Hartford's Downtown Business District Struggles With Rise In Empty Spaces
By KENNETH R. GOSSELIN
January 29, 2011
The 26-story office tower at Main and Pearl streets in the middle of Hartford — arguably the most visible spot downtown across from the Old State House — faces the strong prospect of being mothballed after it empties completely this spring.
And the longtime bank building is not going to be the only empty office tower, as the city's central business district struggles with a troubling rise in office vacancy.
Even as the city makes strides in its downtown revitalization efforts by attracting a grocery store and a pharmacy school, the shutdown of the Bank of America tower would be a major blow to those efforts, already hampered by the emptying out of another downtown office complex last year, the two-towered Connecticut River Plaza.
Together, the three structures encompass nearly a million square feet, just shy of the size of Westfarms mall.
Nearly a third of all office space in downtown was empty at the end of last year, as the vacancy rate rose to 30 percent, three times what is considered a healthy market. That means 2.4 million square feet of space is vacant.
But while most building owners fight to keep tenants, or in some cases to keep their buildings, the owners of these three towers face a more fundamental issue: What do they do with buildings that have no tenants at all?
City officials bristle at the thought of the Bank of America tower going into cold storage. Mothballing would mean the unpalatable prospect of wrapping the building in netting — making it look like it was under renovation but without any of the activity.
"The mayor is clear that he doesn't want to see that happen," David B. Panagore, the city's chief operating officer, said. "Maintaining the vitality of downtown is having these buildings filled."
The new owners of Connecticut River Plaza are investing up to $10 million of their own money in renovations and hope to attract tenants with the unheard of perk of free parking. At the Bank of America building, the obstacles are far more daunting.
"The architectural aspects of the building and its design really warrant for it to be upgraded, but the economy does not allow it right now," said Michael Grunberg, owner of the tower at 777 Main St.
Grunberg said he would like to avoid mothballing, but the tower, built in 1967, needs to be gutted and asbestos removed. Few, if any, commercial major tenants — especially the large corporations that are the major tenants downtown — will consider moving employees into a building where asbestos, no matter how hidden, exists.
Renovations could cost a million dollars a floor, Grunberg estimates, an investment that he alone cannot afford when there is no major tenant waiting in the wings.
In the 1960s, the Bank of America building took its place as a prominent member of the city's skyline, built by the old Hartford National Bank and Trust Co. on the site of the city's first bank, which was founded in 1792. It's construction was touted as a symbol of confidence in the future.
Four-and-a-half decades later, the confidence has turned shaky.
Ever since Grunberg paid $13 million for 777 Main in 2006, he's made it clear that the tower did not have to remain exclusively office space. Soon after his purchase, he floated an idea for upscale condominiums on the top floors, capitalizing on the views of the city and the Connecticut River.
That didn't happen, he said, because Bank of America did not want to move from that space. Since then, both the residential and office markets have weakened significantly.
Now, as Bank of America prepares to vacate the tower, moving to CityPlace I a block away, Grunberg said he believes the best way to attract interest in the building would be to remove the asbestos, none of which is on exposed surfaces.
"How this is done and who pays for it will be an issue," Grunberg said. "I'm prepared to put more money in, but it can't be done privately. I've never taken a dollar from the government in any way, and I'm proud of that. In this building, I'm going to have to make an exception."
Grunberg has a significant stake in the downtown Hartford market and its health. He also owns the 28-story tower at 280 Trumbull St., which has Prudential Financial as its anchor tenant.
The trouble is the overall economic picture. The commercial real estate market is expected to pick up nationally in the next two years, as employers slowly add workers. But that recovery will first take root in larger cities such as New York, San Francisco and Boston, with smaller cities such as Hartford lagging behind, economists say.
The Hartford market has never fully recovered from the calamitous crash of the late 1980s and early 1990s. No significant building has been erected downtown since.
Grunberg said he believes the state's brownfields program, which targets removal of contaminated soil in redevelopment projects, should be expanded to include asbestos. He also wants to have more discussions with the city about alternatives that might include funding.
"It has so much potential," Grunberg said. "It's iconic in terms of size and visibility."
About a quarter-mile to the east, the new owners of Connecticut River Plaza are moving ahead with plans to invest between $5 million and $10 million in the two towers that dominate the plaza. Renovations will target lobbies, elevators and landscaping as well as heating and cooling systems. A new fitness center and corporate cafeteria will be added.
The 575,000-square-foot complex, constructed in 1984 by former Hartford Whalers owner Richard Gordon, was purchased by the owners of State House Square, a partnership of FBE Limited and Cammeby's International, both in New York.
The price: An eye-poppingly low $6.7 million, or $12 a square foot, a bargain that the owners believe will give them more leeway marketing the building.
Dovy Fruchthandler, a partner in FBE Limited, said he believes the offer of competitive lease rates and the added lure of free parking will be enough to draw new tenants into the city. He also saw enough liveliness in the downtown area to make a second major investment in the city.
"There is vibrancy on the street," Fruchthandler said. "That's the feeling that I get when I go out to eat. There's a nice healthy heartbeat down there. There's a lot of potential."
But while the owners aren't seeking government subsidies and have more modern space than 777 Main, they face the same challenges in the office leasing market.
For years, the city's commercial office market has been lacking in relocations from outside the area, even in the best of times. That has led to intense competition among landlords for tenants already downtown.
And the recent recession and slow recovery, along with a trend in which companies have many employees working at home, has tenants cutting back on space and few expanding. In addition, a new, midsize office tower is planned at Constitution Plaza and its developer is seeking tenants in order to secure construction financing.
All of this is making the competition even more intense. The game of "musical chairs" in the office market has made it difficult to lower the vacancy rate enough to see meaningful increases in rents or new construction.
The space at Connecticut River Plaza is one of the largest available in New England, Fruchthandler said, and he isn't bound to using it exclusively for offices. Mayor Pedro E. Segarra's push to bring more educational and health facilities downtown is intriguing, he said.
"We are trying to avoid the 'musical chairs,' " Fruchthandler said. "We can be enough of a life force to draw people downtown. What we are offering in Connecticut River Plaza can compete with the suburbs: magnificent views, free parking."
City Stands Ready
City officials in Hartford say they are laying the groundwork for making the city a more attractive location for commercial tenants.
They point to recent successes such as the leasing of space for a long-sought, full-service grocery store, the opening of St. Joseph College's school of pharmacy this fall and even the holiday season skating rink at Bushnell Park as efforts to make the city more vibrant.
That has been coupled with a push to keep taxes in check, with city leaders recently approving proposals designed to save the city money by adjusting the retirement age and pension amounts for non-union city employees hired after Jan. 1.
Panagore, the city's chief operating officer, said the city stands ready to directly support the revitalization of 777 Main and Connecticut River Plaza by helping to market the structures. And it is likely the two projects will be on Segarra's list of development priorities for the city, Panagore said.
The city also is open to helping more directly with funding, as Grunberg has suggested, but it would require weighing the benefits that are returned to the city at large, not just the downtown. If housing is contemplated, for example, a certain number of units also would have to be set aside for residents with modest incomes.
"It's part of our conversations," Panagore said. "If the city or state invests in a property or forgoes dollars to invest, so the city gets a return, we want to make sure the needs of the community are met."
Reprinted with permission of the Hartford Courant.
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