Real Estate News - Don't Stop the Presses -- Sell the Building Instead
When Philadelphia Media Holdings LLC acquired the Philadelphia Inquirer last year, borrowing $375 million for the purchase, the company began looking at ways to pay off its debt. One option: Sell the landmark 18-story building on North Broad Street that has been home to the newspaper since 1924.
Last week the group of local investors acted, putting the 470,000-square-foot Beaux-Arts tower on the market. A person close to the company believes Philadelphia Media Holdings can fetch as much as $70 million for the building.
With profits and revenue falling, newspaper companies are increasingly looking to real estate to shore up their finances. Though newspapers are still largely profitable, they are seen by many on Wall Street as a dying medium. In some cases, the Inquirer and the Boston Herald among them, financial pressures are forcing newspapers to sell their property as a quick way to come up with cash. In others, especially papers acquired by private-equity firms, the new owners are simply trying to squeeze as much money out of the operation as possible, says newspaper analyst John Morton, president of Morton Research Inc.
Boston Herald publisher Patrick Purcell, who acquired the newspaper from Rupert Murdoch's News Corp. in 1994, intends to replace the tabloid's plant -- on 6.6 acres that border Chinatown and the city's trendy South End -- with a mixed-use project developed by a joint venture that includes himself and National Development of Newton Lower Falls, Mass. Mr. Purcell declined to comment, but in a statement released earlier this month he said the agreement with National Development will allow the Herald's 1958 building to remain for up to six years as the newspaper looks for a new home. Mr. Purcell said the decision was an important strategic move. "We intend to publish the Herald for a very long time and realize that we must do so more efficiently than is possible in our current location," he said.
Avista Capital Partners, which acquired the Minneapolis Star Tribune in January, is selling four downtown blocks to the Minnesota Vikings, which is assembling land on the city's east side for a new retractable-roof football stadium. The property, which a person close to the deal said sold for about $45 million, includes three blocks used mainly as parking lots and another that is the site of the Star Tribune's Freeman Building, now housing the newspaper's online operations and some administrative offices. The sale doesn't include the newspaper's main offices, across the street from the Freeman Building, which was built in 1982. Avista declined comment.
Eyes are also on real-estate swashbuckler Sam Zell, who is in the process of buying the Tribune Co. Some in the real estate industry believe he could sell its properties, including the 1925 neo-Gothic Tribune Tower on Chicago's North Michigan Avenue and the Los Angeles Times building, which is not far from the Walt Disney Concert Hall and other downtown landmarks. "This is a guy who's made his mark maximizing real-estate values," says Jim Vesey, senior director for capital markets for real estate advisory firm Cushman & Wakefield Inc. in Philadelphia.
Mr. Zell hasn't said whether he would sell newspaper buildings, and he declined to comment for this article. Most real-estate experts acknowledge that the value of the Tribune Co.'s real estate is minimal compared with the company's overall assets.
Though the newspaper industry's troubles have prompted a recent wave of real-estate selloffs, the trend is by no means new. The New York Daily News vacated its 37-story art-deco headquarters on Manhattan's 42nd Street in 1995.
And not all recent newspaper real-estate moves have been motivated purely by finances. Looking for space that would better fit the needs of a 21st-century media company, the New York Times developed a new building in Manhattan that it co-owns with Forest City Ratner Cos., an affiliate of Forest City Enterprises Inc. In 2004, the newspaper sold its former Manhattan headquarters to Tishman Speyer Properties for $175 million -- which sold it in June to an Israeli holding company, Africa Israel USA, for $525 million.
Prices for downtown property in major cities, especially for office buildings, have soared in recent years. However, newspaper companies' latest moves to put property on the market come during the global tightening of credit, making financing for such sales more difficult to obtain. Some real-estate analysts predict that prices may have peaked and could even begin to decline. While another possible use for downtown newspaper buildings is condominiums, major markets from Washington, D.C., to California are seeing rising foreclosures and bankruptcies in such projects.
The longer-term trend toward selling off newspaper headquarters could mean the end of the era of great early 20th-century newspaper buildings, many built at a time when when newspapers and their owners saw themselves as playing a grand civic role. Among the notable: William Randolph Hearst, whose Los Angeles Herald-Examiner headquarters was built by Julia Morgan, designer of the Hearst castle at San Simeon, Calif. The newspaper closed in 1989. The Hearst Corp. plans to restore the 1914 landmark in a project that is likely to include retail and office space.
The Daily News building was designed by John Mead Howells and Raymond Hood, who also designed the Tribune Tower in Chicago. The 1929 Manhattan icon was the model for the fictional Daily Planet in Superman movies and still features a giant globe in its lobby.
"These are buildings that were designed to be visible and vibrant," says Michael Lykoudis, dean of the architecture school at the University of Notre Dame in Indiana. "Their style reflects their mission: to inform the citizenry about the issues of the day."
Inga Saffron, architecture critic at the Inquirer, says the Inquirer building with its signature clock tower, seven blocks north of City Hall, speaks volumes about how its early owners saw the newspaper's role: the noble, lone seeker of the truth. "It takes on a certain symbolism," she says.
In the early 1990s, Inquirer opened a printing plant in a Philadelphia suburb and moved some 1,500 employees out of the downtown headquarters, including some reporters and editors. In 2006, Knight Ridder sold the Inquirer to McClatchy Co., which sold the newspaper to a group of local investors led by Brian Tierney, now chief executive of Philadelphia Media Holdings. This year the Inquirer laid off 71 editorial staff members, reducing the downtown building's occupancy to 40% and strengthening Mr. Tierney's resolve to sell. He says most companies should not be in the business of owning real estate. "We're in the news business," he says. "You have to make choices in life."
Mr. Tierney believes the time is right for a sale of the building, which also houses the Philadelphia Daily News, also owned by Philadelphia Media Holdings, and Philly.com, the Internet site for both newspapers. Though the North Broad Street locale, cut off by an expressway, has long felt removed from Philadelphia's urban core, the city plans to expand its convention center to within two blocks of the building. Plans are also in the works for a $315 million mixed-use project nearby that includes a Whole Foods Market.
Mr. Tierney holds out hope that the paper may be able to stay on the same property, convincing a buyer to develop an office building on adjoining land which it would then lease back. "We want to make sure our building is iconic, because we're doing the people's work," he says. "But we want people to look at it and say, 'There's the future.'"
Write to Thaddeus Herrick at firstname.lastname@example.org
Corrections & Amplifications:
Sam Zell will have an investment in Tribune Co., which is going private, and a warrant entitling him to purchase 40% of the company at a future date for between $500 million and $600 million. This article incorrectly says Mr. Zell is in the process of buying the company.
Article by: Thaddeus Herrick - http://online.wsj.com