Questions For Discussion

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1. What are the implications of not receiving tax-exempt financing and relying on current commercial financing?

2. Is the market survey useful? Might it have been carried out better?

3. What alternative designs for the Hall might be appropriate?

4. Should a new sixth floor be included in the development?

5. What alternative next moves should Prudence consider?

Case 2: Masonic Hall 57 Exhibit 2

Exhibit 2

continued

PROVIDENCE OFFICE MARKET SURVEY : GLADSTONE BA3GES II<C.

harket Overview

The Providence office market is essentially a two tier market. Class o and lower space rents for around 55 per square foot per year, ana is generally composed of older, poorly maintained stock. Class A space, either new construction or rehabilitated, is currently commanding 59 if available. Class ri space is plentiful, while the current Class A marKet is extremely tight. A brief historical review of the Providence office market is helpiul, focusing on the competitive Class A market.

A thorough inventory of Providence office space was completed in December 1968 as part of the planning for the Hospital Trust Tower, tne city's largest office building, which opened in 1973. In that inventory, downtown space comprised the following:

19Ó9 Office Data

Gross bldg. [Jet Kentable Vacant

Government Office Space 1,015,400 754,255 13,011 1.7,;

Total Commercial Office

Class A Commercial 1,512,030 1,202,200 14,85t> 1.2„

All Other Commercial 2, 223, 033 1 , 765, 045 218, 697 12.4;,

Unlike many other major metropolitan areas, little suburban office development activity has occurred. Other than two corporate headquarters developments in suburban industrial parks, all of Providence's office activity is within the city proper.

The above Class A office space inventory of 1.5 million SF included 11 buildings in the city of Providence. Of these, four buildings comprising 2/7,400 square feet were located on South Main Street, to the east of the downtown core area. 1 he seven downtown Class A office properties were developed as follows:

Exhibit 2

continued

1969 Inventory of

Class A Properties in

Downtown Core

Key Map*

Name

Address

Date

Gross Bldg. Area (SF)

1.

Turk's Head

76 Westminster St.

1913

161,280

2.

Industrial Nat'l Bank

115 Westminster St.

1927

388,25U

3.

tf.I. Hospital Trust Co.

15 Westminster St.

pre-1925

260, (JOG

4,

Old Colony Bank

58 Weybosset St.

1940' s

60,000

5.

Howard Bldg.

1968 add.

134,000 90,000

6.

Providence - Washington

1 Washington St.

1949

70,000

7.

Blue Cross Bldg.

444 Westminster Hall

1968

71,100

TOTAL

1,

234,630

Since the time of the above inventory, significant new investments have been made in office space in the downtown core area. Eight such investments have been completed as follows:

1969-1979 Office Investments in Downtown Core

Key Map#

Mame

Address

Date

Gross Bldg. Area (SF)

8.

Arnica Insurance

40 Westminster St.

1971

260,000

9.

One Weybosset Hi 11

1972

103,000

10.

Hospital Trust Tower

1973

320,000

11.

Lauderdale Bldg.*

144 Westminster St.

1976

42,000

12.

Kinsley Bldg.*

260 Westminster St.

1977

30,000

13.

Wilcox bldg.*

42 Weybosset St.

1979

30,790

14.

Turk's Head Bldg.*

76 Westminster St.

1979

161,280

15.

Broadcast House

Dorrance St.

1979

100.000+

TOTAL

space added/rehabilitated

947,070+

11-year average new investment

space (SF/yr)

86,097

■^indicates rehabilitation investment

■^indicates rehabilitation investment

Exhibit 2

continued

Three additional small investments were made along North and South Main Street during this period totaling about 145,000 square feet. The Providence Class A vacancy rate is today again quite low for the first time since the construction of the major buildings of 1971-73. Hence the net overall occupancy of Class A space increased overall in pace with the inventory approximately as follows:

Class A inventory

11 Year Average

1969 1979 Absorption

Downtown Core Area 1,234,630 2,020,420 71,435

Main Street Area 277,400 422,400 13.182

TOTAL 1,512,030 2,442,820 84,617

The eleven year period covered in the above analysis contained two major national recessions. It is reasonable to conclude that in years of good economic conditions generally, as is the case today, the Providence office market can sustain in excess of 100,000 square feet of new investment per year. A more conservative view shows apparently successful investments in the downtown area, including rehabilitation of older property, averaging 86,000 square feet over the eleven year period.

These gross figures are somewhat deceptive, and have three components: new business, existing firms trading up, and internal expansion of existing Class A office users. Estimates are that approximately 50/« of total Class A space absorption is generated by new businesses. Vacancies created by firms trading up have generally been filled by Class C and D tenants, creating systematic vacancies only in the poorest quality buildings.

Comparable Properties

By either measure, it would appear that the Providence downtown market would support several office developments of the scale of the Masonic Building each year, A more detailed review of the market will be useful to compare this property to its current competition. The following table compares Masonic to other competitive space currently available in recently constructed buildings, and in rehabilitated structures.

Exhibit 2

continued

Trie most significant recent comparable developments are the Wilcox building and 10 Grins Street. Wilcox is a high-quality rehabilitation of a fire-damaged historic building in the financial district. The basement, first and second floor space has been leased as follows:

Level User Net Area (SF)

1 Auto Club 1800 b,1 Restaurant 3300

2 Office 1100

2 Office 1100

2 Office Remainder

Lease Terms

$10.15/net usable SF

So.50 average ($10, 1st floor; $7.50, basement), with expense stops.

5-year lease starts at $6.00, increases .25 per year to $9.00 in year 5, with expense stops.

Same

Under option at above rates.

The Wilcox building has been slow to lease because construction completion has been delayed. Elevators and looby are not yet finished. The space is ' L' shaped, subdivided rather poorly, and lacks a view.

10 Orms Street is a new suburban-type office building of 50,000 square feet on an urban renewal site north of the CbD. This project is said to be 85% leasea at rents of $10.90 per net usable square foot. The building is located across the street from the new Marriott Hotel, and provides parking for tenants.

A condominium office rehabilitation project. The Hay Block, recently began construction along Dyer Street. This is a three story brick and frame structure which will be partially owner occupied. Of the other projects, only the Owen Building provides comparable quality space and location. Of the total current inventory of Class A space, including those projects under construction, only a small portion are in competitive locations, or possess the amenity and character of the Masonic Building. The current and "under construction" inventory of Class A space will be absorbed at existing rates witnin 2 years, yet there are no Class A planned rehabilitation projects to meet future needs. We believe the potential oversupply which would be created by the INB bank building (600,000 s.f.) to be beyond a 4 year horizon. The Masonic Building will meet the interim needs in a tight Class A market. Rents during the initial occupancy can be reasonably projected in the $10-11 range.

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