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Home Alone
SNET's decision to sell its two largest New Haven properties makes the Elm City's commercial real estate glut even worse than you thought
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Business New Haven
12/4/1995
By: Michael C. Bingham
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The dwindling legion of hardies who stubbornly persist in living or working in New Haven found little to be thankful for when they unfurled their New Haven Registers on Thanksgiving morning. “SNET PUTTING HEADQUARTERS ON THE BLOCK,” the page-one headline blared.
It was true. The day before, Barbara Hampton, president of SNET Real Estate Inc., had announced the 15-story art deco “mini-skyscraper” at 227 Church Street - home to SNET's top executives for nearly six decades - would be listed for sale. The simple reason, as Hampton put it: “We need less space.”
Indeed. As the telecommunications company continues to downsize - it currently employs some 7,000, half the number of workers at its peak - SNET's space needs have downsized as well. Late last year it was announced that its 300,000-square-foot building at 300 George Street would be placed for sale, with no takers to date.
Combined with the 220,000 feet on Church Street, the moves mark a planned divestiture of more than a half-million square feet of office space downtown. Placed in perspective, that figure is 1/18th of the total of nine million square feet of office space in New Haven County.
“That is a significant chunk,” says Trevor H. Davis Jr. of Farley Whittier Partners of Hartford and New Haven. Davis sees the George Street building as the tougher sell, due to its location and condition, although the former might be attractive to a biomedical user that needs proximity to the Yale Medical School complex.
That can hardly be construed as good news in a market with one of the highest office vacancy rates - more than 26 percent - anywhere. In the city itself the rate is one of the nation's highest. Perhaps the only silver lining in SNET's announcement was the company's pledge to keep its executives in the Elm City. Some surmise that Chairman Daniel J. Miglio and his team will eventually hang their hats in the Long Wharf Maritime Center II building at 545 Long Wharf Drive, a building in which SNET currently holds a 50-percent ownership stake.
“Our intention is to stay in New Haven,” says SNET spokesperson Beverly E. Levy. As to where it will relocate its executive quarters, Levy says, “The company honestly hasn't decided yet.”
Whatever the reasons or consequences, announcements by companies such as SNET that they have no further use for prime downtown real estate send shock waves through a community struggling to maintain a measure of commercial viability.
“New Haven's vacancy rate recently hasn't been too bad,” says Vincent Engingro of William Raveis Real Estate in New Haven. “But when a major building like this clears out, it pushes New Haven into the top vacancy cities in the U.S.”
While New Haven County's office vacancy rate fell slightly - from 28.5 to 26.5 percent, according to the Commercial Record - much of that new activity is centered in western suburbs such as Orange and Milford, where the Boston Post Road has emerged as the region's retail locus. But even some of that absorption comes at New Haven's expense, as retailers such as Temple Luggage or Michaels Jewelers seek more vibrant locations or simply shut their doors for good.
Of all major New Haven office buildings, only Whitney Grove Square, the New Haven Foundation Building at 70 Audubon Street, the new Connecticut Financial Center and the Long Wharf Maritime Center are anywhere near full. The office tower at 900 Chapel is barely 50-percent occupied. And buildings on lower Church Street such as One Church and 129 Church, are worse off. And demand is not exactly growing.
Is 227 Church marketable from a practical point of view? Or is it simply too old, too inefficient, too expensive to maintain? “I was surprised at some of the negative comments about the building [in the press],” says Stephen Press of Press/Cuozzo Realtors. “It's a great building, and well located. I think there's a user for that building out there somewhere - if not for the whole thing, for a chunk of it - especially considering that it might be sold for next to nothing.”
Because of its proximity to the courthouse, Press cites as a hypothetical user “a major law firm. It's a shame so many of these old, great buildings end up being value-less because of all the nice new Class A buildings we overbuilt in the 1980s,” he says.
“It's an interesting building, and we hope somebody can do something creative with it,” says city Development Administrator A. Walter Esdaile. One possibility, Esdaile notes, is possible conversion to a hotel.
“It would be nice to draw in some new blood,” says Farley Whittier's Davis. “whether it's a corporate tenant or a biomedical-type of user. But that's a hard one to pull off; these days there's a lot of competition to host corporate headquarters.”
How did this all come to pass? One piece of the puzzle may be strained relations between SNET and City Hall. While Esdaile is said to speak regularly with SNET officials, that appears to be the highest level at which day-to-day discussions are taking place.
That, at least, is an improvement over six months ago, when sources say the city and phone company weren't talking at all. And those in the know speak of “bad blood” between the mayor and SNET Chairman Miglio. “There seemed to be a better bridge when [former SNET Chairman Walter H.] Monteith was there,” says one source close to the mayor.
Esdaile says he has been speaking to Hampton and her boss, SNET CFO Donald R. Shassian. “Technically, SNET can do whatever it wants,” Esdaile says. “The point we've tried to make from the beginning is that SNET grew up in New Haven and they have an obligation to not flee the city. But we can't force them to stay here.”
What seemed most conspicuously absent in the wake of SNET's announcement that it would sell 227 Church was a measure of disapproval from either the public sector or SNET's corporate peers. It stretches the imagination to think that such a large tree could fall and make so little noise in, say, Hartford, where the city administration and major corporate players are, if not on the same page, exactly, at least reading from the same book.
On the other hand, “To use your specific example, most of the buildings of 227 Church's ilk have been torn down in Hartford,” says Greater New Haven Chamber of Commerce President Matthew Nemerson. “And if you look back at all the battles over redevelopment of downtown Hartford, in many cases it was about saving art deco-style, inappropriate, inefficient buildings. It's a testimony to the fact that we haven't had extraordinary amounts of development here that those buildings even exist.
“I love the art deco buildings,” says Nemerson. “But all around the country, most major corporations moved out of their 1920s, '30s and '40s buildings during the 1980s. Perhaps it's bad timing or bad luck on our part that the phone company didn't build a whole new headquarters complex during the '80s when a lot of construction was going on.”
What about creative solutions? For example, the city could negotiate a tax abatement for SNET's New Haven properties of, say, 50 percent; but if the company were to quit the building during the life of the agreement, it would owe the city 200 percent of the original assessment.
“All the property tax issues are pretty much governed by the state through enabling legislation,” says Nemerson. “The city can't be the only party to come to the table with property-tax reduction. The state should lower [SNET's] cost of doing business through other kinds of reductions which don't impact directly on New Haven - which, of all the players in the game, has the least to give.
“This is where you unfairly put companies at loggerheads with towns, and the private sector gets a bad reputation here,” Nemerson continues. “SNET needs to have its cost of doing business reduced, somehow. I don't just accept from the state standpoint that it's up to New Haven to reduce its property tax. This is a statewide issue.”
Nemerson suggests an alternate perspective. “If this were a company coming in from Milwaukee, the state would put lots of benefits on the table, too. We've got to find ways to make SNET competitive and able to stay in New Haven without New Haven taxpayers taking the full hit. That's why we need to get together with the mayor, the governor, the business community and SNET and work this out, because this is a model [issue] that we really need to figure out.”
On the bright side, “The phone company has said they're still committed to the city,” says Nemerson. “But they need a modern building - especially for a company that needs to wrap itself in the blanket of high technology at every point.”
“It's very easy to say, 'How could you do this to us?' But the real issue here is that if a company were to arrive at our doorstep with 3,000 very high-quality jobs in a business that's going to be one of the major growth businesses of the next 20 years, we would fall over ourselves trying to grab their shoes and get them to move here.
“We can't make the mistake that towns make about football teams and corporate headquarters, which is to say, 'Because you've always been here, we know you're always going to be here.'”
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