Wanted: Tenants for AT&T Tower in Jacksonville

[thelakelander]

I didn't see this TU story being discussed, here is a thread for it.

The task facing Elad National Properties is as tall as the 30-story AT&T Tower.

Elad, owner of the downtown Jacksonville building, is losing one of the tower's biggest tenants this month as CSX moves hundreds of employees to the 550 Water Street building, also in downtown. It's a bit of musical chairs with CSX vacating eight floors of the AT&T Tower to lease space in a building closer to CSX's headquarters, creating a campus setting for CSX on the riverfront.

Combined with other vacancies at the AT&T Tower, the CSX departure will drive up the tower's vacancy rate to 42 percent. To fill that space, Elad must reverse the trend of companies choosing the suburbs over downtown.

Read more at Jacksonville.com: http://jacksonville.com/business/2011-04-18/story/wanted-tenants-att-tower-jacksonville#ixzz1Jz80T2Mk

[KenFSU]

Some people could use a basic lesson in supply and demand.

[urbanlibertarian]

What are the higher costs for landlords DT vs the burbs that lead to higher rents?

[johnnyroadglide]

Not that this really has anything to do with this article but did you all know that the CSX HQ Building at 500 Water ST is actuallu listed by the Property Appraiser as being owned by the Seaboard Coastline Railroad. Apparently when CSX came to be they just never bothered to change the ownership name. I have also found many properties around the city that are listed as being owned by SCL or Atlantic Coastline or even St Johns River Terminal Company. Kind of interesting to see those old names still listed as owners.

[CS Foltz]

Council President Webb appears to think that waiving Fair Share for developers will start the local economy (construction wise) up again I guess he has just not noticed all of the empty stripmall offices and the empty buildings downtown. Someone might think we might be a tad overbuilt but hay! What do I know, I just get to pay for it like usual! johnnyroadglide.......cheaper to leave as is plus liability issue's are excluded!

[tufsu1]

What are the higher costs for landlords DT vs the burbs that lead to higher rents?

most of the office space downtown is considered Class A or B....the suburbs are a mix of Class B and C, with a spattering of Class A space....it has to do with building amenities, decorating materials, etc.

[ChriswUfGator]

What are the higher costs for landlords DT vs the burbs that lead to higher rents?

most of the office space downtown is considered Class A or B....the suburbs are a mix of Class B and C, with a spattering of Class A space....it has to do with building amenities, decorating materials, etc.

This just can't be, tufsu! A 40%+ vacancy rate?

Nooooo...I thought me and Stephen were liars and there is no vacancy problem anywhere downtown?

[simms3]

What are the higher costs for landlords DT vs the burbs that lead to higher rents?

most of the office space downtown is considered Class A or B....the suburbs are a mix of Class B and C, with a spattering of Class A space....it has to do with building amenities, decorating materials, etc.

Acquisition costs per square foot in downtown are higher than in the suburbs.  This leads to higher rents.  This also leads to higher taxes, as an aside.  Also, higher profile tenants with higher credit ratings and more money to spend on space in "trophy" towers leads to demand for higher rent in "postcard" ready CBD buildings as opposed to bland suburban complexes.  Too bad Jacksonville does not really have any tenants here who are trying to make our downtown their postcard emblem.

Tufsu, there are actually few Class A buildings downtown.  Just do a Costar search and you will see maybe 5, and aside from a couple of the buildings, Class A in Jacksonville does not stack up to Class A in most other cities.  Many of the buildings in downtown Jax (including Southbank) are constructed similarly to owner-occupied buildings, meaning Class B at best.  The finishes are pretty shoddy in every building I have been in.  The Enterprise Center is ok and Bank Of America is ok (used to be much better when Barnett Bank was in there...also very fast elevators which is a plus but drags down the Energy Star ratings, which tenants like and owners like because they can charge higher rents).

