Circle Tower buyer mulls housing
Landmark would host luxury apartments

By Mason King
IBJ Reporter

     The prospective buyers of downtown's historic Circle Tower are investigating whether to convert a portion of the landmark to luxury apartments.

     A joint venture of companies affiliated with residential developers Davis Homes LLC and Cornerstone Properties Inc. has agreed to buy the 14-story office building. It's been under contract since late December.

     Although a portion of the building would remain office space, the partnership might turn several of the highest floors in the Monument Circle mainstay to upscale rentals.

     "The Circle Tower is the kind of building that is not so conducive to today's offices," said Jim Helfer, vice president of operations for Cornerstone Properties. "It has a lot of character to it, but [office] probably is not the best use.

     "We're talking about high-end apartments that probably couldn't be replicated anywhere else in the city. ... This is the kind of thing that most major cities have, but Indianapolis has always been such a suburban community."

     The time line for an apartment project likely would run years into the future. Davis and Cornerstone officials want to avoid disrupting any of the current tenants before their leases run out.

     The building purchase is expected to close in February. Even if the apartment plans don't pencil out, the joint venture would buy the building and continue operating it as office space, Helfer said.

     Charles Davis, chairman of Davis Homes, and Paula Quinn, president of Cornerstone Properties, looked at a few other downtown properties before deciding on the Circle Tower, Helfer said.

     Built in 1930, the Circle Tower features art deco touches inspired by New York architecture of the period. It includes about 90,000 square feet of office space and 22,000 square feet of retail space.

     Tenants occupy about 91 percent of the building, at 55 Monument Circle.

     First Union Real Estate Investments, based in Cleveland, Ohio, placed the building on the sale block in fall 1998. IBJ reported in September that First Union expected to receive $4.6 million to $5.1 million.

     Helfer declined to disclose the sale price.

     The best views for apartments would be on the north and west sides of the building, Helfer said. Amenities for the units could include use of conference space, high-speed Internet lines and concierge service.

     Classy apartments on Monument Circle would be unique and highly desirable, said local multifamily experts. Potential hurdles include finding available parking, rerouting the building's mechanical systems, and the project's sizable expense.

     "What has scared us about downtown renovations is the cost of converting to multifamily," said Dave Flaherty, president of F&C Real Estate Services, which recently considered marketing a portion of downtown's Fletcher Trust building as apartments.

     Flaherty estimated that the Circle Tower apartments would work if the buyer could acquire and renovate the building for about $70 per square foot. In fact, "it could be higher and they still would have a good deal," he said.

     Flaherty estimated that renovation costs could hit about $30 per square foot. If the joint venture paid $5 million for the building, the purchase price per square foot would be about $44.60, for a total purchase and renovation cost of about $74.60 per square foot.

     For parking, the joint venture could look to a multistory garage recently built by hotel developer Carl Ritchie east of the tower on Pennsylvania Street, said George Tikijian, an apartment specialist for CB Richard Ellis.

     The partners have not yet calculated the costs of converting the building for apartments, nor approached Ritchie about the availability of spaces in the garage, Helfer said.

     The joint venture also must take into account the complication of two land leases the building's owner must pay to two different property owners, he said.

     One lease expires in 2009 but can be renewed for another 99 years. The current annual lease payment is about $18,000. However, payments for the renewed lease will be based on the appraised value of the building and likely will rise above the current level.

     The second lease expires in 2018. At that point, ownership of the land reverts to the owner of the building.

     Charles Davis is no stranger to complicated apartment development deals. In the early 1990s, Davis was an investor in a group that planned to purchase several downtown apartment buildings used as low-income housing and convert them to market-rate rentals.

     Named Project Homeward, the group's plan would have transplanted the low-income residents to new housing in and around downtown. The project eventually was abandoned.

     Contacted about the Circle Tower project, Davis deferred comment to Helfer.

     Davis Homes is the Indianapolis area's second-largest home builder. Cornerstone and its affiliated companies develop, own and manage apartment communities.

     Helfer stressed that the Circle Tower apartment project still is in the idea stage, although the joint venture is contemplating no other alternatives besides office uses.

     "With so many different leases [in the building], it creates a real puzzle," Helfer said. "It's a much bigger puzzle than what will be solved in the due diligence period [before the purchase closes]."

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