Shine and flip awaits Union Carbide HQ

The former Union Carbide Corp. headquarters building in Danbury, which was bought by Chicago-based Grubb & Ellis June 15, could be sold to Grubb & Ellis Realty Advisors later this year, then put on the market again in three to five years after the new owner spiffs up the building a bit to reposition it for the market. And it could sell for double the $80 million Grub & Ellis paid for the property, real estate brokers say.
Grubb & Ellis, which had marketed the 1.3-million-square-foot Corporate Center in Danbury for the last five years, bought the former Carbide building for $80.8 million last month and will sell it “cost neutral” to Grubb & Ellis Realty Advisors if the Securities and Exchange Commission and Realty Advisors”™ shareholders approve of the sale, said Janice McDill of Grubb & Ellis”™ corporate communications. Grubb & Ellis and Realty Advisors reached an agreement for the resale June 18, she said, and Realty Advisors”™ shareholders could vote on the purchase in September.
The Corporate Center was one of three “underperforming” class A or class B properties Grubb & Ellis purchased this year for an aggregate purchase price of $122.3 million with the stated intent of reselling them to Grubb & Ellis Realty Advisors for repositioning and resale within a three-year target. The other buildings are the Abrams Centre, a 15-story multitenant class B office building in Dallas; and 6400 Shafer, a seven-story class B multitenant office building in Rosemont, Ill. None of the buildings is fully leased.
Corporate Center is 64 percent occupied, and the acquisition cost of $77 per square foot represents a 72 percent discount to replacement cost and an 80 percent discount to the original construction cost, Realty Advisors said.
Corporate Center was constructed in 1982 for $190 million in the center of a square mile of woodland on Danbury”™s west side. Sunbelt Management Co. of Delray Beach, Fla., bought the building and about 100 surrounding acres in 1986 in a 20-year, buy-leaseback agreement with Carbide that expired at the end of last December. Sunbelt put the essentially debt-free property on the market earlier this year.

Maximize sale value
McDill said she did not know what enhancements and upgrades will be made to Corporate Center and the other properties “that would make them more attractive to tenants” and potential buyers. Realty Advisors said it would reposition the properties “through value-enhancing services such as robust leasing and marketing, best-in-class management and project management, intelligent capital investment and superior ongoing tenant interaction.”

The target is to resell the properties in three years, the company said. As for Corporate Center, “I could easily envision them doubling it to $150 or $160 a square foot” from the $77 a square foot acquisition price, said Mike Ryer of Ryer Associates Commercial Real Estate in Danbury of the potential sale price in three to five years. “If they have good, strong tenants, it could be worth even more than that.” Corporate Center is, he said, “a very valuable asset.”
Ryer said that in addition to investors, potential buyers could be a major tenant that could slowly take over the entire building as other tenant leases expire. “The building has great potential for either investors or users,” he said. “An investor would probably be foreign because they”™re willing to accept a lower return than Americans are.”
Realty Advisors said it is in the early planning stages of “cosmetic renovation” and “planning physical improvements associated with operational efficiencies” on the properties. Recent activity at the Corporate Center includes signed leases for 45,000 square feet, proposals for lease of another 8,000 square feet, and inquiries and activities for another 350,000 square feet ”“ which would just about fill the building”™s 1 million square feet of leaseable space.
Realty Advisors said its repositioning plan for the three properties is to enhance and upgrade the properties as needed; “increase rental rates (and) reduce operating expenses,” and “maximize sale value.” It said the Corporate Center is the “premier property” in the Danbury submarket, and has direct access to five major highway systems. “Pro forma lease up to market occupancy at median rents suggest a 23 percent IRR (internal rate of return) potential net of costs,” the company said.