By Will Astor
Originally published on February 17, 2012 in the Rochester Business Journal.
PathStone Corp. has expanded its holding in the Prince Street and East Avenue area with the purchase of 15 Prince St.
The office building of roughly 10,000 square feet was part of a $1.5 million, two-building package acquired in October by Rochester Historic Structures LLC, part of Broadstone Real Estate LLC. The package included the landmark former Rochester Savings Bank headquarters on Franklin Street.
PathStone, a $60 million, locally based non-profit, has long housed its local weatherization unit on the top floor of the Prince Street building. It paid $500,000 to acquire it.
He purchase adds a third Prince Street structure to PathStone’s properties, creating a sort of campus of close but not contiguous structures. The organization also owns building at 6 and 7 Prince St. It’s headquarters is around the corner in a converted mansion at 400 East Ave.
About 120 of PathStone’s 550 employees are housed in the Prince Street and East Avenue buildings, giving employees more opportunities for face-to-face contact, which PathStone CEO Stuart Mitchell sees as glue to bond workers into one unit.
“In person is better than email,” he said.
PathStone provides housing and economic development aid to low-income individuals in seven states and Puerto Rico.
The Franklin Street building and 15 Prince St. are among the few properties sold so far from a portfolio that was the object of one of the Rochester area’s largest foreclosures in 2009. Foreclosure actions by lenders and holders of mortgage-backed securities involved some 20 commercial and apartment buildings owned by Webster investor Jason Palmer and valued at more than $70 million. Most of the buildings are in the city of Rochester.
Besides being among the region’s biggest foreclosures in dollar value, the actions were arguably the Rochester area’s closest brush with the 2008 mortgage crisis.
PathStone was already a tenant in 15 Prince when Palmers Encore Yellowbreeze LLC acquired the building in 2007.
A deed recorded with the Monroe County clerk shows that in 2007, Encore Yellowbreeze acquired the Franklin Street bank building and 15 Prince from Stoner & Associates for $770,000. It then obtained an $800,000 mortgage on the Franklin Street bank building from Intervest National Bank and in 2008 took out a $250,000 mortgage on 15 Prince St. from local real estate investor Frank Perticone.
Encore Yellowbreeze deeded the two properties to another Palmer entity, Titan Property and Management Group of Rochester LLC. In 2008, Titan Property and Management used the Franklin Street bank and 15 Prince as collateral for a $5.1 million mortgage obtained from Column Financial Inc.
A unit of Credit Suisse Group AG, Colum Financial was a conduit lender, meaning it was created by Credit Suisse for the purpose of writing commercial real estate loans and packaging them into mortgage-backed securities.
In 2009, Credit Suisse shut down Column Financial’s operations, closing offices in Los Angeles, Dallas and Chicago. In the same year, Column Financial started a foreclosure proceeding in Monroe County against the Franklin and Prince Street properties. The action was still in progress last year when the locally based Broadstone bought the loan from Column Financial for an undisclosed sum.
Deeds filed with the Monroe County clerk last year record the Prince Street property being transferred in a foreclosure sale to Historic Rochester Ventures for $500,000 and the Franklin Street bank building being transferred in a foreclosure sale to Historic Rochester Ventures for $1 million.
Though the Prince Street and bank buildings were valued at higher sums under Encore Yellowbreeze’s and Titan Property and Management’s ownership, maintenance of 15 Prince slipped badly under their care, PathStone’s Mitchell said.
The most serious long-term maintenance problem at 15 Prince was the building’s badly leaking roof, which went unfixed for months and caused continuing damage to the space PathStone occupies.
In frustration, PathStone stopped paying rent, putting its monthly lease payments into an escrow account for many months. Location trumped convenience, keeping PathStone in the property until the site went into receivership in 2010, Mitchell said.
PathStone’s purchase of the property traces to a chance meeting last year between Mitchell and Broadstone CEO Amy Tait. Tait played host to an event at her East Avenue home, across from PathStone’s headquarters. Falling into conversation with Tait at the event, Mitchell learned that Broadstone was acquiring the properties but was not keen on keeping 15 Prince.
“It seemed like a perfect opportunity for us. We’ve been interested in 15 Prince for a long time,” Mitchell said.
Tait similarly saw a sale to PathStone as a perfect opportunity for Broadstone.
“Our interest was really in the bank all along,” she said.
Some local developers see the bank building as a white elephant. A 1920’s-era “temple of commerce,” lavishly appointed with marble columns, soaring frescoed ceilings reminiscent of a Renaissance cathedral’s arched dome and travertine and polished granite exterior, it is not easy to heat. And its landmark status limits a redeveloper’s options.
To Braodstone, the building looked like an opportunity, Tait said. The current first-floor tenant, RBS Citizen’s N.A., is ready to sign a long-term lease when its current agreement expires and also occupies some upstairs office space.
Other tenants are interested in unused space, Tait said. A surface lot behind the bank with more than 100 spaces is leased to a local parking company that does a healthy business.
Broadstone wanted the bank property to ensure the landmark building’s preservation it sees an opportunity to bring jobs back downtown, she said. But it has no immediate plans beyond stabilizing it. Ultimately, Tait hopes to sell the building to another developer.
“I don’t want to name anybody yet, but we are talking to a handful of (potential) buyers. We could redevelop it ourselves if we had to,” she said. “We have the capability, but right now we are concentrating on our national real estate business.”
Broadstone is a private real estate investment trust that buys commercial properties from companies that occupy them. Structured in arrangements known as triple net leasing, Broadstone’s deals are essentially sale-leasebacks.
Stopgap repairs done by the receiver at 15 Prince ended the roof leaks but were less than a permanent fix, Mitchell said. PathStone likely is looking at a complete roof replacement and might have to replace the building’s heating system. Still, he is happy with the deal PathStone made.
“Broadstone sold us the building for what they paid, and that’s a good deal,” Mitchell said.
Tenants on the building’s lower two floors are staying, and a new tenant might more in to space that could be subdivided, he added. And, Mitchell mused, PathStone might even be able to defray more of 15 Prince St.’s costs by renting out spaces in the building’s adjacent 40-space parking lot.