Banking on a big sale
The Bank of America building in Troy is on the market — and when it sells, it is expected to be one of the biggest suburban office building sales in recent memory.
Depending on whom you ask, the 450,000-square-foot building directly east of The Somerset Collection on West Big Beaver Road could sell for between $100 and $150 a square foot or $45 million to $67.5 million. Some brokers predict it could be even more.
But Kevin Kernen, managing director of valuation and financial options for Southfield-based Stout Risius Ross Inc., said that although the landmark building's high occupancy rate and rental figures are positives, going prices aren't quite in the upper end of that range. Even prominent, Class A office buildings in the region aren't supporting a $150-per-square-foot-or-higher sale price, he said.
For example, in downtown Detroit, Dan Gilbert purchased the 1 million-square-foot One Detroit Center building for $100 million ($100 per square foot) and, along with Meridian Health, the 1.1 million-square-foot Compuware Corp. headquarters building on Campus Martius for $142 million ($129 per square foot). Both building sales included parking decks.
Bank of America said that after the expected sale-leaseback, it plans to become more efficient with its space in the building but will not reduce employment levels.In the suburbs, the 2.2 million-square-footSouthfield Town Center sold to New York City-based 601W Cos. for $177.5 million ($81 per square foot), and the 237,000-square-foot Tri-Atria office building in Farmington Hills sold to Detroit-basedSterling Group for $20 million ($84 per square foot).
Data tracked by CoStar Group Inc., a Washington, D.C.-based real estate information service, shows that only 2,500 square feet is available in the six-story building, leaving it 99.4 percent full. The asking rate is $24.50 a square foot.
"The property could fetch one of the highest sale numbers in the last number of years within Troy and the surrounding area," said Matt Farrell, executive principal and partner at Birmingham-based Core Partners Associates LLC. "However, the sale value will be 100 percent predicated on the credit, length of term, lease value and general conditions of the B-of-A lease provided by the seller."
Jim Berkemeier, vice president in the Southfield office of Advocate Commercial Real Estate Advisors, called the Troy BOA building one of the "true" Class A buildings in Troy.Regardless of how much it sells for, the building is still expected to attract significant attention from both local and out-of-state investors.
"It's in line with Columbia Center," he said, referring to the two-building, 507,000-square-foot office complex on West Big Beaver that last sold in 2010 for $59 million. It has a strong track record of attracting top-tier office tenants, he said.
"You're drawing a particular tenant, like Dickinson Wright (PLLC), a professional tenant who likes to be in a building like that because of the perception it gives."
Dickinson Wright has about 68,000 square feet in the building, making it the second-largest tenant behind Bank of America.
"I'm assuming the investor is looking hard at the rent rolls in valuing the building from a purchase price based on the return of the rent," Berkemeier said. "And when vacancies come up, they are pretty easy to fill."
Steve Morris, a principal at Farmington Hills-based Axis Advisors LLC, is more bullish on pricing. He predicted the building, constructed by Standard Federal Bank, would sell for more than $70 million or at least $155 a square foot.The building's value in the marketplace has had the same roller-coaster ride as other buildings in the region.The Bank of America building's quality construction materials and "green building" status are other reasons some brokers predict a big sticker price. In 2007, it became the first existing building in Michigan to receive Leadership in Energy and Environmental Design, or LEED, gold-level designation from the U.S. Green Building Council, the second-highest designation.
The financial crisis of 2008-09 cratered office building values. Buildings that had been worth $150 a square foot or more have sold for no more than $80 per square foot, he said. By comparison, the BOA building cost $300 per square foot or $135 million to build when it was constructed, he said.
But Morris said that because of the quality of construction — which includes marble directly from Italy, the building's high occupancy rate and strong rental rate — he predicts a higher current value. That's because it would be a value pegged on the income it currently generates, not potential income.
Other building features include an on-site cafeteria, sundry shop and conference center, plus an attached parking deck.
The restrictions placed on employee behavior in the building after it was constructed in 1990, are details of local workplace lore. It was built for Standard Federal, which was then acquired by LaSalle Bank, which was then acquired by Bank of America.
When it opened, employees couldn't bring anything to eat or drink to their workspaces — including bottled water, lunch or coffee — because of fear of crumbs or stains.
It had been dubbed the "Taj Mahal" or "Fort Federal" because of the rules and the big vision for the building by the late Thomas Ricketts, the former president and CEO of Standard Federal. Subsequent bank executives worked to change that vision from a building that was part art museum-part bank office to something more modern.
Diane Wagner, BOA senior vice president of media relations, said the bank's sale and lease-back is part of a national trend at the company.
"We're shifting from owning the Troy building and serving as a landlord for space the company doesn't use to selling it and leasing the space we need," she said. The reconfiguring of employees in the building will be completed in the fourth quarter, Wagner said.
For this story, Bank of America's brokerage, CBRE Inc. declined to comment. The Southfield office of CBRE is marketing the property at 2600 W. Big Beaver.
Jones Lang LaSalle is the property manager.
Source: Crain's Detroit