Condos Replace Newsrooms as U.S. Papers Sell Real Estate
Published: Jan 11, 2013 8:24 AM PT
Newspaper owners, struggling with plunging demand and advertising spending at a six-decade low, are squeezing money out of the assets they do have with rising value: buildings and land.
A.H. Belo Corp. (AHC) is trying to sell the main offices of the Providence Journal in Rhode Island and adjacent lots. Gannett Co. (GCI), owner of USA Today, has put the Iowa building of the Des Moines Register on the market and is evaluating options for its Virginia headquarters, adding to more than 2 million square feet (185,800 square meters) of property divestitures by the company since 2005.
Newspaper properties across the country are attracting developers who are looking to overhaul the assets — often located in the heart of downtown areas — as real estate values rebound. For publishers, which have slashed jobs, closed bureaus and scaled back coverage as demand for print news falls, selling buildings represents another effort to cut costs and generate returns for investors as their space needs shrink.
“This decline over the last decade has led to major adjustments in the industry,” said Mark Perry, an economics and finance professor at the University of Michigan-Flint who tracks newspaper advertising. “If these companies can somehow offset this unprecedented drop in revenue, they will certainly try to do so and selling off some of their real estate makes perfect sense.”
Advertising expenditures for print and online media in the U.S. have fallen every quarter since the start of 2007, according to the Newspaper Association of America. Annual advertising revenue was an estimated $19 billion in 2012, the lowest since the group started tracking the information in 1950, when adjusted for inflation, according to data compiled by Perry. Daily circulation volume dropped 12 percent between 2007 and 2011.
Commercial-property values are on the rise, particularly in the urban areas where newspapers tend to be based. U.S. prices climbed 7 percent last year and are, on average, within “a few percentage points” of their 2007 highs, according to a report this week from Green Street Advisors Inc., a Newport Beach, California-based real estate research firm.
A.H. Belo, based in Dallas, estimates the value of its “non-core” real estate at about $72.5 million — almost two- thirds of its stock-market value of $113 million. In addition to the Providence Journal site, the publisher is seeking sales of property such as the Press-Enterprise building in Riverside, California, within three years, according to an October presentation posted on the company’s website.
The company is looking to take advantage of a real estate recovery as its space requirements decline, Chief Financial Officer Alison Engel said. It considers non-core real estate to be office buildings and parking lots, compared with those used directly in operations, such as printing plants, she said.
“There is a recognition that the business is transforming,” she said in an interview. “Now is a good time to pursue opportunities to monetize real estate and redeploy that capital into new revenue initiatives and/or return cash to shareholders.”
A.H. Belo, which also publishes the Dallas Morning News, had 1,900 full-time employees at the end of 2011, compared with 3,400 in 2007, according to regulatory filings. Revenue in the third quarter was down 29 percent from the same period four years earlier, though the company reported a $1.5 million profit after losses for three of the previous four years. The stock has fallen more than 60 percent since its spinoff from Belo Corp. (BLC) in 2008.
Newspaper companies are finding they can save money by renting offices outside of urban areas, said Leo Kulp, a New York-based advertising and publishing analyst at Citigroup Inc.
“Newspapers aren’t in the central spotlight anymore as they used to be in times past,” he said. “With the rise of online communications you don’t need to be in center of town. You can pay down debt, raise capital and get cheaper real estate in the suburbs.”
Gannett, the owner of 82 daily newspapers, has been “actively engaged in finding ways to use our real estate assets more efficiently,” Chief Executive Officer Gracia Martore said during the company’s third-quarter earnings call in October. The company is considering “all options” for its real estate, including its 650,000-square-foot headquarters building in Tysons Corner, Virginia, she said. “As we look to optimize our real estate portfolio, none of our facilities, including our Tysons Corner building, are off the table,” Martore said.
In October, the company put its Des Moines Register office up for sale and said it plans to lease 86,000 square feet of office space elsewhere in town. It also is trying to sell properties ranging from the Indianapolis Star building to a production facility in Cincinnati.
Gannett’s Asbury Park Press is putting its headquarters in Neptune, New Jersey, up for sale and will be seeking new space to lease, the newspaper reported today, citing Tom Donovan, its president and publisher. The newspaper’s manufacturing facility moved to Neptune from nearby Asbury Park in 1980, and its news and business office followed five years later, the paper said.
