Jon Harrigan remembers when, in 1983, One Oxford Centre was a shiny new skyscraper vying for tenants with two other nascent buildings downtown as the real estate rush of Pittsburgh’s second renaissance was underway.
“I worked on that building when it was being built. At the time, it was a sexy building,” said Harrigan, then a commercial agent for Cushman & Wakefield Inc. assigned to represent Oxford Development Corp. in leasing the 1.01 million-square-foot office building at 301 Grant St.
One Oxford Centre will be undergoing major changes under new owner Shorenstein Properties.
Now CEO of Pennsylvania Commercial Real Estate Inc., Harrigan recalls the 45-story One Oxford as “the place to be” downtown at a time when the Dravo Building (now BNY Mellon Center) and PPG Place also were under development.
One Oxford was a crosswalk away from the Allegheny County Courthouse, a lure for law firms to take up residence there; it offered the Rivers Club as a contemporary alternative to the ultra-exclusive, century-old Duquesne Club; and featured a variety of higher-end shops and restaurants on its lower floors.
Companies such as Duquesne Light Co., Joy Manufacturing Co. and Westinghouse Credit Corp. established headquarters of more than 100,000 square feet, helping to fill One Oxford’s office space and spur its initial success.
“We had a tremendous leasing campaign,” Harrigan said. “We had everybody in the [Cushman & Wakefield] office working on that building.”
More than 30 years later, the newest thing about downtown’s third-largest structure is its owner, San Francisco-based Shorenstein Properties , which bought One Oxford from Oxford Development in January for about $149 million.
John Ferreira , office managing partner for the law firm Morgan, Lewis & Bockius LLP, which recently renewed its lease at One Oxford for about a floor and a half of space, said he is eager to see how Shorenstein transforms the building.
“I have a fair number of occasions to go over to the Tower at PNC [Plaza],” said Ferreira, noting how his office compares to the financial services firm’s new headquarters with all of its green features and amenities. “It’s just clear how many advancements there have been. It will be nice to see if Shorenstein can upgrade [One Oxford] to make it feel like new construction.”
Managing expectations will be part of Shorenstein’s challenge as it moves forward with a $50 million renovation plan it is expected to soon unveil.
With most of downtown’s major office buildings now largely bought up by national and institutional investors, Shorenstein’s presence here could represent a significant step up for Pittsburgh’s status as an office market. Or, as some suggest, reinforce its limitations for being parochial and resistant to change.
One thing is for certain: The company that owns major buildings in some of the country’s biggest and most expensive cities already is pushing to see what kinds of rents can be achieved in Pittsburgh.
“It will be interesting to see,” said Jon Davis, founder and CEO of The Davis Cos., which recently completed a total restoration of the Union Trust Building a short walk away from One Oxford. “I would think every landlord in Pittsburgh is watching that very carefully.”
Deep pockets and smart money
Shorenstein is one of America’s oldest and most successful real estate companies, representing deep pockets, its national portfolio is valued at $8.2 billion and smart money, literally: Yale University is its largest investment partner.
It’s the kind of relationship the company first began to develop a strategy around in the early 1990s under Doug Shorenstein, its second-generation owner who died last November. By partnering primarily with college endowments and pension funds, it created investment funds from which to buy and develop property.
After patriarch Walter Shorenstein built the company from a local real estate brokerage he bought in 1960 into a firm that at one time owned a quarter of the office space in San Francisco, his son was able to leverage what eventually became 11 funds to build a national company with holdings totaling more than 26 million square feet.
Shorenstein owns prominent buildings in two-dozen markets and has been aggressive of late, buying the 848,000-square-foot 1700 Market building in Philadelphia and 1.2 million-square-foot Bank of America Plaza in Atlanta in the same month it closed on One Oxford.
Chris Caltabiano , a New York-based senior vice president with Shorenstein and its lead project manager on One Oxford, said the company studied the Pittsburgh market for years before it had the opportunity to buy here.
“This company excels at buying broken, high-quality assets,” he said. “We’re not tourists in a market. For years, we’ve looked at every building in the market and have chased other assets. We were fortunate enough to acquire this one.”
Caltabiano emphasized the One Oxford deal represents a major investment for his company.
“This is one of the largest renovation projects that Shorenstein has undertaken in its history,” he said.
Working with the architecture firm Perkins Eastman, Shorenstein already has begun “extensive renovations of the parking structure,” Caltabiano said of what will be a three-year project. The structure presently can accommodate 840 vehicles.
Shorenstein also is rethinking how space is used in the floors of its retail atrium, and is considering a plan for a tenant lobby as well as configuring space so it appeals to tech firms, he said.
Also on tap is a full upgrade of all mechanical systems.
“The guts of all these systems will be completely modernized,” Caltabiano said.
