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Debt-Free Revival

Free of debt, 100 Pearl can deal

By Gregory Seay

August 02, 2010

100 Pearl St. isn’t downtown Hartford’s most spacious or tallest office skyscraper. It isn’t even the oldest.

But the 17-story tower, distinctive for its sapphire-blue-glass sheathing and soaring six-story lobby, has one thing going for it: No mortgage.

And New Jersey owner Ken Silverman and his family are aggressively playing their trump card of no debt and a raft of amenities to recruit Hartford’s pedigreed commercial and nonprofit tenants to the Class A office building. Among them: Law firm Updike, Kelly & Spellacy, Virtus Investments, the Greater Hartford Arts Council and New Britain’s Connecticut Health Foundation.

The Silvermans reportedly paid $18 million cash for two years ago. Then, it was almost vacant. And that was before the market collapsed, making the turnaround all that much more impressive.

“You’ve got to work the market,’’ Silverman says. “It’s not going to come to you.’’

And that’s just what Silverman has done while other debt-burdened office landlords, including Northland Development, grapple with their lenders to keep the doors open and yet other developers look for money for new construction like the proposed 13-story AI Technical Center in downtown’s Constitution Plaza.

Silverman’s success may also inspire other cash buyers circling over Hartford’s weakened commercial real estate market. In the past two weeks, the 555,000 square feet in two buildings of Connecticut River Plaza, formerly home to UnitedHealthcare, was sold to an apparent cash buyer for $6.7 million, a price that could yield even more lease deals down the road, experts say.

“When you start of with $11 a foot, you’ve got some real negotiating power,’’ said Coleman Levy, whose Farmington law firm has represented office landlords, tenants and lenders throughout the Northeast.

Meanwhile, the Silverman Group has pushed occupancy in its 282,000-square-foot building on the northeast corner of Pearl and Trumbull streets from less than 30 percent in 2008 to around 80 percent today. The goal is to be fully leased inside 18 months.

“We won’t let a tenant prospect walk by without a pitch,’’ said Silverman, 60, of Short Hills, N.J. He plowed some of the fortune amassed in 2006 selling his family’s 8,000-worker window manufacturing business into more real estate.

Other Hartford landlords aren’t being shy about pitch prospects, observers say. But in the most tenant-friendly office market some observers say they’ve never seen, the edge is to landlords free of the extra burden of debt service on top of utilities, cleaning and maintenance, property taxes and outfitting space to suit tenants.

Veteran commercial broker Joel Grieco, of realty firm Cushman & Wakefield in Hartford, and Richard Mulready, who has managed and brokered commercial property in Hartford for more than three decades, both witnessed downtown’s last major office-market slump in the early to mid-‘90s.

Both point to overbuilding as the primary culprit in the last slump, which led to a number of foreclosed Hartford buildings managed by banks and federal receivers.

But today’s trough, said Mulready, CEO of RM Bradley Co., is due to less demand for office space as computers, telecommuting and other space- and work-saving technologies have curtailed the need. The Great Recession hastened the trend, he and other experts say.

Indeed, Cushman & Wakefield calculates tenants have fled downtown office space faster than landlords can fill it for each of the last two years, with the negative absorption trend continuing through the first half of this year.

Grieco likens the local office market to an injured player being helped to the sidelines.

“You know he’s going to come back. You just don’t know when,’’ he said.

To make matters worse, experts add, downtown office rents averaging $22 a square foot are practically the same as in the late ‘90s. Yet, average expenses have risen to $15 a foot from $10, making it harder still for debt-ladened landlords to compete.

Updike Kelly & Spellacy’s move last April to 100 Pearl is typical, observers say, of blue chip tenants being wooed by local landlords.

Partner David Sturges led the search to replace the firm’s old quarters blocks away at State House Square more than a year before its lease expired. Sturges heard offers from several landlords who told him flatly their quotes wouldn’t cover their mortgages. However, they were willing to lease space at a loss for a limited time to lure Updike to their buildings, he said.

“I’ve never seen a market like this for tenants,’’ said Sturges, who has practiced real estate law since 1981.