Jeremy Gaines, a spokesman for Gannett, declined to comment on the prospect for more sales.
Other companies have sought to profit from their property holdings. New York Times Co. in 2009 sold the space it occupies in its Manhattan headquarters for $225 million to pay debt and leased it back. The newspaper moved to the building in July 2007 after selling its former headquarters to Tishman Speyer Properties LP for $175 million in 2004.
Tribune Co., which exited bankruptcy on Dec. 31, is now in a position to begin asset sales, including real estate, Lance Vitanza, managing director at CRT Capital Group LLC, said that day. Gary Weitman, a spokesman for the Chicago-based publisher, declined to comment.
For developers, the real estate can be more valuable as housing or retail sites. In Massachusetts, builder National Development plans to early this year begin the redevelopment of the former home of the Boston Herald, razing the old building and constructing a mixed-use property with 85,000 square feet of retail space and 475 residential units, according to Theodore Tye, a managing partner at the Newton Lower Falls, Massachusetts-based company.
“This is a very unique opportunity to build an iconic project in a very high-density area in Boston,” Tye said in a telephone interview. “There aren’t too many six-acre sites available in prime downtown locations.”
The Herald is now leasing a smaller office building in the city’s Seaport District “simply because we did not need all the space,” Gwen Gage, a spokeswoman, said in an e-mail.
Redevelopment of the buildings is a more profitable option for property owners, said Richard Green, director of the University of Southern California’s Lusk Center for Real Estate in Los Angeles.
“Today, almost certainly it’s not the highest and best use of a property to house a newspaper,” Green said in an interview. “In high-barriers-to-entry markets, like Boston and nowadays Miami, building a new residential or mixed-use development instead will be a very good play.”
Developer Bart Blatstein’s Tower Investments Inc. is embarking on the redevelopment of a two-city-block property in Philadelphia with a 526,000-square-foot building that served as the former offices of the Inquirer, the Philadelphia Daily News and Philly.com. He purchased the real estate from Philadelphia Media Network in the fourth quarter of 2011, paying $22.5 million for the building and the second block.
The local builder applied for a casino license in November and is looking to spend $700 million to convert the property’s tower into a hotel and mixed-use complex, and create a casino that would incorporate the 45,000-square-foot hall that used to house the printing presses. Blatstein expects the license approval process to take as long as a year, and construction to be completed by 2015.
“This is the largest parcel in town,” Blatstein said in an interview last month. “It’s very unique and very rare.”
Genting Malaysia BHD (GENM) has similar plans for the 14-acre parcel of Miami land, including the Miami Herald building, that it bought from Sacramento, California-based McClatchy Co. (MNI) in 2011 for $236 million. The company plans to raze the waterfront building and turn it into a hotel-condo, mixed-use development with the possibility of an adjacent casino, said Tadd Schwartz, a spokesman.
The Kuala Lumpur-based developer has encountered resistance by locals who consider the property to be historic. The Greater Miami Urban Environment League, in an October letter posted on the website of the Dade Heritage Trust, a local preservation group, said, “The Herald as a newspaper has played a central role in the history of Miami and the Herald building is the site of too much of that history to be simply torn down.”
The Florida Trust for Historic Preservation, in another letter, described the Miami Herald building as “an important part of the architectural, historical and cultural heritage of Florida.” On Dec. 10, Miami’s Historic Preservation Board voted against designating the building for historic preservation, paving the way for the redevelopment.
The Miami Herald in May will move into a 158,000 square- foot office building in Doral, about 15 miles (24 kilometers) west of downtown Miami, according to Tere Blanca, president and chief executive officer at Blanca Commercial Real Estate, which helped the newspaper find its new home.
In a suburban neighborhood like Doral, gross office rents for higher-end buildings range between $18 and $32 a square foot, compared to as high as $45 in downtown Miami, she said.
“It helps the paper to move into a more modern, new space and to cut costs,” Blanca said.
More newspaper real estate may become available as the industry continues to shrink, said National Development’s Tye.
“I have been getting a newspaper on my front steps for 40 years,” he said. “I just went all digital and am reading it off my iPad now. Newspapers will continue to downsize and with that come the opportunities for developers like us.”