Rocco Termini is riding high these days.
He recently completely a painstaking restoration of the Lafayette Hotel that is playing to rave reviews.
He’s converting the Webb Building into a boutique hotel.
And, if Gov. Andrew Cuomo agrees to increase state tax credits, he is poised to redevelop the AM&A’s building, a project long on the city’s “to do” list.
Unlike most developers, Termini, president of Signature Development, is focused on downtown Buffalo. He’s developed some 400 apartments over the past decade, in addition to commercial projects. Rather than build new, Termini restores.
Investigative Post Editor Jim Heaney interviewed termini Sept. 6. A 3:45 feature with interview highlights appears above. The full 21-minute interview is posted deeper in the transcript below, which has been edited lightly for clarity.
Heaney: You have not been a lifelong downtown developer. How did you get into the downtown Buffalo real estate scene?
Termini: I saw what was happening in other cities, and I began to ask the question, “Why isn’t it happening here in Buffalo?”
Heaney: And why wasn’t it?
Termini: Because the cost of doing the type of construction you need is so high and the rents are so low that it’s difficult to fill the gap. So it took me two years to try and figure out how to cover the gap on the first project I did in Buffalo.
Heaney: So what’s in the secret sauce that’s allowed you and others to start to get traction? When Tony Masiello was mayor that was all the talk – “We’ve got to start developing downtown real estate to put housing in.” There’s now over 1,000 units. What has made that work?
Termini: Well there’s new market tax credits, there’s state historic tax credits, there’s federal historic tax credits, there are grants now from National Grid and National Fuel, low interest loans from the City of Buffalo – all of these things. In addition, the general economy, the interest rate on mortgages are a lot less now than they were eight years ago. You can get a 4.5 percent commercial mortgage now. Eight years ago they were 7.5 percent.
Heaney: So low mortgages plus government assistance has really helped to fill that gap?
Heaney: What are the challenges? How tough is it to develop downtown? I guess two questions: What does the market bear these days and what about the city, which historically has not had a good reputation in terms of being a friendly place to do business, in terms of its bureaucracy? Let’s start out with that. What’s it like dealing with permits and inspections and other parts of the City Hall bureaucracy?
Termini: That’s something of the past. They have a commissioner, Jim Comerford, who bends over backwards to try and help you solve your problems. And that’s the toughest thing, trying to solve the problems, getting through all the minutia in the code. And these folks today are bending over backwards to help you and they’ve been very helpful when we were doing the Lafayette and that was a difficult project.
Heaney:How tough is financing still? Buffalo tends to be a low-rent market, which is not an incentive for developing. Is there still a big gap between development costs and revenues?
Termini: There’s still a big gap. Somebody has asked me if I had a wish, what would it be? I said “Manhattan rents” because what you need in Buffalo to really develop things is to get rents up. But our incomes are so low here so you’re limited on what you can charge for rent. It’s gotten better, but it’s not where it should be.
Heaney: Let’s talk a little bit about assets. You feel that the effort to redevelop downtown Buffalo has a couple of things going for it. One is a governor with presidential aspirations and the other is a proximity to Canada. Let’s talk about each of those. First, Andrew Cuomo’s aspirations represent a possibility for Buffalo how?
Termini: I think the governor, if he does want to run for president, has to use Buffalo as a laboratory – to show how the second-poorest city in the country can be turned around. If he can turn around Buffalo, he can go nationally and say, “Hey look at what I did and here’s how I did it.” We need to take advantage of the position that we’re in right now.
Heaney: And how do we do that?
Termini: I think with the billion dollars, the pot of money that the governor’s been talking about. We need to come up with ways in which we can turn around Buffalo, and part of that is fixing the Central Business District – it’s how you turn around Buffalo.
Heaney: And how do you fix the Central Business District? We’ve been trying since the ‘60s and we went through subways and we went through pedestrian malls and we built Pilot Field and that was going to do it and we built the Marine Midland Arena, which has went through several name changes since then. Nothing seems to have gained traction.
