More worrisome downtown buildings news

[EastsideAl]

Very bad sounding news regarding the owner of the Penobscot Building, First National Building, and Cadillac Tower office buildings, as well as the Lafayette Towers and Alden Park Manor apartments.

http://www.crainsnewyork.com/apps/pb.../0/newsletter#

Excerpt:
Northern Group losing grip on Detroit buildings

Alex Dembitzer's Northern Group companies is said to owe some $2 million to contractors, and its real estate tenants are suing for lack of heat and broken elevators.

When Alex Dembitzer and his affiliated group of holding companies purchased the Cadillac Tower in 2003, the idea was to be a long-term investor in Detroit.
His Manhattan-based Northern Group companies went on to assemble a five-building portfolio in that city, including the iconic First National and Penobscot buildings.



But since the end of last year, Northern Group's ownership of those buildings has been in jeopardy as the companies stopped paying mortgages on four of the five buildings and have not paid bills to local contractors.



A total of $2.2 million is owed to 19 local contractors for work performed over the past two years on the five buildings, and two tenants — including Detroit-based Honigman Miller Schwartz and Cohn LLP — are suing to be released from leases in Northern Group buildings, claiming poor management.



In addition, the Penobscot, First National and Alden Park Towers buildings are now being managed by court-appointed receivers, with a ruling expected today on whether the Cadillac Tower also will be run by a receiver.

[spiritofdetroit]

It seems the problem is more with the Northern Group than the buildings. Their occupancy rates are actually higher than I expected, and are about approximate to the 2006 numbers that I had then.

[rjlj]

Sounds like another slumlord criminal, right EastsideAl?

[buildingsofdetroit]

I'd say that's beyond worrisome.

[Mackinaw]

Awful to hear, and a real punch in the gut considering all the hope that surrounded this Dembitzer fellow when he first came on the scene. As SoD points out, occupancy is pretty good in all of these places...but we still can't be sure that their tenants are up to date on payments-- that might be a problem. And the underlying financing might be a problem-- but that goes more to a surprising lack of saavy on the part of Northern. Too bad. Fingers crossed that this doesn't compel any employers to look beyond city limits for space.

[REL]

This is very distressing to hear... those buildings are treasures.

[EastSider]

This really should not be a surprise to anyone who even casually follows downtown.

Northern isn't the first owner in the last 30 years to have trouble with the Penobscot and First National.

[rb336]

Those are buildings I would not worry about. This seems to be a problem with the owner, as said below. I wonder how his non-D properties are doing

[EastsideAl]

Frankly, I'm worried about every building downtown. Other than the ones with lots of governmental offices in them, I don't think there's one that is "safe" from the fate that's befallen far too many of our buildings.

As someone who briefly worked in the Penobscot Building, I must say that I find reports of no heat, trash in the elevators, and ill-kept public spaces in that beautiful building very distressing, and foreboding of possible disaster. Like Higgins or the debacle at the Book Tower, it seems to me that a significant number of the office building abandonments began with news like this of careless or incompetent or grossly underfinanced management chasing tenants away.

The probelm here is that if these buildings start losing rent-generating tenants now due to poor operation and maintenance it is hard to see who would replace them in this market. The legal market is pretty much the last big market for downtown office space, but there are only so many decent-sized law firms to go around in the Detroit area, and even fewer of them that would be interested in moving downtown right now. Particularly since the legal business in this area, like so many other things, is contracting.

As we have seen with other buildings, once a building gets a reputation for being poorly run, and the vacancy level rises above a certain percentage, it becomes extremely difficult if not impossible to continue operating the building as a going concern. There is a tipping point, and once that's reached it's usually over for that building. The closing of any of these 3 buildings [[Penobscot, First National, Cadillac Tower) would be a disaster for downtown, the closing of all 3 could be something like a death knell for downtown as an office center.

Let's just hope that this is indeed a temporary management problem, as others here have said, and that Northern gets out of it and that the receivers can improve things and keep things going. But, if they can't, don't be too surprised if things get real bad real fast.

[EastsideAl]

Cadillac Tower was placed into receivership yesterday, under the Farbman Group, who run the Fisher Building and other New Center area properties and are involved in the whole DPS school headquarters scandal.

So, Northern is 3 for 3 on having its downtown properties placed into receivership, and now we'll see...

[artds]

3rdworldcity,

if you're out there, I'd love to hear your thoughts on all this.

Also, I wonder where Honigman would move if it came to that. 150? Comerica Tower?

[spiritofdetroit]

If Honigman moves out, I hope that they stay downtown. Surely the RenCen, Comerica Tower, or 150 W. Jefferson has the type of space they need at the right price. Lets hope they dont use this as an excuse to get out of the city.

