Out-of-town experts offer blunt recommendations for HSBC tower
Faced with a dwindling pool of office tenants and a $75 million balloon payment due in less than two years, One HSBC Center confronts an uncertain future.
What happens to Buffalo's tallest building will depend on how quickly a public-private partnership can be crafted and a mixed-use redevelopment plan for the 38-story tower enacted.
"The challenges are significant," says Charles Long, an Oakland developer and former city manager.
Long was one of six urban planning, architecture and financial experts from the Urban Land Institute who spent three days pondering development options for the building. The tower will be 95 percent vacant by the end of the year, when two anchor tenants, Phillips Lytle LLP and HSBC Bank, leave the building.
The ULI review was blunt yet realistic. The panelists unanimously agreed that a mixed-use scenario is the only worthwhile redevelopment plan to pursue.
"It is well worth the effort to take the next step," said Steven Spillman, an architect and developer from Mission Viego, Calif.
The building's owners, New York-based Seneca One Realty LLC, are considering a mixed-use redevelopment effort that will mesh residential units with a hotel and Class A office space. A restaurant and limited retail are also being considered.
The ULI panelists all agree that the extensive renovations needed for the building will be pricey. A partnership including incentives and, perhaps, the city taking an equity position, may be necessary to cover the financial gaps between the prices any residential unit or hotel room can command and the realistic development and operating costs.
"This is not a gift and not a bailout," said Ron Gerber, Walnut Creek, Calif, economic development manager. "It is a partnership."
And, looming in the immediate background is the $75 million balloon payment due in January 2015 by Seneca One Realty to its lenders. Without a solid development plan and a contractual partnership, hopes of refinancing the balloon payment are minimal.
"To do nothing is the worst alternative," Long warned. "Then, you are guaranteeing it will be sold at auction and a new owner will come and likely cannibalize the market."
Following a series of interviews and site visits, ULI came up with a six-point plan that will allow One HSBC Tower to advance with its mixed-use future. Chief among its recommendations is addressing the balloon payment. The panel also suggested within the next six months, Seneca One should bring in a professional developer to help with the building's financial picture and mixed-use future.
The panel also strongly suggested a real estate financing expert be hired by the City of Buffalo to work not only with the One HSBC Tower project but others in its pipeline. The expert could give realistic numbers in terms of revenues generated from the hotel, office and residential components and how much financial aid will be needed. Projected financial gaps for the office component could reach $111 per square foot, while an apartment scenario could have a $97 per square foot shortfall and the gap for hotel rooms could approach $126 per square foot. Only condos may have a $40 per square positive return on investment dollars.
The panel said work on the partnership scenario should begin now.
"These deals take a lot of work," Long said. "You can't just put in six months and expect it to work."
Local leaders agree and said they hope to begin work on the ULI recommendations immediately.