 200,000 square feet and vacant. It is on the market for $5.9 million, or just shy of $30 per square foot. It is owned by an affiliate of Bob Waun’s Pontiac-based Dirt Realty, which acquired them earlier this year for $7.4 million. Waun told me he thinks its a good contender for a corporate headquarters. “I hate seeing that building empty, and if I can’t fill it, I want somebody else to do it,” Waun said.
• Three of the buildings in the North Troy Corporate Park marketed by Farmington Hills-based Friedman Real Estate. The buildings at 700 Tower Drive and 800 Tower Drive, plus 5555 New King Drive, total 569,000 square feet of the 1.2 million-square-foot, eight-building complex around I-75 and Crooks Road. Their occupancy rates are not known. A message was left with one of the brokers on the listing seeking comment. A group of investors lead by Miami-based Rialto Capital Management LLC paid $15.5 million for the entire office park in 2012 when it was just 23 percent occupied.

“In excess of 50 percent of all suburban office buildings were sold for cents on the dollar from 2011-2016 as a result of the CMBS mortgage foreclosures,” Morris said. “Landlords who purchased office buildings during the aforementioned time now have high occupancy. Thus, a building that was purchased below replacement costs, i.e. $15 to $40 per square foot (which cost $200 per square foot to build) are now on the market for sale in the range of $100 to $150 per square foot. It’s a win-win. The seller will make a very large profit and the purchasers obtain a highly occupied building with the positive outlook that rental rates will again increase a few years out.”

In Detroit, the 635,000-square-foot Fisher Building hit the market last month and the 420,000-square-foot building now known as The Icon, formerly the UAW-GM Center for Human Resources, hit the market shortly thereafter.

Posted By: Crain’s Detroit Business on September 28, 2021.  For more information, please click here to read the source article.

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