But, Honigman leaving First National would be devastating. They occupy 6 of the building's 25 floor..... not good.

[EastSider]

Besides Honigman, or maybe before, First National has to be focused on losing the bank branch.

[artds]

If Honigman moves out, I hope that they stay downtown. Surely the RenCen, Comerica Tower, or 150 W. Jefferson has the type of space they need at the right price. Lets hope they dont use this as an excuse to get out of the city.

But, Honigman leaving First National would be devastating. They occupy 6 of the building's 25 floor..... not good.

Honigman will definitely stay downtown. The whole reason that the state's large law firms are one of the few industries that have remained in the city is because that's where the U.S. District Court is located, and, to a lesser extent, the Wayne County Circuit Court.

Honigman already has a large satellite office in Oakland county just like every other Detroit law firm does in order to better serve the interest of its clients that are located out that way.

[stasu1213]

I had heard that the same group owns Lafayette Towers. Are they having problems out of there?

[DetroitDad]

If memory serves me correctly, last Summer Lafayette Towers had a very high occupancy rate, and Northern Group was talking about converting one of the two [[or two) to residential, while First National was going to be used to serve Non-profits. Northern has seemingly been very creative and bullish, it is unfortunate that that isn't working out.

It seems Sean_of_Detroit's attempt at being positive and spread hope when he knew a bunch of building and store closings were coming wasn't such a bad idea after all. It is going to get worse before it gets better too.

There are a number of residential and office buildings with reasonably high occupancy rates.

[Detroit_uke]

Hmm...Northern Group losing grip on buildings. Now - that wouldn't have anything to do with the fact that when they took over the buildings they "dismissed" "fired" whatever word you would like to use - all of the employees??? Like maintenance., custodial, engineers, HVAC, electrician. You know - all of "those" people that had their licenses and certifications, etc. You know, those people that had been there for decades and knew the ins and outs of the building system. Hmm...seems like when the pros were replaced with minimum wage folks things kind of fell apart. Maybe they wouldn't have had to subcontract all their repairs had they kept the original employees.

[stasu1213]

If memory serves me correctly, last Summer Lafayette Towers had a very high occupancy rate, and Northern Group was talking about converting one of the two [[or two) to residential, while First National was going to be used to serve Non-profits. Northern has seemingly been very creative and bullish, it is unfortunate that that isn't working out.

It seems Sean_of_Detroit's attempt at being positive and spread hope when he knew a bunch of building and store closings were coming wasn't such a bad idea after all. It is going to get worse before it gets better too.

There are a number of residential and office buildings with reasonably high occupancy rates.

What did u really mean by "residential"? Tell us so you would not be misunderstood

[Rideron]

Those are great buildings but they are part of the infrastructure of a city and and economy that do not exist anymore.

[stasu1213]

What do you think we should do to them Rideron

[Rideron]

The standard thinking wouldbe to tear them down. But if you want to make these buildings attract tenants, tear down the newer buildings where the tenants currently are.

If you're goal is to keep the buildings, and you are unable to expand the base of tenants, then reduce the base of office space inventory.

[EastsideAl]

...or increase economic activity, which is what other cities have done.

[mwilbert]

Commercial real estate around the country is in serious trouble. By which I mean that the owners don't have the cash flows to operate their buildings and pay their mortgages. It doesn't look to me as if we are even close to the peak in foreclosures on commercial real estate nationally yet. The idea that this would be different in Detroit, where the economy is even worse, is not realistic. We can only hope that when the owners go bankrupt, the buildings have enough cash flow that a new owner can cover the expenses.

Of course it would be good if the city could attract more offices downtown, but the only thing the city can really do is not let anyone build any more office space downtown. I doubt they would stop someone who wanted to build, but they should. Fortunately, I don't think anyone wants to.

[Rideron]

...or increase economic activity, which is what other cities have done.

This attitude, that by some 'magic' that has not been tried in the last 20 years you can get more 'economic activity' in detroit, is why they will likely be torn down.

Give it up. If you want to keep those buildings, go buy them.

[Lorax]

In the case of commercial real estate as opposed to residential, worst case scenario is the properties get sold at auction, with tenants in place, leases transferrable, and the building sells for less than the value of any liens against it.

So if the Penobscot Building has a 15 million dollar loan against it, as an example, it sells for 8 million to a new owner, they don't have such a large stake in it, and revenues will balance out with debt.

It's the period of great leveling off of values, and expect more of it.

Too bad residential properties in distress end up tossing out owners, who end up as renters.