So basically, demand creates building pricing, which effects rental rates.  That's it in a nutshell.  There are suburbs out there and submarkets that command higher prices and higher rents than their city's respective downtown area.  Actually, this is not uncommon.  In fact, Atlanta is a great market for study of office space.  We are overbuilt up here and with other factors at play, average rent for Class A space ranges from $18-28/SF depending on the submarket (downtown is relatively cheap compared to Midtown and Buckhead, which are both about 30% more expensive).  In Boston and DC and other cities, the office market is tight and demand is surging for trophy office space and as a result Class A space rents creeped upward, even in the heart of the recession when other cities saw their rents fall by 10-30%.  Even Miami is pretty expensive/a tight market.  Coral Gables and Brickell Ave can command rents well above $45/SF for Class A space (few buildings in Atlanta charge above $35/SF).

Eola is disposing of its downtown Jacksonville assets.  Frankly, perhaps the best hope for downtown is if current owners eat a loss and sell their towers to even smaller funds for a lower price (i.e. based on projected cash flows from lower than current rents and more conservative lease up numbers).  This can bring down rents to not only an attractive level for our market, but also to a level where some of these buildings can start to lease up.  Get some options on these terms and create long term tenancy downtown and not only will these buildings be able to trade for higher values, there may even be enough demand for new buildings to bring back some of those more high profile tenants who prefer new, LEED/Energy Star rated buildings.  Which brings me to another point, top tier tenants want brand new buildings to anchor.  This is like a chicken vs the egg situation, but Jacksonville is in the doldrums and we will not be getting too many top tier (if any) tenants downtown for a while because of this.  Big 50 law firms almost demand LEED Silver and up nowadays (probably up to LEED Gold).

One must also not forget that for newer buildings, the land acquisition alone in a denser market like a downtown can be more expensive than an entire 4 floor suburban office building.  Let's not even mention construction costs and red tape/regulation.  This will set the stage for what the rents will be depending on what Internal Rate of Return and perhaps Cash on Cash Return (depending on the type of deal) the owner(s) wants based on the models.

It really has little to do with decorating materials and/or amenities (that effects CAM/recoverable expenses).

[fsujax]

Here we go again! just let it go Chris. At least CSX is shifting most of the employees over to the 550 Building and not out of Downtown. The new owners will more than likely find new tenants. I did like how the article highlighted the fact that they are looking at adding decorative lighting to the roof of the building. I just hope they follow through.

[simms3]

And as an interesting aside, I saw somewhere some rental rates in "downtown" Jacksonville and the highest I saw was $23.00/SF in the Everbank building.  This is further proof of everything I just said regarding rental rates and tenancy (and office brokerage is not my area of work...I just like to think I have an idea ).

[simms3]

This is what I said a while back about the AT&T Building:

For instance, the AT&T Tower is owned by Elad National Properties and is the group's *only* office property (is that their version of diversification? and not to mention they certainly didn't diversify by location!...basically only in FL...I wonder how their books look).  They clearly don't know what the hell to do with it AND they even go so far as to label it Class A (my ass!...I guess maybe for Jacksonville...they might actually do better by truthfully calling it Class B and marketing it as such to smaller companies, though the huge floorplates don't help that).  There is some major empty space in that building now or soon from what I understand and no bites to replace it (hmmm, I wonder why).

Now I sounded a little naive there.  Elad should not really think about drifting from apartments at all in my opinion.  If they want to get into office space, they should create a separate entity or start a new fund.  The AT&T Tower is definitely dragging their apartment portfolio down.  In fact, there a REITs out there looking to narrow their focus via possible asset swaps, and we are talking portfolios that are far more diversified than El-Ad's subsidiary, Elad NP.

[KenFSU]

What are the higher costs for landlords DT vs the burbs that lead to higher rents?

most of the office space downtown is considered Class A or B....the suburbs are a mix of Class B and C, with a spattering of Class A space....it has to do with building amenities, decorating materials, etc.

Acquisition costs per square foot in downtown are higher than in the suburbs.  This leads to higher rents.  This also leads to higher taxes, as an aside.  Also, higher profile tenants with higher credit ratings and more money to spend on space in "trophy" towers leads to demand for higher rent in "postcard" ready CBD buildings as opposed to bland suburban complexes.  Too bad Jacksonville does not really have any tenants here who are trying to make our downtown their postcard emblem.

