Published in the Scranton Times
By Dave Falcheck
One of Scranton’s largest — and largely vacant — office buildings is available at a cut-rate price.
The big white box on the corner of the Adams Avenue and Mulberry Street sold for $6.8 million in 2005. It went on the market Tuesday for $2.45 million. Current owner, VFC Partners, is a Waco, Texas, firm that buys defective mortgage notes from banks desperate to unload them and flips the properties.
John Cognetti, Hinerfeld Realty Company and Ron Kleckler, Scranton Center building manager, walk through the former offices of Paper Magic at 401 Adams Ave. The building is for sale. MIchael J. Mullen / Staff Photographer
And $2.5 million is a deal for a serviceable 100,000-square-foot, six-story building.
“Do the math — that’s $24.50 per square foot,” said John Cognetti, of Hinerfeld Commercial Realty, listing agent for the property. “You can’t build residential at that price.”
The economy was strong and the property mostly rented in May 2005 when a Howell, N.J., company Scranton Center Holdings LP bought it. The combination of rough economic times and unresponsive management prompted tenants to relocate.
Today, the building has just three tenants and they may be on their way out, too. It shows signs of “deferred maintenance,” in the parlance of commercial real estate. In vacant offices, carpets are soiled and littered with electrical cables.
John Cognetti, Hinerfeld Realty Company, points out one of the two Scranton Center buildings that are for sale in the 400 block of Adams Ave. MIchael J. Mullen / Staff Photographer
Walls are unfinished in some places or riddled with holes.
Much of the value of commercial real estate depends on the revenue it will generate over time, the terms of the leases and the stability of tenants. The next owner may appear to getting a deal, but will have to be prepared to restore the building, market it, and cultivate the trust of a new flock of tenants.
Beyond the bargain-basement price, Mr. Cognetti said the building has advantages. As a modern building, the floor plan is open and walls can be removed and spaces customized to suit tenants.
The building sits between the downtown center and The Commonwealth Medical College, just steps away from the University of Scranton and Lackawanna College. The building is ringed by a variety of restaurants and entertainment options. Corner offices offer great views.
“The bones of this building are solid,” said Ron Kleckler, the building’s maintenance supervisor. Most interior doors are solid wood with brass handles. Walls and carpeting may not look nice now, but they’ll be redone or replaced depending upon the needs of new tenants. The heating system and elevators are relatively new.
With the Great Recession receding, interest rates poised to go up, and sellers who are in it flip it, Mr. Cognetti expects the building will not languish on the market. He had been working to get interested buyers to purchase the note from the bank. He hopes to revisit them and offer a cleaner path to ownership. He’ll also market the building nationally and internationally.
The building had a stormy history from the beginning. A group of West Side doctors pursued the project, then called Adams Plaza, but turned it over to an out-of-town developer, Philander P. Claxton III, who forged lease agreements to leverage financing of the building. He later pleaded guilty in federal court to fraud. Things improved and the building got a minor dose of fame in the opening sequence of the television show “The Office” which selected Scranton as the fictional show’s home based upon the Paper Magic Group, which leased 2½ floors of the building. In 2010, law firm Marshall Denehey Warner and Paper Magic Group moved to offices at Glenmaura Corporate Center in Moosic. The building owners defaulted on the $6 million balance of their debt.
VFC took the note and the building off the bank’s hands for an undisclosed amount, willing to gamble that it could market the property and sell it at a profit.
VFC Partners is a joint venture of Minneapolis-based investment firm Värde Partners, Inc. and Waco, Texas,-based FirstCity Financial Corp. purchasing. Both firms purchase stressed or non-performing loan portfolios.
