Penebscot Bldg sold. Good sign?

**Genesyxx** · May-05-12, 03:17 AM

I haven't followed the progress of the Silverdome sale since the transaction, but it seems as though Apostolopoulos got a steal on this building as well.
Link up!
http://www.clickondetroit.com/news/P...z/-/index.html

**Packman41** · May-05-12, 09:05 AM

Originally Posted by Genesyxx

....it seems as though Apostolopoulos got a steal on this building as well.
Link up!
http://www.clickondetroit.com/news/P...z/-/index.html

A steal? Only time will tell.

Clickondetroit says the building sold for, "...just less than $5 million" - between us, let's round up to $5 million. Wikipedia says the building has 776,486 sq. ft. of floor area. Let's assume that is Net Rentable Area.

This would mean the building sold $6.44 PSF. By comparison: Gilbert has been paying about $40 to $45 psf for the office buildings he has picked up.

Ok, so you buy the building for $6.44 psf and now you have a ton of deferred maintenance to cure and in a market where there is a 30% vacancy rate - arguably one of the worst office markets in the country.

Wow, this sale is very revealing as to where we stand.

I wish him well.

**401don** · May-05-12, 09:53 AM

Actually the article says he paid even less per sq. ft. - $4.00. Wonder what the current occupancy is?

**401don** · May-05-12, 10:00 AM

Just saw the Detroit News article, which says the building is about 50% occupied. That's pretty good for an old 47 story building with the usual issues.

**Gistok** · May-05-12, 11:21 AM

Um... the Penobscot Building is actually 3 buildings... which assumes that the 50% occupancy rate includes the tower and the older 2 parts of the building. I'm assuming [[and the article doesn't state this) that all 3 parts of the building were included in this sale?

**Jason** · May-05-12, 12:41 PM

The Penobscot Building was doing fine until the Northern Group bought it and then ran it into the ground. So I think once it's back to being properly managed it will be good.

SteveJ · May-05-12, 12:43 PM

Well considering this is the same guy who bought the Silverdome and has no clue on what to do with hit, I don't have high hopes for this.

**Gistok** · May-05-12, 01:07 PM

Originally Posted by SteveJ

Well considering this is the same guy who bought the Silverdome and has no clue on what to do with hit, I don't have high hopes for this.

Yes... but with the Penobscot Building... it's an no brainer... fix it up and lease it to tenants. With the Silverdome... not so easy.

**corktownyuppie** · May-05-12, 01:20 PM

Originally Posted by Gistok

Yes... but with the Penobscot Building... it's an no brainer... fix it up and lease it to tenants. With the Silverdome... not so easy.

Agree with Gistok on this. The only thing that would limit this from happening is a lack of access to capital/loans necessary to do the deferred maintenance. At the same time, if they bought it for only $5MM, there might be enough equity in the building to free up necessary cash.

Silverdome is a totally different story and much more of a gamble. Office is space is office space. If you lower the rents enough, at some point, you'll fill it with leases.

There's only so many different organizations that would use or rent a former football stadium.

**Danny** · May-05-12, 01:31 PM

Shoo, that was close call! For a minute there the Penobscot would be closed and Downtown Detroit will have to deal with 3 biggest eyesores in Dan Gilbert's Block.

And Dan Glibert was a close to buying the Penobscot Buildings.

**313WX** · May-05-12, 02:15 PM

Originally Posted by Danny

Shoo, that was close call! For a minute there the Penobscot would be closed and Downtown Detroit will have to deal with 3 biggest eyesores in Dan Gilbert's Block.

And Dan Glibert was a close to buying the Penobscot Buildings.

That was never going to happen.

The Penobscot Building has the potential to be the most valuable piece of real estate in Michigan.

The only reason it was sold at a loss now is because of the real estate crisis, and the fact that downtown Detroit isn''t really "the place to be" quite yet with the over-abundance of office space and the folks still holding out in Southfield and Troy.

**corktownyuppie** · May-05-12, 02:21 PM

Originally Posted by Genesyxx

I haven't followed the progress of the Silverdome sale since the transaction, but it seems as though Apostolopoulos got a steal on this building as well.
Link up!
http://www.clickondetroit.com/news/P...z/-/index.html

I guess the question is "good sign" for whom?

For tenants, it's likely a good sign as the new ownership bought it for a much lower price than the former owners. That will give them more free cashflow to do necessary repairs.

For downtowners, it's likely a good sign. The new owners are going to offer vacant spaces for 30-50% less than the current market rates. Assuming they're going to do that to lure suburban offices downtown, it's likely to result in a more vibrant economy with more people to spend time and money in the city.

For owners of nearby buildings it's neutral to bad[[ish) news. The low sales price might bring down nearby appraisals, which will it make it more difficult to borrow money in case they need it. It will also bring down comparable sales for investors trying to cash out.

For the City of Detroit it's likely good news, as the former foreclosed owners was likely behind on taxes if they were also behind on their mortgage. It'll be another revenue-producing building downtown.

For the suburbs, it's likely bad news, as it will only continue the competitiveness of offices space, especially when the new owners are going to rent them at a fire sale to fill the spaces.

For the region, it's likely good news, as I believe that a vibrant downtown will be important to attracting new businesses and residents, regardless of where they end up in the area.

Thoughts?

**hortonz** · May-05-12, 03:47 PM

"Clickondetroit says the building sold for, "...just less than $5 million" - between us, let's round up to $5 million." Last month a Dollarama on Windsor's east side burned to the ground. Total value of loss: $4 million. A 50 storey office tower in the heart of downtown Detroit should be worth a LOT more than $5 million.

**detlump** · May-05-12, 11:09 PM

I wish them well. It's a great building with a lot of potential. My dad used to work there, and when I went to work with him in the summer, I loved the view and also the mail slots running to the main floor. I'd often just watch in the hall to see if I could catch a letter streaking by. Ah, simpler times.

**jtf1972** · May-06-12, 12:57 AM

It's scary that it sold for so little...

Kinda glad that Gilbert isn't the only one buying buildings & investing in them.*

And good sign? Yes. It's a better sign that one of the most visible buildings in Detroit sells than if it couldn't.

*Illitch buys buildings, but doesn't exactly invest in them [[unless you like gravel parking lots.)