Tufsu, there are actually few Class A buildings downtown.  Just do a Costar search and you will see maybe 5, and aside from a couple of the buildings, Class A in Jacksonville does not stack up to Class A in most other cities.  Many of the buildings in downtown Jax (including Southbank) are constructed similarly to owner-occupied buildings, meaning Class B at best.  The finishes are pretty shoddy in every building I have been in.  The Enterprise Center is ok and Bank Of America is ok (used to be much better when Barnett Bank was in there...also very fast elevators which is a plus but drags down the Energy Star ratings, which tenants like and owners like because they can charge higher rents).

So basically, demand creates building pricing, which effects rental rates.  That's it in a nutshell.  There are suburbs out there and submarkets that command higher prices and higher rents than their city's respective downtown area.  Actually, this is not uncommon.  In fact, Atlanta is a great market for study of office space.  We are overbuilt up here and with other factors at play, average rent for Class A space ranges from $18-28/SF depending on the submarket (downtown is relatively cheap compared to Midtown and Buckhead, which are both about 30% more expensive).  In Boston and DC and other cities, the office market is tight and demand is surging for trophy office space and as a result Class A space rents creeped upward, even in the heart of the recession when other cities saw their rents fall by 10-30%.  Even Miami is pretty expensive/a tight market.  Coral Gables and Brickell Ave can command rents well above $45/SF for Class A space (few buildings in Atlanta charge above $35/SF).

Eola is disposing of its downtown Jacksonville assets.  Frankly, perhaps the best hope for downtown is if current owners eat a loss and sell their towers to even smaller funds for a lower price (i.e. based on projected cash flows from lower than current rents and more conservative lease up numbers).  This can bring down rents to not only an attractive level for our market, but also to a level where some of these buildings can start to lease up.  Get some options on these terms and create long term tenancy downtown and not only will these buildings be able to trade for higher values, there may even be enough demand for new buildings to bring back some of those more high profile tenants who prefer new, LEED/Energy Star rated buildings.  Which brings me to another point, top tier tenants want brand new buildings to anchor.  This is like a chicken vs the egg situation, but Jacksonville is in the doldrums and we will not be getting too many top tier (if any) tenants downtown for a while because of this.  Big 50 law firms almost demand LEED Silver and up nowadays (probably up to LEED Gold).

One must also not forget that for newer buildings, the land acquisition alone in a denser market like a downtown can be more expensive than an entire 4 floor suburban office building.  Let's not even mention construction costs and red tape/regulation.  This will set the stage for what the rents will be depending on what Internal Rate of Return and perhaps Cash on Cash Return (depending on the type of deal) the owner(s) wants based on the models.

It really has little to do with decorating materials and/or amenities (that effects CAM/recoverable expenses).

Great post.

Really informative, thanks!

[simms3]

And to further add to the complication, acquisition prices are based mostly on cash flows generated from rents (also considering CAM, taxes, fees, CapEx, etc etc etc).

So rents are based on acquisition costs and acquisitions costs are based on rent, and both are a result of demand (not always...as we have seen in the last few years almost everywhere).  Also, pre-2008 acquisition costs were based largely on pie in the sky abstract fundamentals and ideals, not on actual numbers.  Even today in the top office markets in the country, cash flows don't mean everything.  In Jacksonville's case, cash flows are weak, demand is weak, and other fundamentals are weak (and so is the outlook).  As a result, current players need to throw in the towel and give newbies a chance.  I would imagine underwriting is quite difficult in Jacksonville (so a broker puts in all that extra work to value the property for the seller and choose an appropriate buyer, and because the building sells for so little he makes so much less than a broker who does less work and spends less time on a deal in another city...that really stinks).

[tufsu1]

This just can't be, tufsu! A 40%+ vacancy rate?

Nooooo...I thought me and Stephen were liars and there is no vacancy problem anywhere downtown?

dude...I never said there weren't pockets of emptiness....but you claimed that downtown was 90% vacant (because one was)...and that AT&T tower was one of the worst ones...so, considerin g that this UPCOMING vacancy will put AT&T at 42%, what was it last year...maybe 25%?

btw..have you chosen to turn a blind eye to the news that the Modis building is close to signing a major tenant?

as fsujax said, let it go

[JeffreyS]

I have heard a rumor (maybe a bit more than a rumor) that ******** wants to take over the AT&T building. I wish I was at liberty to say but it is just one company downtown moving to have their Name more prominently displayed not a new operation.