Termini: What does Buffalo have that nobody else has? Our proximity to Canada. And Canadian prices are 30 percent higher than the same product you can buy here in the United States. We need to be the shopping mall for Toronto.
Heaney: Isn’t that the Walden Galleria?
Termini: That’s a small segment of what is out there. We need to develop the whole concept of the Toronto market. I’m going to be in Toronto over the weekend talking about this very thing.
Heaney: What’s your thought on how to capitalize?
Termini: I think what we need to do is form a sales tax free zone downtown. We need to take over the first floor of every building downtown and we need to put in there an outlet mall type, high-end retail. And then you will get people coming into Buffalo from Toronto. And then they’ll go to the restaurants, they’ll stay at the hotels, they’ll make a day of it. I just called for a hotel room in Toronto and Trump Tower is $750 a night. You can come and stay at probably a better room at the Lafayette for $149, so a person from Toronto can come down to Buffalo, have dinner, shop all day, and stay in a hotel here.
Heaney: Doesn’t that put local existing merchants at a disadvantage all of a sudden? “I’m selling, the guy downtown is selling; I’ve got to collect a sales tax he doesn’t.” Aren’t you in a stealing from Peter to pay Paul scenario?
Termini: Not really. They’re getting a small fraction of the people coming from Canada. And don’t forget, they already have an advantage. They have expressways going right to their malls; they have free parking, something that we’ve paid for as city residents for many years. And now it’s time for the city to get what they deserve and they deserve a chance to get restarted. Nothing else has worked. We talked about so many things to bring retail back to downtown and nothing has worked. I think this will work because people travel to the Indian reservation to save $5 on a carton of cigarettes and they’ll spend $6 worth of gasoline. But when people think they’re getting a deal they will come.
Heaney: OK let’s talk about some projects you’re involved with downtown. The Lafayette recently opened to much fanfare – success by just about everyone’s definition. Why do you think it’s captured people’s imagination the way it has?
Termini: Because we did it right, and if you do it right people will come.
Heaney: And by doing it right you mean …
Termini: It was restored exactly the way it was 110 years ago. All the plaster work was restored. And the other thing with the Lafayette is it was boarded up for 40 years. Most people have never seen the Lafayette. Everybody saw the Statler and they were used to seeing it. But the Lafayette nobody saw. Other than the Tap Room, nobody was in the Lafayette, so they were amazed at what was there and what was hidden for 40 years and how it was restored. And that’s drawn people.
Heaney: So it’s authentic, that’s what you’re saying.
Termini: It is authentic and it’s historic.
Heaney: The Webb Building, which is on Pearl Street right next door to the Pearl Street Brewery – you own that. It’s in the process of being converted from apartments into a hotel. Explain what’s behind that move.
Termini: Pearl Street Brewery is probably one of the largest banquet facilities in Western New York. And one of the things now is that when people book a banquet they want to stay there because they’re drinking and nobody wants to drink and drive. So it was a natural extension of their business and to enhance their business, they needed hotel rooms. And what better place to put hotel rooms but right next door?
Heaney: So you’re converting 32 apartments into 32 hotel suites?
Termini: That’s correct.
Heaney: And when did that conversion start and when will it conclude?
Termini: It started a month ago and will conclude in about three weeks.
Heaney: And the project is costing how much money?
Termini: About half a million dollars.
Heaney: So this will be a boutique hotel, probably book weekends mostly with Pearl Street business and then available probably more to the general public during the week?
Termini: That’s correct.
Heaney: There’s a lot of hotel activity going on downtown. Some people think the market’s being flooded. You have a boutique hotel that’s kind of slotted for a niche part of the market. But they’re talking about a couple hotels at Canalside and everything that’s happened more up in the Chippewa corridor. Have we reached saturation downtown with hotel rooms, or are we at least approaching saturation?
