Since then, however, such stable downtown office tenants as brokerage firms, corporate headquarters and law offices have left downtown. Over time, vacancy rates have climbed and rental rates have fallen.
The trend has led to the foreclosure or steeply discounted sale of some of the city’s most prestigious buildings. They include KeyBank Tower, 10 W. Second St.; 110 N. Main St., once the regional headquarters for Fifth Third Bank; and 32 N. Main St., which a self-proclaimed Hindu guru bought for $525,000 cash last year.
Two banks filed for foreclosure against Kettering Tower Partners in May 2009, alleging that the company owed $7.5 million on one note and $28 million on another. Now the tower is slated for sheriff’s auction on April 1, a move KTP has contested.
Sandy Gudorf, president of the Downtown Dayton Partnership, said selling the building would be a good thing because it will eliminate uncertainty of being in receivership and, hopefully, put it under strong ownership.
“At the end of the day, the building has to be settled and the ownership has to be determined,” Gudorf said. “For existing tenants and potential tenants, that’s really, really important.”
Officials representing Kettering Tower could not be reached Wednesday.
Office buildings in the central business district had a 20.4 percent vacancy rate in the fourth quarter, according to CoStar Group, a real estate data firm. That was the highest vacancy rate among nine areas within the Dayton market tracked by CoStar. The fourth-quarter rate also marked an uptick after three quarters of declines, the report said.
The quoted rental rate for the downtown building was $14.29 per square foot, the fourth highest rate among the nine areas.
David Dickerson, president of Gem Real Estate, a Dayton-based brokerage and research firm, said he believes downtown’s vacancy levels may be higher than CoStar’s analysis indicates.
A study by Gem Real Estate found that vacancy rates in downtown were closer to 30 percent, Dickerson said.
As Dickerson sees it, the downtown real estate market is struggling from an overabundance of offices versus the demand for property.
“Some of these buildings have reached the end of their economic life,” said Dickerson, who noted he was not referring to Kettering Tower.
Recent studies commissioned by the Downtown Dayton Partnership found the city has far more office space than it needs and officials have suggested switching empty offices to other uses, such as housing.
Dickerson said appraisers base the prices for commercial buildings at least in part on the rent they generate. Court documents filed by KTP said Kettering Tower is about 64 percent full, though appraisers adjusted the rate to 95 percent.
Other major downtown office buildings are trying to bounce back.
Property owners and development officials say they are receiving more queries about downtown real estate.
In June, THMG 10 West Second Street LLC purchased the 27-story KeyBank Tower. In December, the company bought a second downtown structure, the Leigh Building, 100 W. Second St., a parking garage with some commercial space.
Marinko Gvozdanovic, THMG’s managing partner, said Wednesday more businesses are asking about offices, though most want smaller spaces measuring 5,500 square feet or less.
“But at least we’re seeing activity, which we didn’t see much of before,” he said. “We really haven’t seen the big stuff kicking in.”
The building’s vacancy rate exceeds 60 percent.
Gudorf said her office also is seeing encouraging signs. “We have a significant amount of vacancy that we continue to work through, but we’re seeing increased activity,” Gudorf said. “Businesses are starting to look again and talk about expanding and such. That’s a positive aspect. Our retention numbers from last year look really good. That’s another indicator that we’re pleased about.”
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