On the Medical Campus, deep-pocketed buyers pay sky-high
prices for premium spots
Deep-pocketed buyers pay as much as $3 million an acre for
premium spots
In a region known for affordable real estate, properties on
Buffalo’s Medical Campus are selling at unheard of prices.
Consider what the University at Buffalo Foundation paid for
properties associated with the new medical school being built on the downtown
campus:
• $1.26 million for a 0.26-acre corner lot on Washington
Street that last sold for $410,000 in 2005.
• $1.2 million for a slightly larger Washington Street
parcel – just over a third of an acre.
• $1.4 million for a Main Street property – this one also
just over a third of an acre, but with a building and parking lot on it –
assessed at $325,000.
“I wasn’t interested in selling,” said Donald White, owner
of the Main Street building. “They offered $400,000 for our parking lot. I said
‘No.’ Then they offered $900,000 for the lot and the building. I said ‘No.’
Then $1.2 million. Then $1.4 million.
“I kept saying ‘No.’ We didn’t want to sell. But when they
got to $1.4 million – there is a point where you have to say yes.”
Welcome to the real-life Monopoly game being played on the
Buffalo Niagara Medical Campus. A Buffalo News analysis of five years of real
estate transactions found property selling for as much as $3 million an acre
within the boundaries of the 120-acre Medical Campus. Until recently, Buffalo’s
downtown business district had the region’s priciest real estate – at a mere $1
million an acre.
With a limited amount of land available and a handful of
deep-pocketed buyers, Medical Campus properties sometimes sell at five to 10
times their assessed value.
“You have people buying property – Kaleida, UB – that don’t
have to worry if it makes economic sense like a developer would have to,” said
Nick Sinatra, owner of Sinatra & Co. Realty, a development company active
in the medical corridor. “That is the only way to explain it. Otherwise, it
just doesn’t pencil.”
UB and Kaleida defend their spending. Some property owners,
said Laura Hubbard, UB’s vice president for finance and administration, had no
interest in selling. Others took advantage of the higher land appraisals
resulting from earlier purchases by UB, Kaleida and private developers. And
often, the final pieces of a bigger real estate deal carry a premium price,
said Johnathan T. Swiatkowski, Kaleida’s chief financial officer.
“These were strategic acquisitions,” Swiatkowski said.
“Where there have been strategic needs for property to complete an entire
block, so we’d have site control, the market has demanded higher prices.”
The value of property purchased on the Medical Campus,
Hubbard and Swiatkowski said, goes beyond the price of individual parcels. The
completed Medical Campus, they said, will boost Buffalo’s economy.
“Even though we are not in the development business, what we
started has really created an economic driver for development on and around the
campus,” Swiatkowski said.
Big-ticket projects
Created in 2001, the Buffalo Niagara Medical Campus occupies
30 city blocks on the northern edge of downtown Buffalo. Bounded by Goodell,
Main and North streets and Michigan Avenue, the campus was created around the
longtime homes of Buffalo General Medical Center and Roswell Park Cancer
Institute. The goal was to turbocharge the health care industry in Buffalo.
The immediate result: $1.34 billion in construction on the
Medical Campus proper, not counting the $400 million in development underway
outside the campus borders. The biggest projects on the campus: The $375
million UB medical school under construction, the $291 million Gates Vascular
Institute that opened in 2012, the planned $270 million John R. Oishei
Children’s Hospital and the $100 million Conventus, a medical office and
research building that is under construction.
The biggest property price increases occurred in the past
five years, according to The News analysis of land transactions, as those large
institutions assembled the land needed to build. The analysis identified 30
completed or pending sales on the Medical Campus – totaling $18 million – since
2009. Nine of the properties sold for more than $1 million. All but one sold
for more than assessed value; most of the larger sales went for at least three
or four times assessed value.
The analysis found skyrocketing values throughout the
campus, but property on the Main Street side – particularly land close to the
Allen Street Metro Rail station – rose more than land on the Michigan Avenue side
of campus.
The analysis also found prices generally rising with each
sale, one high-priced sale breeding an even higher one.
The last time any significant medical campus property sold
for less than $1 million an acre appears to be in 2005, when two doctors sold
three brick buildings located on over an acre of land for $500,000.
UB’s big deals
The UB Foundation’s land purchases are a lesson in
economics.
In 2011, UB announced it was fast-tracking a planned move of
its medical school to the downtown Medical Campus. In 2012, the UB Foundation
made its first land purchase for the new school: a corner lot, just over a
quarter acre at 960 Washington St., for $1.26 million. The vacant lot was
assessed at $55,700 and had been bought in 2005 for $410,000.
Evergreen Real Estate principal Michael L. Joseph, whose
company sold the property to UB, said Evergreen broke even on the deal because
there was a 10-story building on the site that Evergreen had demolished.
That sale set the market for the next UB purchase –
two-fifths of an acre, also on Washington Street, for $1.2 million. “Michael
[Joseph] kind of set the market on what the land was worth,” said Dennis
Penman, one of the sellers. “We looked at his transaction as a comparable
sale.”
The next piece was a gift: First Niagara Financial Group
donated a 0.85-acre parcel at the corner of Main and High streets. The property
– with a bank branch on it – was assessed at $360,000. With all the development
nearby, it was recently appraised at $2 million, bank officials said.
With that parcel, the land for the medical school building
was secured.