Termini: I don’t think so. I think what’s happened downtown is for many years we had a great demand here but we didn’t have any product. What we had was B and C type hotel rooms. Now that we have A types with The Avant, the Hampton – those are packed every single week. The Lafayette – we’re operating at 80 percent and we don’t even have a flag, so it’s all word of mouth. I think if you have a good product people will come and stay downtown instead of staying in the suburbs when they come to Buffalo.
Heaney: The AM&A’s building. It’s next to the Trico Building. It’s probably the biggest hulking vacant space in downtown. You’ve got an option that’s expiring soon with that property. Where do things stand?
Termini: Well we’re waiting for the tax credit bill to be signed by Albany.
Heaney: The bill would raise the cap on tax credits …
Termini: From 5 to 12 million dollars.
Heaney: And you need that much additional to make the project work?
Heaney: The project is how much?
Termini: $60 million.
Heaney: Is this a spec project or do you have tenants?
Termini: The building is 100 percent leased by various businesses that we’ve already been in contact with.
Heaney: You probably don’t want to name individual tenants, but give me a flavor – is this hotel? Is this retail? Is this office? Is this high-tech office? What’s the tenant mix?
Termini: It’s all of them. But a lot of it is tech companies that are looking for what I call “Googlized space” – cool space – which there isn’t any cool space downtown. And we are filling that niche in downtown of providing cool space for tech companies.
Heaney: When does your option expire?
Termini: In a couple of weeks, and if it’s not signed in a couple of weeks we’ll get a move on to another project because we don’t want to lose our tenants.
Heaney: So you’re going to walk away from the building and they’ll be back to ground zero after that?
Termini: That’s right.
Heaney: Any indication from the governor’s people as to which way he’s leaning at this point?
Heaney: How are the local politicians? Are they in support of this? Are they not in support of this? Are they sitting it out?
Termini: Every local politician is in support of this project. They all voted for it. They’ve had press conferences about it. They know the importance of this bill to Upstate New York. It’s not just Buffalo, it’s every city along the Thruway, which are faced with the same problems.
Heaney: So basically Cuomo signs or you walk.
Termini: That’s right.
Heaney: Let’s talk a little bit about the larger future of downtown. You’ve got some good things going on; you’ve got Canal Side starting to gain some traction. You’ve got the Webster Block marked for Sabres development. But two blocks away you’ve got HSBC Towers, which may soon be a vacant couple of towers. What happens if HSBC pulls out? What’s the impact on the downtown real estate market?
Termini: If they do (pull out) the likelihood is that the building will be foreclosed on by the lenders that hold the paper on it. Therefore it brings the price down. Therefore the rents there would become very low compared to what they are now.
Heaney: Which is what?
Termini: 25 for a square foot, probably go down to 15. And then what happens is you empty out all the B and C buildings, which are going for 10 and 15. Why would I be in a B and C building when I can go to an A building for the same amount of money? So that then empties out all the B and C buildings that are downtown.
Heaney: What happens? First blush reaction is, “Oh my God. Whatever vacancy problem we have is that much worse. Downtown is going to become, not ghost town, but it’s going to be even more vacant than it is now.”
Termini: Well I think it’s not, because I think that’s an opportunity.
Heaney: How so?
Termini: Because we can convert all of those buildings then to apartments and mixed-use buildings and get some cool space, cool apartments, and all of a sudden Buffalo starts to become cool. And you keep younger people here then.
Heaney: You talked a few minutes ago how difficult this market remains from a developer’s perspective because your costs are relatively high and your revenue possibilities through rents are out of kilter. So if you’ve got all this vacant space but you’ve got all those dynamics at play, how does it work?
Termini: The city has put together a fund, which they’re now working with the Buffalo Niagara Partnership, and they’re looking at various buildings downtown where they’re targeting as possibilities of becoming vacant and what can be done with them.
Heaney: How big of a fund are we talking? Is it enough to make a difference?
