GRS Group’s assessment arm, GRS | Corteq, recently helped perform several due diligence services on two historical buildings in Downtown Seattle in a transaction worth $23 million. The assets were the 70,000-square-foot Broderick Building, built 114 years ago, and the 52,400-square-foot Milken Building, constructed in the 1920s.
GRS | Corteq’s services in the transaction process included: Environmental Site Assessments, Property Condition Reports, MEP Assessments, and Seismic PNL. Gary Sirota, a GRS | Corteq director out of the firm’s Phoenix office, who spearheaded the package, spoke about the what it is like to deal with historical buildings and where he sees the market headed next year.
Gary Sirota: Is it a challenge to do work with historic office buildings? Does it make your job more difficult that other projects?
I don’t think it makes my job harder, but it makes our assessors and engineers’ jobs more challenging. There are likely more issues that they need to be aware of based on the age of a building. We do a new building here in Phoenix or anywhere, and we know it’s up to code and the construction is 2014 construction, and it’s all pretty straightforward. You get into something that old, and you may not be aware of all of the codes in effect at the time. You don’t know if any shortcuts might have been taken. It makes their job a bit more challenging. The only way it makes my job a little more challenging is if they see something. Not necessarily on this particular deal, but on similar older structures, they may see something that rings a bell and says that they need to do a structural assessment, an engineering assessment or they may need to bring in a specialty consultant for equipment that happens to be old.
With this particular client, it was a good deal for them. It’s a nice building when you look up the offering memo and look at the interior. It’s a nicely appointed building, and there’s a lot to be said for working in an older building like that. If it’s a good deal for them, they’ll probably go for it. Do I see a possible increase in this? Yes, we’ll see more buildings in urban settings and centers being looked at as more areas become gentrified. We’re starting to see a little bit in Phoenix, and we’ll see a slight uptick in that.
Sirota: How much competition was there for this deal?
We submitted our scope and price, which was accepted, so I really don’t know how much competition there was for this particular deal, but I do know that this area is very competitive.
Sirota: How do you see the commercial real estate transaction environment shaping up next year? Will we see more deals, or will there be a lag?
There’s going to be a slow, steady, gentle upward movement. I’ve got one real estate investor in L.A., and he expects to have a significant increase in acquisitions going forward in 2015. He’s a small investor, but we probably did 100 transactions for him this year, and we’ll probably do 30 percent more. Now he’s doing smaller retail, but in talking to others in this space, they’re expecting a strong 2015. The political scene having changed a little bit could have only helped. We have a conservative Senate and House now, so there may be a little more positive feeling going forward. 2015 will be better than 2014 in general. There will be more action.
I have an investor client in Montreal who is active in Phoenix, and he said something interesting in that he looked at the Phoenix market, looked at Florida and the Carolinas and chose to do a lot of work here in Phoenix because we really don’t have any weather. In Florida, the insurance he had to carry for some of his possible transactions was extremely high because a hurricane coming through and blowing your apartment building down. So he’s here doing all-cash deals. We’ve done five in Phoenix in the past two years, and he’ll be heavily active in 2014. Our local market is poised to be in good shape. There is a lot of infilling and reuse and a lot of condo work downtown. And we’re also doing the Phase I’s for the commercial strip malls going next to the large condos. Our warm coast, from Texas to California, is doing good and will continue to do good.