Evening star., 1940-09-14
Office Building Value
As Investment Seen
Becoming Steadier
Stotie Population Said
To Make Central Area
Shifts Less Likely

SnIttS Less Likely
With the national population now
expected to increase only slightly
and to become static by the end Of
the century, unless new elements
enter the picture, shifts in the CEN
tral business districts Of cities will
be less and less likely to occur, and
investors in downtown Office build
ings will be justified in relegating
further to the background in their
calculations of future value, the
specter of neighborhood change,
Joseph Laronge, Cleveland, points
out, discussing in the current issue
of the Appraisal Journal the whole
future of Office buildings as an in
vestment.
Net income, under those condi-
tions, he states, will undoubtedly be
more stable and more predictable,
even though values be lower. And
the factor of obsolescence will not
be so large. The economic life Of
an office building will tend to a
greater degree than ever before to
approach its physical life.
The risk involved in an office
building as an investment will be
less than in years gone by.
The article is one of a series in
which the journal, published by the
American Institute of Real Estate
Appraisers, is analyzing Office build
committee chairman of the insti-
tute and former member of the ex-
ecutive committee of the National
Association Of Real Estate Boards:
Upon Il s basis capital, whether
for purchase or lending purposes,
will be attrac I'd to the office build
ing especially on the part of in
vestors content with a conservative
return in exchange for relative
safety and stability
Long Economic Life.
"Offce buildings are the heavy
industry section of the real estate
field. They are comparatively stable
in use. And the factor Of neighbor-
hood change is greatly minimized
with regard to these buildings To-
Gated in the central business area
of the American city. Central busi-
ness areas will endure over much
greater period than will the aver
age outlying section. Land in CEN
tral sections is valuable. Buildings
thereon represent large inv stments
In this fact alone there is a nat
ural resistance to change that does
not exist to the same degree in out
lying sections. Downtown structures
are commonly well maintained. 1t
is costly and difficult to move trans
portatiCn lines and the Office build
ing locality naturally tends to re-
main at the nexus of the street cars
and buses For all these reasons
Office buildings in central business
areas have a relatively long eco
nomic life.
I'm the last few years Office
buildings have been affected by an
urge of business to decentralize. This
urge. We must remember, is only a
trend. probably correcting one.
and will eventually level off And
to 1t there are offsetting factors, one
of which is the arrest Of that rapid
growth in our population which until
a few years ago proceeded in most
American cities at a breakneck
speed and made it possible for
neighborhood shopping areas to
parallel the growth of downtown
areas. The wave of new freeways
for automobile traffic leading to the
downtown areas, removal of street.
car lines from main thoroughfares
development of rapid transportation
systems, establishment of garages
by nearly all department stores are
only some of the factors which will
be tending to bring people back
downtown.
Reserve Needs Cited.
Downtown may have been over
built in the halcyon days of the 2os
but it is not by any means on the
way out 1t will continue as the
teeming center of urban life of which
the office building will always be
an integral part. 1t is in these
centers that the largest realty in
vestments always have been and
always will be made"
But for safety as an investment
too large portion of office-building
income must not be paid out in divi-
dends," Mr.. Laronge warns. Reserve
Is needed for the future Failure to
keep such reserve in the years of
productivity was an important cause
of Office building losses in the de-
preston period. And in insuring
steady income we must be careful
to consider first all possible disburse-
ments that may be required For
example, an adequate annual allow
ance for requirements and provision
for periodical modernization."
And he warns also to carefully
select the city See that it is not one
IN which overbuilding has been ex-
cessive or one likely to be affected
more than the average city by de-