Termini: I think we’re talking four to five million dollars a year for the next four or five years.
Heaney: Does that make a dent?
Termini: That makes a difference.
Heaney: So the ripple effect may be painful in the short run but you think it’s got some potential in the long run?
Termini: I think it’s a real benefit because you’re going to be populating downtown.
Heaney: Cars on Main Street – some folks are advertising it as, if not a panacea, at least a huge upside. How much of an upside is it really?
Termini: I think it’s like 50 percent. I think it helps that you can get cars on Main Street. I don’t think it’s going to be the huge prize that everybody’s saying. But look at the buildings on Main Street. If you don’t have a back door and you’re a building on Main Street, how do you get to it? How do you get to it in the wintertime when it’s snowing out? You have to walk half a block – nobody’s going to walk half a block.
Heaney: Actually the first block that would open up is the block that the Theatre District is on. I did something for The Buffalo News years ago looking at all the money that was poured into the Theatre District and it’s really kind of a half-completed effort. There’s a fair amount of vacant space there and some underperforming buildings. If they made you the Theatre District development czar, what would you do to get the job done there?
Termini: I first of all would take over the Market Arcade.
Heaney: And do what with it?
Termini: I’d revamp all of the Market Arcade.
Heaney: Now talking about cool space, that is really cool. But it’s a ghost town. It’s three-quarters empty.
Termini: The city should not own it or run it. They should let somebody who knows what they’re doing – a private developer – take it over.
Heaney: And what sort of potential is there. What could you envision happening there? Is it office? Is it retail? What is it?
Termini: I think it’s mixed use. I think you take over the shows that are there and you change those. The shows first of all are old shows; they still have reels. In the next six months you have to turn to digital because all movies are going to be digital.
There’s a company that’s in South America called Cineoplis and they have huge bars in the lobby; they have lounge chairs in the show – there’s only about 70 or 80; they serve you food; they serve you drinks.
Heaney: Kind of sounds like Buffalo.
Termini: It’s perfect for Buffalo! What I’m saying is we need to repurpose those shows into something like Cineoplis.
Heaney: That’s interesting. How much more upside for housing is there downtown? There’s been roughly about 1,000, 1,100 units. If the wave broke in the right direction five to seven years from now, how many units of housing could be developed?
Termini: I think there’s room for thousands. The problem is producing them and producing them at the right price. The market is like a pyramid. The top is the expensive units and that’s a very small market, but when you get down toward the middle it’s broader and there’s a bigger market. And I think that’s how housing is.
Heaney: What’s the sweet spot in the market?
Termini: About $900.
Heaney: $900 a month rent?
Termini: That’s the sweet spot.
Heaney: What does a developer need in rent to make that work?
Termini: For $900 it’s tough to make it for a one-bedroom, but we’ve been able to do it because people of course also want high-end finishes. You want the marble countertops and the stainless steel appliances, hardwood floors. You want all those good things but you don’t want to have to pay for them.
Heaney: Let’s end with a question on cool space because I recently went shopping looking for office space for Investigative Post and what you said earlier is quite true. There’s a lot of pretty dreary B and C office space downtown. If you’re a nonprofit like I am, you’re really not looking at any A class office space because I’m not paying $20 to $25 a square foot. You’re right – there’s very little cool office space. Why is that? Is it a lack of imagination on the part of the developers? Is it a lack of inventory? Is it a lack of demand? Why is it that there’s so much bland, vacant office space out there?
Termini: I think it’s a lack of imagination on the part of most of the people that own buildings downtown and their inability to take a risk. Nobody’s willing to take a risk. The one person that took a big risk is Howard Zemsky and he produced cool space and Larkinville.
Heaney: And he’s really created a buzz down there.
Termini: And look at how successful he is. But he took the first step by taking the risk. Most people downtown don’t want to take any risk. They don’t want to invest any more money in their buildings.
Heaney: By the way found cool office space. It took me a while, but I did find it.