The landlord of One SeaGate in downtown Toledo says there is a substantial risk in a year that it will not be able to make a big mortgage payment and the premier office structure will go into foreclosure.
Such a move would not by itself boot out the remaining tenants and turn off the lights, but the prospect of foreclosure could make it difficult to find new tenants to fill the 32-story office building on the banks of the Maumee River.
The foreclosure notice by Newkirk Master Limited Partnership of Boston, coupled with the departure next summer of Owens-Illinois Inc. s global headquarters, paints a troubled picture for the building and creates a psychological blow for downtown.
Tenants just do not like to be in a partially open building, which is known as a ghost-rise, said Stephen Welly, president of Rudolph/Libbe Properties Inc. and a longtime office specialist in town.
The building could continue to operate while in foreclosure, experts said, but a landlord not familiar with a market could make negotiations harder and there would most likely be a decline in building services.
With an absent landlord, it s very difficult to understand what the market truly is and what it takes to make leases and deals in that market, Mr. Welly said.
Newkirk Master disclosed its Toledo problems in a recent U.S. Securities and Exchange Commission filing, confirming concerns among local commercial real estate agents.
It warned that it may not be able to pay a $32 million balloon loan payment on the Toledo landmark building in October, 2006, and that there is a substantial risk the mortgage holder would foreclose on the property. Before that might happen, Newkirk said, it would try to sell or re-lease the building.
The building, often called the O-I building because the firm is the major tenant and has its world headquarters there, opened in late 1981, at a cost of $100 million. It is Toledo s tallest building, at 411 feet, and is valued today at more than $45.5 million by Lucas County.
But the value is being disputed in court, with some contending it should be less than half that amount.
O-I, the Fortune 500 firm which makes glass bottles and other items, said in the spring it will move out of the building and relocate its headquarters, and 340 employees, into a $20 million facility now under construction in Levis Development Park in Perrysburg by Sept. 30, 2006.
That move and One SeaGate s existing vacancy rate of about 25 percent could mean the building would be less than half-occupied by late next year. The shining glass structure, with 707,482 square feet of leasable space, is considered the premier downtown office address by commercial real estate agents.
The real story won t be known for well over a year, said Peter Braverman, president of Newkirk. Between now and then a lot of things can happen.
The operating costs of the building are considerable, he said, and the landlord needs to find more tenants. He said he has made progress with trying to get existing tenants to stay, but has been hindered finding new ones in part because of O-I s continued lease for much of the building through September, 2006.
A spokesman for O-I said that firm is working informally to aid Newkirk.
City officials say they are scrambling to help Newkirk find a solution. Mr. Braverman said he has talked with Toledo officials, whom he characterized as being as supportive as they can possibly be.
It might sound ominous, but we ve got a year to work with [Newkirk] on a solution, said William Carroll, Toledo s economic development director. We are working very hard not to get to the point of [foreclosure].
Mayor Jack Ford is working with a landlord representative to find new tenants and is willing to offer assistance, such as with nearby parking for employees and possibly buying the land on which the building sits, or even buying the building itself, Mr. Carroll said. The city offered O-I a $9 million package to help fix up the building if it agreed to stay and not move to Perrysburg.
Carty Finkbeiner, who is running against Mr. Ford in Tuesday s election to be Toledo s mayor, will do everything in his power to keep the building occupied, a spokesman said.
It would be a matter of sitting down and seeing what can be worked out, seeing if we can get other investors, if he can spread the cost over the larger number of tenants, said Bob Reinbolt.
Rental rates are going to have to be competitive and reasonable so we can maintain the tenants there.
Newkirk, the landlord, has an insurance policy, Mr. Carroll said, that would pay the mortgage balloon payment and allow Newkirk to walk away, but it would give up control of the building.
Mr. Braverman said he could not comment on the insurance, or give the identity of the mortgage holder. Newkirk s major owner is the newly public Newkirk Realty Trust Inc., which began trading on the New York Stock Exchange this week. The loan likely is through an insurance company, local real-estate experts said.
The Boston landlord has reported to the SEC this year that at the end of last year it owned 210 buildings nationwide valued at $1.6 billion and had revenues for the year of $250 million and profit of $138 million. Its original mortgage on One SeaGate was about $95 million.
O-I, as the major tenant, has a master lease and is responsible for much of the space in the building.
It pays about $13 million annually in rent, but also receives rent from dozens of tenants leasing space under its control. It has had a lease for 25 years. The company has given Newkirk official notice of its departure, a spokesman said.
Local commercial real-estate experts said the way the mortgage is structured is not unusual, but said a building in foreclosure would make it harder to attract tenants and could lead to the structure s closure.
It most likely would have to be at least half full to stay a viable operation, experts said. Some feared the mortgage holder might simply shutter the building and sell it.
Marty Gallagher, a principal and office specialist with Michael Realty Co., said new tenants might get deals on rents, but more likely is that the insurance company owner would not run the building as does O-I, which is willing to spend extra money to keep it clean and running well.
Experience tells me that if they hand the building back the chances are that those services could fall off a little bit, Mr. Gallagher said.
Still, Bill Cosgrove, a sales associate in the Toledo office of Signature Associates, said it would be difficult to reopen the building if it does go dark. I hope the lender and owners work something out to keep it open, he said.
Harlan Reichle, managing director of CB Richard Ellis, Reichle Klein, said that it would be a real blow to the city if the building were closed. Pressure is mounting, he said, for the owners to resolve problems and reassure current tenants.
Several of One SeaGate s tenants have said in recent months they intend to stay in the building, if possible.
Among them is Eastman & Smith, a 160-year-old law firm which rents two floors.
Our position has always been that it s our preference to stay here, Robert Gilmer, chairman of the executive committee, said yesterday.
We re definitely committed to Toledo and to this building. We have a large investment in [the offices]. But we would be concerned, as any tenant would, that the building [continue to] be maintained as Class A space.
The One SeaGate situation is crucial if nothing else because industry reports show the downtown office vacancy at about 16 percent, and that would climb significantly if the riverfront structure closed.
It also would be a second unused signature building.
Closed for years has been the 30-story Fiberglas Tower, the former headquarters of Owens Corning, whose emptiness is not counted in the downtown vacancy rate.
Contact Homer Brickey at:email@example.com or 419-724-6129.
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