Real-estate rich newspapers are finding it’s time to cash in
The newspaper industry continues to bleed print advertising revenues and circulation. Digital and other new ventures are growing, but not quickly enough to make up for the losses.
The sale of real estate, however, has helped.
The trend of selling a big headquarters and moving to generic office space, typically rented, has been in progress for years. It's epitomized, perhaps, by the Philadelphia newspapers selling their whiter-than-white tower at the north end of Center City and relocating to a vacant department store.
But the movement to cash in on overly large buildings and land once targeted for expansion that now will never happen has picked up steam in 2013, offering a snapshot of where a booming industry once was and how its need for space shrank.
Just within the last six weeks:
- The Seattle Times sold two full blocks of land in a near-downtown neighborhood for $62.5 million in July. It previously sold parcels worth $84.5 million in the area, which has become hot with expansion by Amazon and the Gates Foundation. The land play generated more than twice as much as the recent Boston Globe sale.
- While signaling that the sale of its eight newspapers may be delayed, the Tribune Co. also announced it will keep its buildings and land holdings. A corporate president of real estate has been hired to maximize the value of properties, including the prominent headquarters building in Chicago and the sprawling Los Angeles Times offices.
- During the New York Times Co.'s most recent quarterly earnings call, reporting weak advertising results, chief financial officer James Follo volunteered a nugget of real-estate news. The company has a 2019 option to buy back for $250 million the portion of its showcase midtown building sold four years ago. The company will exercise the option and make an unspecified but meaningful gain, Follo said.
- The Washington Post has put its downtown building on the market, and Digital First newspapers are systematically shedding excess space (in some instances buying out long-term leases) as part of CEO John Paton's drive to reduce legacy costs.
In several recent sales, including the Globe's and that of the Tampa Tribune a year ago, the value of strategically located land about equals what buyers paid. And real estate was a powerful deal sweetener as the New York Times Co. sold its regional papers (to Halifax) and Media General sold its newspaper group (to Warren Buffett's Berkshire Hathaway).
Commercial real estate has recovered sufficiently from the 2007-2009 recession that companies putting buildings or land up for sale can expect to fetch a good price.
The current logic of downsizing is straightforward: with smaller newsrooms and shrinking business operations, newspaper organizations need much less space. How so many came to be sitting on a real-estate bonanza is a more complicated story.
Typically, the buildings up for sale are at least 50 years old, and some date to the first half of the twentieth century. Many were anchors for downtown development -- an architectural statement of community prominence. But a number of others were on the fringes of downtown, and had appeal because they offered better access to highways -- and often rail spurs -- to haul in rolls of newsprint.
Well into the 1960s and 1970s, newspapers acquired adjacent land. It was good place to park the reliably robust profits of the time and create a bank of property for future expansion.
Time has been on the side of property-rich newspapers. Progress has marched out to those once-fringe locations. The flexibility of a large parcel is particularly attractive to developers, which might otherwise need to assemble a suitable property from several owners.
The space needs of newspapers began to shrink as hot type gradually gave way to electronic production. The newsroom and the presses no longer needed to be in the same place.
The loss of newsroom jobs -- 30 percent overall and higher in many metros -- has been well chronicled, but there have been other equally big reductions. After the federal do-not-call registry was established in 2004, telemarketing faded as the main way to sell new subscriptions. What's left -- sometimes including circulation service calls --has typically been outsourced.
The 80 percent decline in classifieds since 2000 eliminated the jobs of many sales people. Placements can now be done digitally rather than by human ad-takers.
And of course, many papers have outsourced printing, leaving a big empty space where the presses used to be.
Finally, rows of empty desks in legacy buildings are a morale-draining reminder of reduced circumstances for employees who are left. In New Orleans, Ann Arbor and other Advance newspapers that have reduced home-delivered print frequency, a move to new and more generic office space reinforces a sharp change of news and a new product focus on digital.
For all the logic of cashing out and moving on, a majority of newspapers haven't done so yet. An alternative is to use some of the excess space for related ventures such as a tech incubator, or to rent some of the space out. Poynter's Tampa Bay Times, for instance, now has a bank branch in what was once the main entrance in the second of three joined buildings.
Also the estimated value of a property only becomes real when there is a buyer. For every Miami Herald -- which sold its bayfront property for $236 million to a casino resort developer in 2011 -- there may be an another paper in a less-desirable location or a city whose core isn't expanding.
However, I expect the industry's real-estate boom to continue through the balance of this decade. Case in point: The Austin American-Statesman has its offices and presses on a prime parcel of land across Lady Bird Lake from the southern end of a hot downtown.
The Statesman reported in May that there have been two unsolicited bids this year -- so far not accepted -- for its 18 acres, appraised at $40 million dollars but possibly worth twice that. A real-estate broker told the paper, "It's pretty clear that the highest and best use of the property is not a three-story building and a printing press."