VOL. 125 | NO. 242 | Tuesday, December 14, 2010
EMPHASIS Commercial Real Estate Trends
Highwoods Stands Tall Among Competition
By Sarah Baker
Steve Guinn is vice president of Highwoods Properties, which includes a number of commercial properties near the Poplar and Ridgeway area, including the Crescent Center, the Triad Centre and the International Place Phase II. (Photo: Lance Murphey)
As a prominent investment and leasing firm and one of the most active real estate investment trusts in the Memphis market, Highwoods Properties Inc. routinely made commercial real estate headlines in 2010.
Raleigh, N.C.-based Highwoods pulled off the biggest deal of the year – and in the past five years – in July with its $52.6 million purchase of the Crescent Center from IPC Crescent Center LLC, an affiliate of Behringer Harvard.
It also secured a newsworthy lease by signing Glankler Brown PLLC to a long-term deal in East Memphis and opened Triad Centre III, the city’s first office building certified as LEED – Leadership in Energy and Environmental Design.
In January 2005, Highwoods revealed a strategic plan that enabled it to dramatically improve its financial position over the past six years, said Ed Fritsch, Highwoods’ CEO.
“We try to take on a philosophy of how we cannot just survive but thrive in a downturn,” Fritsch said. “Every aspect of the real estate cycle has opportunities if you have the money to execute.”
From January 2005 well into 2008, Highwoods sold a large portion of its non-core assets at “extraordinarily attractive” prices – about a billion dollars worth of assets at a 6.7 percent capitalization rate.
Rather than taking the proceeds from its dispositions and buying high-grade assets, Highwoods used the money for funding new development – like Triad Centre III – and paying down stacks of debt before the credit crunch ever arrived.
Since it is well-capitalized in both debt and equity, Highwoods can take advantage of opportunities that arise in the marketplace, while others may not have the money to execute similar strategies.
The company’s holistic approach involving four cornerstones of the plan – people, communication, portfolio and balance sheet – set up Highwoods for deploying capital effectively, solidifying a proper level of return from the right product.
“As a result, we have a balance sheet today that has provided us with the muscle to go out and do things akin to opportunities,” Fritsch said. “To fully fund without any loans, we can fully fund tenant improvement expenses and broker commissions.”
Out of Highwoods’ 10 offices, Memphis is one of its core markets, meaning it is a top five revenue contributor. Since the acquisition of the Crescent Center, the Memphis office has increased its headcount from 19 to 21 and plans to expand its presence in the market.
“Everybody needs to know who’s running the ball where when we break out of the huddle, as opposed to just everybody lining up when the ball’s snapped and trying to figure out who’s going where,” Fritsch said. “It’s not just being able to deploy the capital, but it’s being able to be there and establish ourselves as service providers as opposed to space providers.”
Because Highwoods controls a high concentration of space from Interstate 240 to Kirby Parkway along Poplar, it will be able to dictate future terms and rates, said Wyatt Aiken, president of the Memphis Area Association of Realtors’ Commercial Council.
“They’re well-poised to take advantage of rising rental rates once occupancies start to rise, which they inevitably will as the economy comes back,” Aiken said.
“Their decisions to build Triad III, to make it green, to buy Crescent Center – these are all longer-view perspectives – which is what you need in a real estate developer.”
Aiken also credited the company’s local leadership. Highwoods’ top Memphis executive is Steve Guinn, who oversees a portfolio of 2.5 million square feet and has been in commercial real estate for nearly 30 years.
“They do one thing and they do it well,” Aiken said. “They build, manage and lease office buildings, and they do it in a truthful, honest way, which gives brokers like me a comfort level in doing business with them, as well as their tenants, their customers.”
Guinn’s leadership goal was to complete infill development, like the company did with Triad Centre III.
“It’s somewhat easier to increase your portfolio with core properties if you don’t have to sell some others and then acquire – kind of less churn if you will,” Guinn said. “The base properties we had here when the strategic plan was unveiled have really helped us a lot.”
With base properties like the Crescent Center, Triad and others along the busy Poplar Avenue corridor, Highwoods’ Memphis portfolio has placed the company in prime position.
“If you look back at different slumps and different recessions in history – and this has proven the case here – location wins every time,” Guinn said.