THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Sunday, July 10, 1994 TAG: 9407090209
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: By MYLENE MANGALINDAN, STAFF WRITER
LENGTH: Long : 186 lines
Hope drove the construction of a $40 million project known as First American Financial Centre in 1988. Six years and two name changes later, another wave of optimism pervades the newest owners of what some people have called ``the big blue beast.''
The company that launched construction of the 14-floor office tower, in the heart of downtown Norfolk at Bank and Main streets, thought enough of the building that it was willing to gamble that it could lease the tower up. Rowe Development Co. of Richmond, now defunct, had signed a regional bank as its main anchor tenant. Others had signed agreements or were close.
But things unraveled quickly. First American Bank of Virginia pulled out of its lease. So did Wheat, First Securities. Funding and other interested tenants vanished. Construction stopped. The building's contractor and sub-contractors went to court to recoup money owed them.
The dark-blue shell that stood unfinished for three years - ``a blemish on downtown,'' as one real estate executive called it - is once again riding on expectations that it will fill with tenants.
Main Street Tower, the project's latest name, is scheduled to open with fanfare, complete with $12 million worth of classic cars, on Aug. 13. However, the grand opening of the tower's downstairs atrium may be premature.
Not one tenant has been signed, though several proposals, including two from banks and some for 100,000 square feet, are being reviewed. Still, the newest owners said they are confident.
``It doesn't bother me at all,'' said Dave Merker, a vice president with NeVa Properties. ``Every city we've gone into has had high vacancy rates. We just go in and do our thing.''
NeVa Properties is a company established by Las Vegas investor Ralph Engelstad to buy the former One Bank Street building. It paid a mere $2.527 million for it in 1993.
Engelstad, who owns the Imperial Palace hotel and casino, has a penchant for buying troubled property cheaply and injecting them with capital. He owns buildings in a variety of cities, ranging from Dallas and Coral Springs, Fla. Like his other holdings, Engelstad bought Main Street Tower well below the $4 million appraisal price and for a fraction of what Rowe had invested.
Merker, Engelstad's real estate adviser, said the cost of finishing the building is about $6 million.
Visions of the bank and its role in Norfolk mingle together like oil and water. Two realities push to the forefront when discussion turns to Main Street Tower: The building's unmistakable assets vs. the struggling economic climate downtown.
Some real estate veterans caution against blind optimism over the building's prospects, but its new owners and the city champion its virtues relentlessly. Both camps offer conflicting views of Main Street Tower's future.
The task of ``selling'' the 240,000-square-foot building to prospective tenants has fallen to Texas native Carmaleta Whiteley. Her job is to introduce, or in some cases to re-introduce, the building to the Eastern seaboard and Hampton Roads.
Whiteley exudes enthusiasm. Her nature and outlook sparkle as brightly as her gold dangling earrings and her jewel rings. She sports short, blond hair and breezy outfits put together to beat the heat.
Friendly, talkative and outgoing, Whiteley leaves the impression that nothing ever stands in her way.
``I've always been able to put it together,'' she said of real estate leasing deals. ``I'm very optimistic.''
She boasts more than 18 years in real estate with the likes of Trammell Crow, Lincoln Center in Dallas and Wells Fargo Center in downtown Los Angeles, the last two being huge office complexes.
Although several local firms offered to represent Merker in leasing Main Street Tower, he chose Whiteley, who handled one of Engelstad's buildings in Dallas.
``She had taken a building from 12 percent occupied to 100 percent,'' Merker said. ``We brought her to Norfolk to be our liaison between ourselves and the brokerage firms because of the tremendous job she did for us in Dallas.''
Merker and Whiteley envision a bank, a restaurant and a law firm or other major corporation occupying their building. The bottom floor already had a vault and a drive-up window planned when Engelstad acquired the tower. The building could be renamed for its major tenant. Each floor offers about 70,000 square feet.
Although most people agree about the building's beauty and attractive features, Hampton Roads commercial real estate insiders say it's not enough to fill the tower. Some worry that Merker and Whiteley don't know what the market can support, considering the low demand right now for space.
Space in Main Street Tower is leasing for about $17 a square foot, Whiteley said. The average price for premier space in downtown Norfolk ranges between $14 and $16 a square foot, and closer to the lower end of the spectrum than the upper end, said Deborah K. Stearns, a senior vice president at Goodman Segar Hogan Hoffler, Inc., a Norfolk-based real estate firm.