UB then paid $1.4 million for a building and parking lot on
Main Street next to the existing UB Institute on Addictions building. UB plans
to use the property for medical school parking and office space.
UB’s Hubbard said the same thing as the building’s owner,
Donald White: “This was not someone who wanted to sell,” she said. “It was an
important site for us.”
The total price tag of the three properties the UB
Foundation purchased – 1031 Main St., 960 Washington St. and the Roosevelt lot
– was $3.86 million for about one acre of land and a building assessed at about
$285,000. When the bank donation is included, the university ended up with
about two acres of property as well as some parking and office space for $3.86
million – less than UB anticipated spending, Hubbard said.
“It is difficult, when you are a public institution like
UB,” Hubbard said. “You don’t get the most advantageous negotiating position.
Everyone knows you are coming. Everyone knows the site you want.”
Ciminelli’s role
Most private developers are unwilling or unable to pay the
through-the-roof prices on the Medical Campus, leaving most on-campus deals to
educational and medical institutions. Paul Ciminelli is different.
Ciminelli is one of only a few private developers to join
the on-campus Monopoly game, and the only one considered a major player. His
family had an early stake in the campus, buying what turned out to be a key
property well before prices skyrocketed.
In 1993, a Ciminelli family company bought an outdated
medical office building at 50 High St. In 2007, it cleared the land,
anticipating it would one day be used for a large medical office building.
Instead, 50 High eventually became part of a land swap with Kaleida. The new
Children’s Hospital will be built, in part, on the land Ciminelli owned.
Meanwhile, Ciminelli is building the seven-story, 300,000-square-foot Conventus
office-research building on Kaleida-owned land. Ciminelli has a long-term
ground lease with Kaleida for the property.
Ciminelli Real Estate in 2010 also bought the former
Langston Hughes Building, across from Conventus, for $1.9 million.
“It was my dad’s vision,” Ciminelli said, referring to his
father, Frank’s, early interest in what is now Medical Campus property.
“He has always had tremendous insight when it comes to real
estate,” Ciminelli continued. “He can see the possibilities of a property by
identifying certain variables. So back in the ’90s, before the Medical Campus
was even thought of, my father recognized the potential of the 50 High St.
property because of its strategic location adjacent to the then-Buffalo General
Hospital and its close proximity to downtown Buffalo.”
Historic tax credits
The other private development on the Medical Campus proper:
historic buildings that come with a sizable tax credit.
There aren’t a lot of historic buildings left on the
120-acre Medical Campus. The biggest is the Trico building at Ellicott and
Goodell streets. Krog Corp. of Orchard Park bought the building from a Buffalo
economic development agency for $45,000. Krog intends to invest $50 million
into the building, turning the empty industrial property into hotel,
residential and retail space.
Renovating a historic property comes with tax credits that
offset as much as 40 percent of renovation costs. With that help, said company
chief Peter Krog, “all of a sudden it makes sense.”
Nick Sinatra, the former Bush administration aide who is
investing in medical corridor real estate, is developing the former Phoenix
Brewery building at 835 Washington St. using historic tax credits.
Sinatra bought the building, which was being used largely to
warehouse antiques, for $1.78 million after what he called “touchy
negotiations.”
Joseph V. Parlato, a Buffalo property owner and antiques
dealer, paid just under $100,000 for the property in 1999. Sinatra said the
price is in line with other similar-sized buildings in the city. He plans to
spend $3.5 million to convert the 134-year-old Phoenix into luxury apartments
with indoor parking.
Said Sinatra: “Tax credits make the deal work.”
Reasonable prices?
The Medical Campus prices, while unusual for Buffalo, aren’t
out of whack with the value of the properties, Ciminelli said.
The $3.86 million UB spent for about one acre of medical
school and related property, Ciminelli pointed out, is just 1 percent of the
$375 million project. The $1.9 million he spent to buy the Langston Hughes
property across the street from Conventus is less costly in the context of a
250,000-square-foot, $75 million building planned for the site, he said.
Said Dennis Penman, who now works for Ciminelli Real Estate:
“You have to look at land-to-building costs.”
Projects have greater value if they are connected to Metro
Rail and nearby buildings. The Metro Rail station, Conventus, UB medical
school, Children’s Hospital, Buffalo General Hospital, Gates Vascular Institute
and Roswell Park Cancer Institute all will be connected by tunnels or
skybridges.
Properties on the southern half of the Medical Campus hold
less value because they aren’t connected. Larger properties also tend to have
lower per-square-foot prices. It is the small, strategically located holdouts
that bring the highest prices, Penman said.
That may explain why more than an acre of land on the
Michigan Avenue side of the campus has been on the market for more than a year.
Pharmacists John Vinti and Thomas Caldwell bought 14 small, primarily vacant
residential lots and foreclosed properties on Michigan Avenue and Maple Street
over two decades dating back to the 1990s. The two planned to build a pharmacy
on the site if ever forced to leave the building they were renting nearby on
Michigan Avenue, Caldwell said. But that never happened, and the pharmacists
retired.
The 14 parcels – not contiguous because of a house on Maple
Street and one on Michigan – cost the pharmacists about $100,000 to purchase,
demolish and maintain, Caldwell said. The asking price now is $2.4 million.
Caldwell said the asking price might be a little high, but
said they have received several good offers, though for only a portion of the
property. They want to sell it as one piece, he said.
“I think it’s just a wait and see,” Caldwell said. “We’re
not in any hurry.”
Source: Buffalo
News
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