By MAURA WEBBER SADOVI - The Wall Street Journal

February 21, 2007; Page B6

 

Even as Buffalo loses more jobs and people, a handful of investors see better times ahead for the once-mighty industrial region. Bashar Al Issa, chief executive of United Kingdom-based developer BSC Group, predicts a renaissance similar to the regeneration seen in its home city of Manchester, which has attracted investment and financial jobs in recent years.

 

Last year BSC paid $3.5 million for Buffalo's former Statler hotel, an ornate red-brick 800,000-square foot structure on the centrally located Niagara Square. BSC is renovating the building to include office space on the bottom floors and a hotel and condominiums on the upper floors. About a block away, the company is proposing a 40-story, mixed-use tower. With little Class A office space available in downtown Buffalo, Mr. Issa believes his new office space -- to be leased in the $30-per-square-foot range -- will attract back-office operations from Toronto, about 100 miles north of Buffalo, and New York City, about 400 miles to the southeast.

Optimists also point to growing health-care and financial sectors. On a former brownfield site behind City Hall, Duke Realty Corp., an Indianapolis-based real-estate investment trust, is building a headquarters of about 452,000 square feet for health insurer HealthNow New York Inc., the parent company of BlueCross BlueShield of Western New York.

 

Like many second-tier markets, Buffalo offers real-estate bargains compared with larger cities. Some Buffalo office buildings have been selling for $80 to $100 a square foot, according to CB Richard Ellis, a real-estate services company. That's just below the average $116 price paid in Rochester throughout most of last year and way below the average $600-range seen in Manhattan, according to Real Capital Analytics, a New York-based real-estate research company. Average office, retail and apartment rents are well below the national levels, and vacancies in all three sectors are falling, according to Reis Inc., a real-estate research firm.

 

Buffalo officials say development projects valued at about $3 billion are being built or proposed. That includes about 800 residential units, some in formerly vacant industrial buildings. A new industrial park is being developed on land formerly occupied by a steel company.

 

 

One project is generating controversy. Seneca Gaming Corp., which develops the Seneca Nation of Indians' casinos, plans to build a 220,000-square-foot downtown facility with 2,200 slot machines, table games, and entertainment. Seneca portrays the casino as a catalyst for tourism development, but some who are challenging the project say it isn't the kind of sustainable development the city needs and could harm lower-income residents who can't afford to gamble. A federal judge last month asked the National Indian Gaming Commission to reconsider whether a casino can be allowed on the site.

 

Despite the opposition to the casino, the development buzz evokes memories of a former Buffalo, which leveraged its location on Lake Erie to become a booming grain port and transportation gateway to the Western U.S. through the first half of the 20th century.

 

The region has faced harder times since the 1970s, as its steel industry struggled to compete with imports and smaller mills, and more recently as increasingly efficient manufacturing companies slashed jobs or moved operations to lower-cost locations outside the U.S., Mr. Deitz says. Buffalo's regeneration remains an uphill battle. The number of jobs in the area as of December was down 0.9% from a year earlier, and the population fell about 1.8% from 2000 to 2005, to 1.1 million. City officials are pleased some investors are seeing past the troubles. Says Richard Tobe, commissioner of Buffalo's Department of Economic Development, Permit and Inspection Services, "It's an indication that the outside world's perception of Buffalo is changing."

 

Write to Maura Webber Sadovi at maura.sadovi@wsj.com