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Office tower bounces back: Renovated National City Center recovering from loss of Simon

February 25, 2008

Once reeling from the loss of its largest tenant, National City Center now has a rising occupancy rate amid a major renovation that is resuscitating the aging office building.

Indianapolis-based Simon Property Group Inc. vacated 182,000 square feet in National City Center by moving to its new headquarters a block away in the fall of 2006. The departure left the 16-story tower at the southwest corner of Washington and Illinois streets 28-percent unoccupied after years of being nearly full.

Owner HRPT Properties Trust in Boston is banking that the building still has the charisma to attract new tenants. The company purchased National City Center in May 2005 and, with the Hyatt Regency Hotel that is housed there, is investing millions of dollars in the 30-year-old structure.

The responsibility of filling the building has been handed to David Buchanan, a local leasing veteran formerly with Mansur Real Estate Services Inc. He's been on the job for just 90 days and is vice president of the Midwest region for Massachusetts-based REIT Management & Research LLC. The consultancy manages the building for HRPT.

Buchanan is upbeat about the building's future and expects it to return to its former occupancy. With 625,000 square feet, it's downtown's fifth-largest office complex.

"There's no doubt in my mind [that it can be fully occupied]," he said. "There is no other building downtown that has direct connectivity to an amenities base like National City Center has."

Indeed, several restaurants and shops on the first floor, as well as a walkway that connects to Circle Centre mall, increase the building's marketability in a fairly soft downtown office market.

"They still have vacancy [issues], but they've done a good job of backfilling that space," said Jeff Harris, president of Meridian Real Estate. "I think it's because of the amenities and the attachment to the amenities."

Lease agreements with three state agencies and Paris-based utilities giant Veolia Water have given the tower a muchneeded lift.

Veolia will take about 35,000 square feet on the 14th floor of the 625,000-square-foot building. Its space in both the building's east and south towers will be connected by a new pedestrian bridge.

The company announced last year that it will move its North American headquarters from Houston to Indianapolis in March and create 100 local jobs. Veolia, which has managed Indianapolis' water system since 2002, operates more than 90 water-treatment plants and more than 190 wastewater treatment plants.

The Indiana Utility Regulatory Commission occupies 27,300 square feet on the 15th floor of the east wing, and the Office of Utility Consumer Counselor has 16,800 square feet at the south end of the same floor. The Indiana Criminal Justice Institute occupies 11,800 square feet on the 11th floor of the east tower.

Space constraints at the Indiana Government Center prompted the moves, said Elizabeth Barrett, spokeswoman for the Indiana Department of Administration. An expansion of the state Department of Child Services forced the IURC to look for new digs. National City Center's proximity to the government center makes it an attractive alternative, Barrett said.

Together, the 90,900 square feet of space the three agencies lease represents half the amount Simon occupied. But Buchanan expects tenant numbers to climb. More deals should be closed in the first quarter and could include other state agencies, he said.

Knocking out smaller parcels of space rather than landing a large tenant to

replace Simon is to be expected, said John Vandenbark of the local office of Los Angeles-based CB Richard Ellis. He is the leasing agent for National City Center.

"In our market, finding a tenant of Simon's size is somewhat difficult," he said. "So any time you can land a tenant like Veolia, that's pretty good."

Further, National City Center is one of the few downtown towers, besides First Indiana Plaza and One Indiana Square, that have large blocks of space available to accommodate assorted tenants, Harris said.

Renovating the interior of the building to give it a more modern appearance seemingly is making a difference as well.

HRPT is plowing more than $2 million into the tower, and could invest even more, Buchanan said, if renovations continue beyond the two phases currently under way. And anchor tenant Hyatt Regency Indianapolis completed an $11 million refurbishment that included the addition of 10,000 square feet of meeting space, a coffee shop and a restaurant.

The coordinated effort between the two is an attempt to "bring some life back" to the building, Buchanan said, following the departure of Simon.

The first phase of renovations to National City Center are nearly finished, Buchanan said, and includes a new entrance from Washington Street, as well as major lobby renovations to the first floor. Much of the work is cosmetic, rather than structural, he said.

An escalator connecting the second and third floors was removed, to better distinguish the corporate center from the hotel, and to improve the view of the lobby from the upper levels, Buchanan said.

Phase 2 involves renovations to the second-floor lobbies of both the east and south towers, and should start in April and finish by the end of the year. A third stage could follow.

"All of that has translated into some expanded excitement for the property," Buchanan said. "The velocity of leasing activity has increased dramatically."

The investment HRPT is making in National City Center is a testament to the firm's long-term commitment to the building, Buchanan said.

Prudential Co. and Hyatt Hotels originally owned the building formerly called Merchants Plaza because of Merchants Bank's presence. Jeff Henry, managing principal of the local office of St. Louisbased Colliers Turley Martin Tucker, was one of the original leasing agents.

Besides St. Elmo's Steak House and a small convention center, there wasn't a lot to draw people to the south side of Washington Street before Circle Centre opened.

"[National City Center] was a little bit ahead of its time, as far as location and the amenities associated with an office building," Henry said.
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