``They're not willing to bend on the deal to come down to the market,'' said Rik King of Morton G. Thalhimer, a Richmond-based real estate concern. ``Local tenants can get $3, $4, $5 per square foot below that.'' Industry insiders said the building has lost deals because of its steep and steadfast price.
In addition, the market for office space in Norfolk is ``soft,'' said Jordan E. Slone of Harbor Group Real Estate.
The vacancy rate for premier space is about 17 percent. With the addition of Main Street Tower, it could rise to 28 percent, Stearns said. The abundance of space in buildings like the troubled Town Point Center, recently foreclosed on, creates more competition for NeVa's building.
Some shifting of downtown tenants has occurred already. Rumors persist about more local companies seeking new digs. But real estate experts recognize the pool of local tenants is small.
``They (owners of Main Street Tower) have got a real challenge - just like everybody leasing office space in town,'' said Michael W. McCabe, president of Harvey Lindsay Commercial Real Estate. ``Everyone's hoping it pays off for them because it's good for the community, but it could take some time.''
The building's owners know that, so they are casting as wide a net as possible in soliciting proposals.
``We're going to target the East Coast in general,'' Merker said. They plan to run ads in the Wall Street Journal to entice companies from the New Jersey and New York area, in particular. Merker thinks the high cost of both business and living in those areas, coupled with the history-setting winter cold this year, could draw people to Norfolk.
Gerald S. Divaris, president of Divaris Real Estate in Virginia Beach, agreed that downtown Norfolk could benefit from new business entering Hampton Roads.
``If a newcomer can't find the product in Chesapeake, Virginia Beach, (Norfolk) will be the direct beneficiary of that,'' said Divaris, who set up the purchase of Main Street Tower following the bankruptcy sale.
``Clearly One Bank Street is the newest, virgin product - it has not been used,'' he said. ``It's the most appealing thing to a business coming in. It can command a premium.''
``I see Main Street Tower being a valued addition to the shelf because we need merchandise before we can sell it,'' said Robert Smithwick, director of the Norfolk department of economic development. He said the city is talking to many prospective tenants, but he would not name them.
Few recognize the potential - and pitfalls - of the Main Street Tower better than Stearns. As a former executive with the now-defunct Rowe Development, she saw first-hand the genesis and deterioration of the One Bank Street project. Rowe, once a prominent commercial real estate firm, fell victim to the recession. Its failed Bank Street tower signaled the company's demise.
Stearns has a few words of caution for the building's new owner.
``Real estate professionals who have worked in downtown have rarely seen their expectations met,'' Stearns said. ``They are cautious. They have a conservative frame of mind.''
``We don't know what the market is going to represent in the next 12 months,'' she said.
City officials like Smithwick believe the redevelopment in downtown Norfolk will help Main Street Tower. There are plans to build a giant shopping mall downtown to be called MacArthur Center. There has also been a lot of interest in Norfolk shown by retailers, real estate companies like JMB Properties in Chicago and others looking to relocate.
Like Divaris, Smithwick thinks the building can capitalize on being at the right place at the right time. Others have tempered their optimism.
``If it's a long-term hold situation, they may win tenants because there's a lack of large, contiguous space (downtown),'' King said. ``It's an excellent piece of real estate, but it's the market'' that NeVa Properties is battling.
Despite the cautious atmosphere in the real estate community, excitement reigns around the glass structure. Last weekend, a small crowd gathered at Atlantic and Main streets to watch cranes hoist the pedestrian bridge adjoining the third floor of the building and the city parking garage.
``I've been excited,'' the usually stoic Merker confessed during a tour of the building.
``Dallas has the highest vacancy rate. My Dallas building is 100 percent occupied. It says a lot about how we take care of our tenants, the money we use to maintain the building, build out space to suit. By being able to do that, we gain the tenants we need.'' ILLUSTRATION: Color photos
RICHARD DUNSTON/Staff
TOP: The atrium-style lobby, with marbled walls, has a way to go
before the building, at Main and Bank streets, can open on its new
date, Aug. 13.
ABOVE: The 14-story tower offers commanding views of downtown
Norfolk's waterfront. This one is toward the new Nauticus maritime
center.
AT LEFT: A construction worker installs window seals on the 14th
floor.
Graphic
TIME LINE
[For complete graphic, please see microfilm]
by CNB