Orleans

One, Two, Three, Four ... sold!

By Sam Spatter
FOR THE TRIBUNE-REVIEW
Thursday, October 21, 2004

The Downtown development that helped launch Pittsburgh's first Renaissance soon may have a new owner.

Hertz Investment Group, based in San Monica, Calif., is the apparent buyer of a major portion of the Gateway Center office complex, located near Point State Park.

If the deal goes through, Hertz will acquire the One, Two, Three and Four Gateway Center buildings, the underground Gateway parking garage and the land beneath the Pittsburgh Hilton.

Those properties have been on the market by Trizec Properties Inc., a Chicago-based real estate investment trust. It is a successor to a Canadian company that paid about $57.3 million to acquire them from the Equitable Life Assurance Society of the United States in 1995.

That purchase ended nearly a four-decade ownership for Equitable, the original developer of the complex, whose first buildings opened in the early 1950s.

Hertz officials declined comment Wednesday. However, the company's name appeared on new lease information documents sent recently to tenants at Gateway Center. Local commercial real estate experts said it is common practice for prospective buyers to communicate with tenants to verify leasing agreements in advance of a possible purchase.

"If Hertz is the buyer, I think they would be a good owner for Gateway Center," said Jeffrey Ackerman, executive vice president at CB Richard Ellis/Pittsburgh, a Downtown-based commercial real estate firm.

"They are an experienced, fully integrated real estate company that is doing development across the country in several sectors of the market, including offices, residential and hotels."

Ackerman said the Gateway Center complex "is a good Class B office property," and one that is "in a great location, close to the rivers."

But he also cautioned that the new owner may face a challenge in attracting new tenants because the office market continues to be soft Downtown, with occupancy and leasing rates stagnant.

The latest survey of Downtown's office market by Grubb & Ellis Co., showed an 18.1 percent vacancy rate at the end of the second quarter of 2004. And the asking rental rate averaged $21.12 per square foot for Class A space and $16.04 for Class B.

The total vacancy rate for the entire Pittsburgh office market, including suburban space, was 21 percent with rental rates of $20.60 for Class A and $16 for Class B.

Occupancy of the four Gateway buildings is 81 percent, with leasing rates running at about $18.75 per square foot at One, Two and Three Gateway and $19.75 at Four Gateway, according to a survey by MR Officespace.com.

As reported, the Pittsburgh office of Holliday Fenoglio Fowler LP, a large national commercial real estate capital intermediary firm, has been hired by Trizec to market the properties for sale.

John H. Pelusi Jr., executive managing director, declined to comment on the buyer. He said a number of companies had presented bids on the complex, which had no listed sales price.

Last week, Pelusi said he expected to announce a buyer for the complex soon.

Rick Matthews, a spokesman for Trizec Properties, also declined comment on specific buyers.

Matthews said the decision by Trizec to sell its Gateway interest is part of its decision to "reposition its portfolio of properties to concentrate in markets where it has more than one or two investments." Trizec has sold its interest in Columbus, Ohio, in Sacramento, Calif., and recently in Houston, he said.

Gateway Center was Trizec's only Pittsburgh investment.

Gateway Center "was the nation's first privately financed urban restoration project," noted George R. Puskar, a Pittsburgh native who was chairman of Equitable Real Estate Investment Management Inc., at the time of the Trizec purchase.

"The development of Gateway Center was instrumental in turning Pittsburgh from a 'smokestack city' into one of America's most livable urban areas," he added.

Not included in the sale are the 11 Stanwix Street building (formerly the Westinghouse Building) nor the I.W. Abel Building (formerly Gateway Five), headquarters for the United Steelworkers of America.

Also, neither the State Office Building, Gateway Towers Condominium, nor the Pittsburgh Hilton are included.

Two other Downtown office buildings reportedly also are on the market.

They are Dominion Tower (former CNG Tower) and the Frick Building.

A Hertz Investment Group Internet site lists no other Pittsburgh area holdings, nor any in Pennsylvania. Its holdings include the Belvedere Hotel in Baltimore and properties in California, Louisiana, Nevada, Tennessee, Florida and New York.

Judah Hertz is president and chief executive officer and Gary S. Horwitz is chief operating officer and chief financial officer.