Just as news comes about the Aetna building on the Southbank being under contract, the partnership that owns the arguably most recognizable piece of the downtown skyline is putting it on the block for sale. Seems to be a lot of positive real estate movement going on DT, could it really mean that the Jacksonville economy is improving?
QuoteOne of Downtown Jacksonville's signature skyscrapers, the Wells Fargo Center, is on the market.
Mike Harrell, senior vice president with CBRE Group Inc. (NYSE: CBG) confirmed Monday that he's been marketing the tower for about three weeks.
Story continues ...http://m.bizjournals.com/jacksonville/news/2013/11/11/cbre-marketing-wells-fargo-center-in.html?ana=e_du_pub&s=article_du&ed=2013-11-11&r=full (http://m.bizjournals.com/jacksonville/news/2013/11/11/cbre-marketing-wells-fargo-center-in.html?ana=e_du_pub&s=article_du&ed=2013-11-11&r=full)
The commercial market is improving. Mostly because banks are starting to write more reasonable commercial loans.
I don't think its just Jacksonville (simms can weigh in here), but its improving nationally.
People who rode the storm out are ready to move on now and this allows new players in the pool.
Yes I agree, it just seems Jax is more on the upswing than others but that may just be my perception. I do know that a lot of corporate campuses in Jersey have been on the market or being added to the for sale list, but that may be unique to them and not really comparable to a DT atmosphere. It just seems that with Strand, Wyndham Riverfront, Aetna, EverBank, Wells Fargo, SunTrust, One Enterprise, 233 Duval all on market or recently sold in past 3-6 months seems abnormally high, but yes I too await Simms professional thoughts.
Quote from: I-10east on November 11, 2013, 08:01:55 PM
Quote from: JayBird on November 11, 2013, 07:46:53 PM
but yes I too await Simms professional thoughts.
I'll be in anticipation of a lengthy ranking list of some sort. JK Simms.
I don't want to get into it - this thing is trading for sub-$160/sf. In fact, $140/sf wouldn't surprise me (despite the article thinking that it's going to be WAYYYY more than the $130/sf that Deerwood park traded for). But I don't play in the Jax market and don't know it all too well. PM me if you want my thoughts, I looked into some things and backed into my own numbers (without the OM of course) and moreso backed into why I would stear clear of the building (or any DT Jax building for that matter). All I know for sure is that rents at Deerwood and WF Tower can't be materially different, that expenses at the downtown tower are significantly higher, that parking and ancillary revenue is immaterial to NOI (though having on-site parking can be a MAJOR plus that means more in a NYC or SF than a Jax where garages are plentiful off-site as well), and that if asking is $22-23/sf, then in-place effective gross rents can't be too far off of that (and WF their big new tenant could still be in their base year for all we know). Expenses are likely $9-10/sf tops. And LL probably avoided "deferred maintenance" credits when they upgraded the building systems a while back (but that lobby...oh that lobby).
The lower pricing (9-cap) for arguably the most prestigious office park in suburban Jax would be much more enticing to me (plus its two largest tenants Comcast and Fidelity Investments offer up similar if not "more" credit than Wells Fargo, being that they are ~20% of GLA and WF is only 13%). If WF tower is 892,000 SF, then I would hardly call Wells Fargo an anchor if they're only taking 120,000 SF (13% GLA). I have my separate thoughts on that deal (probably were offered some sort of discount on face rate, OR major concessions which just now are burning off which is why the building is being marketed...def a tenant's market in JAx!), but I believe deep down that the former Eola Partners guys who are hanging on to Wells Fargo tower believed they could get a premium for selling it by itself rather than as part of a portfolio (with the rest of their stuff that they sold before). They knew they were going to sign Wells and I'm sure they kick-started their marketing process as soon as they did.
A REIT sold the Deerwood office park to another REIT (ironically the same REIT that bought all of the Eola assets), and the Atlanta CBRE guys ran with that deal, having the institutional and Parkway Property relationship in particular. Mike Harrell has the rolodex for the kind of buyer who might look at DT Jax, which is very likely not so institutional in nature (it certainly isn't now and I doubt this tower changes that).
