While making massive splash in Connecticut residential market, New Britain developer see future for historic office building, too

Despite the rocky path for office buildings since the pandemic began, developer Avner Krohn — known for huge apartment complexes in Connecticut — has just bought one in New Britain.

Krohn’s Jasko Development paid $775,000 for the historic former post office downtown, the only office building in Krohn’s portfolio.

Even though it’s half empty and in need of renovations, Krohn said the building is typical of the small to mid-sized Class A office space that he believes will be the target of increasing demand as the pandemic fades.

”I’m not bullish on office space in downtown Hartford coming back this year. Buildings are going back to the bank, new owners are coming in with concessions (to keep tenants),” he said. “But in a town center, smaller buildings — say 20,000 to 50,000 square feet, broken into small office suites — are different.

“People are looking for a walkable downtown and a building where you don’t have thousands of people, crowded lobbies, banks of elevators with people waiting to get in,” Krohn said.

Unlike high-rise towers or sprawling complexes, this size of building doesn’t require a massive number of tenants. And it’s vastly less likely to worry COVID-avoidant tenants or customers, he said.

Unquestionably, the office market nationally and around the Northeast is still reeling from the pandemic-driven work-at-home movement. Cushman & Wakefield’s analysis in April concluded that 17.5% of all U.S. office space is vacant, the highest rate since 2003.

And while the company found some rebound in the South and the West, the Northeast was largely stalled with the same empty office inventory it had last year.

At the same time, rents in Fairfield County on average remain substantially higher than for similar office properties in Hartford. The CommercialCafe website reports rents for Class A space in Hartford averaged $22.77 per square foot in the first year of the pandemic; the statewide average was $35.83. Greater Hartford’s Class B and Class C properties lagged the state average, too.

Jasko Development, which currently has more than 1,100 market-rate apartments under construction or in planning around central Connecticut, didn’t set out to buy the old post office. But the company’s tiny, modest office downtown isn’t enough for the expanding staff, so Krohn looked to lease larger space.

“We’ve been looking for a year and a half. New Britain has been good to me — but there’s very little Class A space here,” he said.

The post office, built a century ago and used for office space since the 1970s, became an option this year. The Knaus family was open to selling it, and the deal was closed June 2.

Jasko may take a small section of the building for its offices, but would still have more than 30,000 square feet to lease.

Tenants reported that renovations are already underway.

“Within a couple of days there was work going on in the driveway,” said attorney Greg Arcaro, a partner in Advanced Bankruptcy Legal Services.

While some law firms downsized office space because of the pandemic, Arcaro and his law partner, Joel Grafstein, concluded that their clients need to see them in person.

“Our business is very personal, our clients get reassurance from our experience — and that just doesn’t translate on the phone,” Arcaro said.

Jasko is banking on that kind of market — small professionals offices — to fill the former bank by the middle of next year.

“In cities you’re seeing older product is being taken off the block and converted to residential. Long before COVID, there was a move to working more from home,” Krohn said. “Insurance companies, American Express, claims processing — if you’re answering a claim call, you can do it anywhere. Then when COVID happened, the technology got better and it’s become a perk to work from home.”