Towering Obstacle

In the last few years, downtown Buffalo has undergone a renaissance that no one could have expected 10 years ago—largely due to international trade with the Toronto metropolitan area, a burgeoning medical research district and, soon, the $5 billion clean energy project known as SolarCity. But so far, nobody has done more single-handedly to revitalize downtown Buffalo than Kim and Terry Pegula, the hydrofracking magnates who have spent more than $1 billion as part of an effort to create a complex and integrated sports and entertainment campus near the terminus of the Erie Canal.

For a city that has long been preoccupied with failure and disappointment, this is what you might call a godsend. The Pegulas unexpectedly arrived in Buffalo a few years ago and started investing at a pace that astonished local leaders. And now some of them entertain the hope that the couple will spend just a little bit more to reinvent the tallest building and biggest blight in downtown Buffalo: One Seneca Tower.

It is hard to understate the effect the Pegulas have had on the city’s economy and sports identity. In 2011 the couple bought the Buffalo Sabres for $165 million, at a time when analysts worried that many hockey teams were losing money and looking for new investors. In 2013 the pair began construction of HarborCenter, a complex of restaurants and a Marriott Hotel, anchored by two ice rinks that will host games by the NCAA’s Canisius College Griffins and the Buffalo Jr. Sabres. On Oct. 31 the Griffins and the Ohio State Buckeyes opened HarborCenter with its first game.

But the Pegulas’ largest investment in Buffalo came in September, when they bought the Buffalo Bills for $1.4 billion. The Bills are locked into a lease that commits them to play at Ralph Wilson Stadium through 2023, although the Pegulas could buy their way out of the lease starting in 2020.

When the lease expires, many expect that rather than leave town, the couple will try to build a new stadium on the waterfront, not far from the Sabres’ arena. This, combined with the Sabres, HarborCenter and the constellation of food pavilions, parks, and concert space being built around the Erie Canal, could turn this stretch of Buffalo waterfront into a new recreational destination spot.

But One Seneca Tower still stands between connecting downtown and the waterfront. At 40 stories, it is the tallest privately owned building in New York State outside of New York City. The building is, frankly, a rather ugly example of modernist architecture, but it was for more than 40 years at least a functioning office complex. But in 2013 the tower’s two largest tenants— the financial company HSBC and the law firm Phillips Lytle—moved out of the building. This exodus, combined with the departure of Capital One Financial and the Canadian Consulate, left One Seneca Tower with a 94 percent vacancy rate. The owner, Seneca One Realty LLC, lost a vast amount of revenue and still faces nearly $75 million in mortgage debt. In January their lenders foreclosed on the property. “The writing was kind of on the wall when both leases were set to expire,” said Pyramid Brokerage Senior Director Richard Schecter, who was appointed the receiver for the building.

Despite the disappearance of more than 750,000 square feet worth of office tenants, many Buffalo boosters insist that the hollowing out of the district’s largest building has done nothing to spoil downtown’s economic momentum. “From where I sit, this is the most interesting time for downtown Buffalo,” said Mike Schmand, executive director of Buffalo Place, the organization that oversees downtown’s business improvement district. “Even though the Seneca Tower is the biggest building downtown, take a look at all the smaller projects the private sector is investing in downtown Buffalo. … Other than the fact that we’ve lost 3,000 jobs, we haven’t felt a lot of impact on the other office spaces.”

Adam Perry, a partner with the nearby law firm Hodgson Russ, agrees. “Buffalo is getting over its insecurity about things like the [One Seneca] Tower,” he said. “There’s a feeling here that things are going to work out. The right solution will come. Downtown Buffalo will develop.”

Not everyone is so sanguine. According to a report published by the Urban Land Institute last year, the vacancies at One Seneca Tower are almost guaranteed to have a depressive effect on the downtown economy. “A potential of 740,000 square feet of vacant office space in the downtown Buffalo market would have dramatic effects on the market values, which are already barely sufficient to cover the costs of development,” the report’s authors wrote. “The potential exists for undermining the economic viability of other office projects and threatening the nascent downtown revitalization efforts.”

In that same report, the ULI recommended a radical repurposing of One Seneca Tower. Using the building exclusively as an office complex is simply impossible, the authors concluded—the Buffalo office market is already glutted, and the building could never command sustainable office rents. Instead the ULI recommended repurposing the building into a mixed-use complex, with a combination of hotels, limited office space and luxury condominiums.

This idea has caught on with many of Buffalo’s most important business leaders. Howard Zemsky, the managing partner of Larkin Development, who rehabbed the old Larkin Soap factory into a similar mixed-use project, thinks it is a grand idea.

“I can imagine that as a fabulous transit-oriented development,” Zemsky said. “I don’t think we could have imagined that 10 years ago, but in 2014 it’s hard not to imagine that. … The potential uses for that building [are] broader than at any time in recent history. When you think about the proximity to Canalside and Larkinville, the light rail running nearby and all the views. … The demand for residential downtown Buffalo is very high.”

But then there is the project’s potential cost. Recently One Seneca Tower’s value was downgraded to a mere $22 million, far below the $89 million it was valued at a few years back. Even so, Zemsky estimates that the cost of buying the building, repairing its aging, dilapidated infrastructure, and reconfiguring it for mixed-use purposes would come to roughly $100 million.

Factoring in the public financial help that is like to come with the project, that is still a hefty chunk of change. That is where the Pegulas come in. Pegula Sports and Entertainment, the company created to oversee the family’s sports franchises and entertainment venues, is one of the last remaining tenants in One Seneca Tower. And in August, Buffalo Business First reporter James Fink reported on rumors within development circles that the Pegulas were interested in buying the building.

According to James Sandoro, who operates the nearby Buffalo Transportation Pierce-Arrow Museum, the couple could be interested in buying the building for the parking alone. One Seneca Tower is an easy walk to HarborCenter and the Sabres games, and the additional parking could be a windfall. “If I were the Pegulas, I would have to think that this would be something that would be interesting,” Sandoro said. “There are 1,400 spaces that could be used immediately.”

But for now, this is mostly idle speculation, if not a bit of wishful thinking. According to Schecter, the foreclosure proceedings will drag on for months, and the building will be in limbo until the proceedings are complete. Kim and Terry Pegula have spent so much money in Buffalo that their names dazzle like magic runes.

They have saved so many of Buffalo’s institutions. Could they come through one more time?