I would play devil's advocate and discount the building further for the Wells deal. Why? Too small. Almost a million SF in a mid-size city's most tropy office tower and the largest anchor is 120,000 SF and it just goes down from there. My uncle's law firm is one of many that have cycled through the building in the past decade. The whole building functions exactly like a revolving door class B commodity with countless tenants and on-site leasing reps (due to the business). But it's a "trophy class A" tower. The story doesn't make sense to me. A bunch of small law firms and financial advisory firms (mostly local of course) with 3 year deals, TI packages, leasing commissions, etc etc. Great way to kill yield is to buy a class A "stabilized" asset and then get stuck with a Class B revolving door tenancy.
Also, I don't believe for a second that Wells dramatically improves the tenant credit profile either (at 13% of the GLA?). Wells needed to be 40+% of GLA. THEN heads would turn (mine at least).
Also - still wayyyyyy too much risk with vacancies in competitive buildings all around, from BOA to Everbank Center to 225 Water St to Gulf Life tower (all basically asking the same rents and offering pretty much the same space a la pre-1990 stuff). DT Jax is a perpetual musical chairs with frequent negative absorption and some of the most stagnant rents (along with Dallas). I wouldn't know what strategy to pursue. What's going to prevent Parmenter from recapping BOA tower, spiffing it up, marketing like crazy, and stealing a bunch of my smaller tenants, leaving me with gaping holes that are difficult to fill (and no tenants to fill them)?
89% occupied is probably deceiving - I would imagine they are marketing it now for a reason (has "even/steady" rollover and no "big worries" on horizon). But it's Jax. There are always worries on the horizon. Competitive markets are good. Challenging, but good. Jax is competitive in all the wrong ways - it's like spending money not to lose even more money. Aka, offering concessions, nice packages, lenient LOCs (letters of credit...what credit?), contraction clauses (certainly never any expansion clauses because the market is not one that has "expansion tenants" like an SF does with all of the high growth tech firms), and all of this competition for the same low rents.
Which kills the value-add strategy for me. Normally I would look at a trophy class A tower with 11% vacancy and think 1 of 2 things:
1) Who just vacated leaving this nice upside?
2) Why isn't this already spoken for?
Being the most occupied building downtown speaks for itself. 89% is the pinnacle. In my opinion, it can't sustainably get any higher than that, so why underwrite any further upside as a value-add opportunity? Back to square one - you're treating this as stabilized as-is and simply discounting off that back 11%. I think a buyer who underwrites filling this thing up is going to run into trouble. But what do I know? Knowing Mike personally, he is the king of selling DT towers. Ownership couldn't have gone with a better guy (I think he partners with Barakat a lot, and they are the duo in town that run the program). I wish him and ownership the best in selecting the right buyer - I'd be wary of aggressive buyers and stick with one who underwrites conservatively myself (I would think that's a sign they understand the challenges of the market, heh).
They say Atlanta is a scary place to buy office buildings because it's SOOO cyclical and unreliable, and people really get burned there. But there's still opportunity, there are still players who have figured that market out and when to "time it", and there are still firms expanding and relocating there, rents that easily hover in the territory that permits new development (aka $30+ there, probably $26+ in Jax, which is a long way off for the latter), etc. There is no strategy to pursue in Jax though. It's not even cyclical. It's just perpetually bad. THAT's scary.
Deerwood = mucho mas safe to me than the best tower downtown has to offer. But it ain't my money. If I were a major gambler, then...eh I'd have to smoke something to get all psychoanalytical to find a good enough reason to risk in downtown. Is there a turnaround happening? That's what people are betting or not betting on. I say no - I don't see it in my timeframe.
Now I just shot myself in foot - I could very likely just sign a confi and receive the Offering Memorandum. I guess I'm interested, but I would have to never chime in again about this deal! Plus, I've probably overshot on my comment above. As I was thinking about it, I basically talked myself out of believing that there are any good deals to be had in DT Jax. I know Mike and he and Oliver are THE office investment sales guys in Jax. I also know the team that handled the sale of Deerwood - they are Atlanta based (THE leading office sales team in the SE up there).
My guess is that Flagler hired CBRE's Atlanta guys to handle that transaction because they had more REIT/institutional relationships (these guys are selling the trophy towers and best in class suburban buildings in Atlanta, Charlotte, Nashville). Mike has handled several DT tower sales, but REITs and institutions aren't buying downtown, so likely a different rolodex. Maybe that means the owners of WF Tower think it will go to someone private/smaller (or maybe a startup or non-traded SE-based REIT).