And along with modernizing its elevators and updating the second-floor entrances used often by people who park at the building, Shorenstein is planning to take out some of the lower level escalators, Caltabiano said.
“We’re reconfiguring how people will traverse this building,” he said.
Shorenstein has garnered a reputation for having a keen eye for office trends, catching early the growing preference for traditional brick-and-beam buildings that have become popular with tech firms. In fact, it redeveloped a building in San Francisco that became the headquarters for Twitter.
The company is known in commercial real estate circles for offering high levels of service, amenities and building quality in exchange for often asking higher rents.
Its approach, Caltabiano explained, acknowledges people “live in these buildings for 10 hours to 12 hours every day and we want to make sure the space is inviting.”
“You can tell a Shorenstein building when you enter it,” he added. “Cleanliness, security, safety, green spaces, fresh flowers – things like that are noticed by tenants. We’re more focused on the details than a lot of other people.”
A recent report by the Pittsburgh office of JLL illustrates just what Shorenstein is shooting for rent-wise at One Oxford.
In a downtown office market in which vacancy levels are historically tight in the best buildings and only a few large blocks of space are available, the marquee properties PPG Place, EQT Plaza, Liberty Center, BNY Mellon Center and U.S. Steel Tower have seen their direct asking rents raised to between $30 and $32 per square foot, among the highest in the Central Business District, according to JLL’s research.
One Oxford’s asking rate is $34 a square foot, JLL reported. It’s a bold push given rental costs already have risen between 3.9 percent and 5.1 percent in the past five years, and marks a dramatic swing for Pittsburgh after decades of steady rates.
“We’re asking for a little bit more. But we’ve achieved those rents on recent renewals,” Caltabiano said. “I don’t think it’s that large of an ask.”
“We’re still in kind of the first inning of our ownership. We have a long-term view of the city and this asset,” he continued. “We have assets in Minneapolis, Chicago and Atlanta where the rents are actually lower than Pittsburgh.”
The next evolution
Close observers of Pittsburgh’s commercial real estate market see Shorenstein’s arrival as a further departure from a time when companies had a broader selection of space options and rent hikes were rare.
Harrigan, who has represented a range of law firms and other companies, is well-versed on how they view their office needs.
“Pittsburgh has always maintained a fairly nice cost environment over the last two decades for office users. They don’t mind paying a little more, they mind paying a lot more,” he said. “You may debate with them on the fact that they’ve been fortunate to have such a break over the last few decades. But they don’t really care what happens in Boston or New York. You’re still going to have that resistance from all the tenants that are reupping.”
Aaron Stauber, president of New Jersey-based Rugby Realty Co. Inc., has come to understand the Pittsburgh mindset by building a portfolio of downtown properties that includes the Frick Building and Gulf Tower.
“Pittsburgh has always been a very conservative market,” he said. “Most of the players that were in the Pittsburgh market were local players and they’re accustomed to business as usual in Pittsburgh. If you go to markets like New York or Boston or the West Coast, those markets are much more sensitive to fundamental market conditions.”
After watching other outside buyers follow Rugby into Pittsburgh and gradually begin to change the local ethos, Stauber projects Shorenstein will bring a more market-oriented approach he believes is long overdue.
“What you’re seeing with Shorenstein is that next evolution,” he said. “The landlords see what other landlords are doing. They see they’re willing to lose a tenant. They see that those tenants don’t have any place to go anymore. The market is finally catching up to what is really the reality. Shorenstein is not doing something that is outside the market. They’re meeting what the current market is. The question is why the other owners have taken so long to do so.”
Staying or going
As of now, One Oxford is losing at least two tenants, both of modest size.
McKinsey & Co., the management consulting firm, is set to move next month into a new office at One PPG Place, and law firm Dinsmore & Shohl LLP is relocating to Six PPG Place in two stages starting next year.
So the test ahead for Shorenstein is maintaining One Oxford’s current occupancy rate of more than 80 percent. Among its biggest tenants are a number of good-sized law firms.
Buchanan Ingersoll & Rooney PC, No. 3 in Pittsburgh by number of lawyers, acknowledged in June it had engaged in an office search for its headquarters three years in advance of its lease expiration. At more than 200,000 square feet now, it is anticipated Buchanan is seeking at least 150,000 square feet as it continues discussions with Shorenstein about the prospect of remaining at One Oxford.
Count The Davis Cos. among the competitors for the firm, given its $100 million investment in the Union Trust Building, which is only two blocks away on Grant Street and has one of the few large blocks of space available in any quality building downtown.
“I think almost every building in Pittsburgh is going to be hard after Buchanan Ingersoll & Rooney,” Davis said, adding he believes One Oxford is going to need lots of work to stay competitive.”
“One thing is for sure: They are going to have to deliver. If they are able to get to those rents, it will be because they deliver a very different project than they have today,” he said. “The building, from all appearances, has not been meaningfully renovated since it was built.”