Rumors stir of high-rise in Norfolk's downtown

NORFOLK - Dominion Tower is nearly full. So is 150 W. Main. And the movement of banks has leased several other large commercial real estate structures downtown.

Combine these factors along with the booming downtown housing market, and city leaders have begun to wonder: Is downtown ready for a new office skyscraper?

If rumor on the street and information on a Web site have any validity, there are talks regarding such a project. And it could be a big one - as much as 40 stories tall.

But city leaders and local real estate experts caution that such discussion is preliminary at best for now. There are no formal plans, and no developer has stepped forward with financing. Some real estate experts think it's too soon to consider a new downtown office property, citing occupancy and leasing rates to buttress their opinion.

City officials beg to differ, offering the aforementioned factors.

"I know there's still space running around, but not large blocks of space," Mayor Paul D. Fraim said. "We're below 10 percent vacancy" in class A space.

"It's at least a three-year process to get a new building in place, from the time you start designing a building until you get to the point where you put people in it," he added. "So yes, I think the time is right."

The last office building to be completed in downtown was in 2002 at 150 W. Main. Trader Publishing Co., jointly owned by Cox Enterprises and Landmark Communications, parent of The Virginian-Pilot, is constructing a 21-story tower on Granby Street that will house its electronic media division.

Fraim and other city officials say there's a scarcity of land downtown for another building but offered a lot at the southwest intersection of St. Paul's Boulevard and City Hall Avenue as a possibility. Across St. Paul's from the Norfolk Circuit Court building, the space is used as a parking lot.

"That site was identified in the 2000 update and the 2010 downtown plan as a prospective site for an office development," said Rod Woolard, the city's director of economic development. "Am I talking to somebody about a 35- to 40-story building? The answer is 'No.' To get that out there would be irresponsible."

But the idea has reached the public domain via a blog on a Web site devoted to urban development. The Web site, www.urbanplanet.org, allows users to discuss projects in various localities. One user posted a map of developments in downtown Norfolk and pinpointed the intersection of St. Paul's and City Hall as the proposed site for the office building.

Woolard, who has seen the posting, said, "I think the person is picking up on a combination of stuff heard on the street." He said the posting could have been made by someone interested in investing in downtown.

"There is interest in downtown as an investment, whether that be office, hospitality, residential or retail," Woolard said. "Based upon the investments that have occurred either in the last couple of years or even now, it doesn't surprise me that there are people doing due diligence as far as those market segments are concerned."

Local commercial real estate executives noted there are firms downtown that are dissatisfied with their space and would be interested in other options.

"We are hearing several major tenants who have been actively investigating the new building option," said J. Scott Adams, regional president for CB Richard Ellis, a real estate company. "But those of us who have been working with other developers are aware of two major challenges to the development of an office building, even if the tenant demand is there."

Those challenges are the lack of sites downtown and the cost of construction, which has risen precipitously over the past 12 months, Adams said.

The proposed lot is a possibility, Adams said, but it is not ideal. "It doesn't have the water views, and it is further from Granby Street, which we believe is the core of downtown," he said. Moreover, residential and pending hotel development has diminished the availability of potential space for offices.

"This implies that land pricing is effectively higher," he said.

That would mean the developer would have to ask for a rent that is higher than the current monthly average for downtown Class A office space, which is about $19.84 a square foot. Class A is typically marked by the most modern floor designs and building amenities.

"What that means is people will not only have to want to go to a new building, there is going to be a very large delta between their renewal rent and their new rent," Adams said. "At the end of the day, my opinion is for the majority of tenants, there is plenty of space downtown."

Deborah Stearns, managing director of Advantis Real Estate's Norfolk office, shared Adams' opinion. "I might want to move Advantis into new space if it is the same price that I am in," she said. "But if I have to pay 35 percent more, I may not want to lease at that price."

To obtain financing for such a project, a developer would need lead tenants willing to take up substantial space in the building, possibly as much as 50 percent of it, the real estate experts said. Considering market conditions, Stearns created a scenario for how an office building might be constructed downtown.

"Land is very precious, so you don't want to take land" like the suggested lot "and put up a 50,000-square-foot building," she said. "You want density and height."

Stearns said the city might want a building that is at least 250,000 square feet as a smart use of the land. That would mean a developer would need leasing commitments for 125,000 square feet to justify financing. And there simply isn't that much demand right now, Stearns and other experts said.

That said, another observer doesn't think the idea of another office building is beyond imagination.

Staff writer Harry Minium contributed to this article.

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