He declined to name the landlords nor say what Updike pays the Silvermans to occupy 25,000 square feet, including the top two floors. The space was once executive suites for the former Mechanics Savings Bank, 100 Pearl’s initial owner. Updike kept the bank’s rich wood paneling and glass-lined rooftop patio.

“It was extremely favorable,’’ Sturges said of the lease, “and they were extremely aggressive.’’

Webster Bank bought Mechanics in 2000 and the building was sold in 2003 to the Rappaport family of Boston and their New Boston Fund for a reported $32.3 million. Five years later, with the Hartford and U.S. office markets stumbling, the Silvermans bought the building in a distress sale.

Most of 100 Pearl’s biggest tenants, including PriceWaterhouseCoopers and Sovereign Bank, had fled to other downtown buildings. Occupancy dwindled to around 20 percent.

Since the Silvermans took control, 100 Pearl’s occupancy has steadily climbed. The revival got a kick start when Virtus moved into about 35,000 square feet on two floors after it was spun off from The Phoenix Cos. in late 2008. Today, nearly 20 tenants and their 750 employees occupy the building weekdays, Silverman says. The arts council and Connecticut Health Foundation leases will push the head count to well over 800, officials say.

There have been setbacks. A deal for online educator University of Phoenix to occupy 6,000 empty square feet on the building’s Trumbull corner fell apart with the economy, Blake Silverman says. Marketing the space to national restaurant and retail chains and local banks, too, was fruitless.

Ken Silverman says managing the buildings and plants in which the family produced vinyl windows sold through Home Depot and other U.S. building suppliers, honed his eye for real estate. Eventually, he says, Silverman Group will have commercial holdings stretching from New England to Florida and westward toward Chicago.

Silverman and son, Blake, also hands-on with the family realty holdings, refused to reveal lease terms, other than “are profitable,’’ or to confirm what he paid for the building.

But Blake Silverman said paying cash in a bottom market has enabled them to put in “a lot of money’’ for maintenance and improvements inside and out the 21-year-old edifice. Those include upgrading the fitness suite and fourth-floor café area with new tables and seating, a pool table and flat-screen TVs, plus a grand piano and art work in the ground-floor lobby that features a concierge station. Tenants also share a 90-seat video conference room and 350 slots of underground parking with a valet.

“Class A buildings have always got to have amenities to set them apart,’’ said Mark Steinbauer, Silverman Group’s vice president, who started out decades ago as Ken Silverman’s accountant.

Ken Silverman says the investments he’s making in 100 Pearl and other properties are meant to pay off long term.

“We’re strategic buyers. We’re not flippers,’’ said Ken Silverman, adding that he hasn’t sold a property since 1983. “We’re serious buyers and we’re willing to fund immediately. We don’t mortgage.’’

Silverman said he would like to buy one more Hartford office building, although he admitted passing on Connecticut River Plaza.

“It’s a great spot. But we like where we are [100 Pearl],’’ he said.

Tenants also covet the Silvermans’ attentions. A landlord who is attentive during lease talks, they say, is apt to be approachable after the lease is signed, particularly when problems emerge.

On a recent tour, Blake Silverman showed off renovations under way to transform Mechanics’, then Webster’s former branch space fronting Pearl Street, including the vault, to accommodate the Greater Hartford Arts Council.

When the arts council sought bids for cheaper space in a downtown address, CEO Kate Bolduc said Silverman Group was “the most competitive’’ of the four responses it received, including a pitch from its Pratt Street landlord, Konover Co.

Bolduc said the arts group will move in October into 6,000 square feet, 1,000 less than at 45 Pratt St. for less rent while gaining a prestigious downtown address. The Greater Hartford Welcome Center the council runs also will move from Pratt Street to more visible space on street level at 100 Pearl.

Both Silvermans were present during “intense’’ lease talks, Bolduc said, calling it “a telling experience.’’

“I can see why they’re 80 percent full,’’ she said, “and I’m sure they’ll soon be 100 percent.’’

Reprinted with permission of the Hartford Business Journal. To view other stories on this topic, search the Hartford Business Journal Archives at http://www.hartfordbusiness.com/archives.php.
| Last update: September 25, 2012 |
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