Who will take over Kerr-McGee office space?

By Steve Lackmeyer
Business Writer

One year after Kerr-McGee Corp. was acquired by Houston-based Anadarko Petroleum, its downtown Oklahoma City campus is empty, its fate still unknown.


But a deal could be announced soon that is expected to trigger the potential development of three new downtown headquarters for SandRidge Energy, Devon Energy Corp. and American Fidelity Assurance Co.

The official stance from Anadarko Petroleum is that there are no pending buyers for the now-empty, former Kerr-McGee headquarters at 123 Robert S Kerr Ave. and that the property remains for sale.

But multiple sources confirm a deal is imminent that would allow SandRidge Energy to move from its temporary digs at 1601 Northwest Expressway into the 30-story McGee Tower.

From the moment Tom Ward bought Riata Energy and moved it from Amarillo to Oklahoma City, the renamed company has made its intentions clear to grow and find a permanent home either downtown or in a suburban campus setting.

In March, the company reported employing 1,600, including more than 200 at its headquarters. A move by SandRidge to McGee Tower would be a welcome relief among downtowners who still are struggling with an office vacancy rate that hasn't dipped below 25 percent in almost two decades.

But the stakes on this deal go beyond McGee Tower.

With the sale of Kerr-McGee last year, Devon Energy became downtown's undisputed leading corporate resident. The company is spread out among four downtown buildings, including Mid-America Tower and Chase Tower, and rumors have persisted for the past few years that the company might build a new downtown office tower to consolidate its operations.

Human relations consultant Jim Farris said a company can benefit from having a highly visible headquarters. He recalled his days at Wachovia Financial when the company's 30-story tower in Winston-Salem, N.C., became the tallest in that city when it opened in 1995.

"You could see that building for miles,” Farris said. "And that helped in recruiting employees, especially in a smaller town like that. It's always nice when you drive into major cities, and you see ‘XYZ Company' on it, and you know that's their building.”

Office vacancy
Devon Chief Executive Officer Larry Nichols has been tight-lipped about any possible move, but when Kerr-McGee's fate became known last year, Nichols dismissed a move to McGee Tower saying it's too small to be considered for a new Devon headquarters.

Some who know Nichols privately say he is reluctant to build a new headquarters if it would further weaken the downtown office market.

The loss of Devon from its existing space would be noticeable.

The company employs 1,200 people spread out in three buildings: 14 floors of Mid-America Tower, 16 floors of the 34-story Chase Tower and five floors at the 14-story Corporate Tower. The company also leases two floors at First National Center that are used for files and storage.

But the market has improved in recent months, and Brett Hamm, president of Downtown Oklahoma City Inc., said 60 percent of downtown's 25 percent vacancy consists of Class C space that needs to either be renovated or converted into housing or other uses.

Hamm concludes the downtown Class A and Class B office spaces are in good shape compared to the rest of the city.

A source involved in a potential Devon Tower project has told The Oklahoman that Nichols is preparing to move ahead with construction but is awaiting a resolution to McGee Tower.

"That's crucial,” said Tim Strange, a commercial real estate agent with Sperry Van Ness, who is among those keeping a close eye on the market. "We need to fill up that building, and we need to fill up First National. You've got 450,000 square feet empty at Kerr-McGee, and 350,000 square feet at First National.”

Strange said even with a potential move by SandRidge into McGee Tower, a new Devon Tower would leave downtown with one block of empty space replacing another.

"The chamber (of commerce) says large prospects are out there,” Strange said. "They've shown us the numbers, and I agree they are out there. But the challenge has been for us to provide large blocks of continuous space.”

American Fidelity
A more immediate prospect may be the final key.

Nichols, whose commitment to downtown includes serving as chairman of the Greater Oklahoma City Chamber and as an Urban Renewal commissioner, and who is involved in numerous civic sponsorships, may be further reassured about maintaining a stable office market by the prospect of American Fidelity Assurance Co. being the third domino to fall in this scenario.

American Fidelity employs 1,500, including 1,000 at its Oklahoma City headquarters at NW 20 and Classen Boulevard. The company previously acknowledged an interest in buying McGee Tower. Or it could consider moving into Devon's current space, or build a downtown headquarters, as well.

Strange points out a Devon Tower, once announced, would take at least two years to come to fruition. A scenario that brings both SandRidge and American Fidelity to downtown, with Devon building a new tower, has Strange wondering whether such momentum could attract other companies downtown to take up any remaining space.

"That will have people talking,” Strange said. "But in the overall scheme, if they do it, if Devon builds a new tower, are we better off? I don't know. But if SandRidge comes in, yes, absolutely, we're better off.”

City hall
Add one more element into this entire scenario: city hall in recent months has been very aggressive in promoting downtown office space, agreeing to parking subsidies to convince two companies to move into downtown office space. Its most recent deal resulted in Simons Petroleum moving its 150-employees from suburban offices to space last occupied by the NBA Hornets at downtown's Oklahoma Tower.

Pending lawsuit
So what's the hold-up on all these deals?

Part of the former Kerr-McGee downtown campus is clouded by a lawsuit that has waged this past year between Anadarko Petroleum and partners in the failed Braniff Towers development. The project, which Kerr-McGee announced two years ago, called for renovation of three empty buildings on the campus, including the former headquarters of Braniff Airlines, into housing.

The trial was to begin in April but was pushed back to Sept. 11 following the case's reassignment to a new judge.

The lawsuit, filed last July by Corporate Redevelopment Group LLC, seeks $8 million in damages alleging Kerr-McGee and Anadarko violated terms of the development deal.

Those watching the case closely include Hamm, who previously urged both sides to settle the case quickly to avoid adding about 500,000 square feet to downtown's vacancy rate.

"I am very disappointed as it's important to resolve this case in the most expeditious manner as possible,” Hamm said. "I am hopeful that interested buyers are not dissuaded by this delay in the process and that we are able to ensure progress regarding a permanent tenant for the Kerr-McGee building.”