VOL. 7 | NO. 35 | Saturday, August 23, 2014
EMPHASIS Commercial Real Estate
By Amos Maki
From his office on the 21st floor of the Raymond James tower Downtown, John C. Carson Jr. has a sweeping view of the Mississippi River as it rolls by the Bluff City.
But as time on the financial services firm’s lease on the Downtown skyscraper ticked away there was a period when Carson, president of Raymond James, was not sure how much longer he would work out of the office, which once belonged to Allen B. Morgan, the co-founder of the legendary Memphis-based firm Morgan Keegan & Co.
Raymond James’ lease renewal Downtown was the culmination of a two-year process. The company explored multiple real estate options while negotiating with a landlord that was trying to exit Memphis.
(Memphis News/Andrew J. Breig)
In June, however, Raymond James reached a deal with Parkway Properties Inc. to extend its lease at the 50 N. Front St. skyscraper until March 2024, keeping the firm and its hundreds of employees in the heart of Downtown for the next decade.
The lease renewal, one of the most important office deals in the Memphis market in 2014, was the culmination of a two-year process that saw Raymond James explore multiple real estate offers – including new office buildings in Downtown and East Memphis – while dealing with a landlord, Parkway Properties, that was trying to exit the market altogether.
“It did take an unusually long time, which I think did cause a certain amount of anxiety for those on the outside watching,” Carson said.
Carson said Raymond James never entertained the thought of leaving Memphis but did explore a wide range of real estate options.
“There was never any question that Morgan Keegan and then Raymond James would be committed to the city of Memphis,” said Carson, who joined Morgan Keegan in 1994. “Now, being in Memphis and being (at 50 N. Front St.), there was a question about that, and we certainly went through a very serious search process in terms of alternatives.”
Downtown was always at the top of the firm’s list, but the process of merging Raymond James and Morgan Keegan operations, along with Parkway Properties’ own internal dynamics, meant that the deal took longer than many people anticipated it would.
“It took a long time,” Carson said. “Parkway Properties had some decisions to make and we looked through all the alternatives, but with a bias towards Downtown.”
In April 2012, Raymond James acquired Morgan Keegan, which had occupied the Downtown skyscraper since it opened in the 1980s. That same month, Parkway Properties sold a portfolio of buildings, including six in Memphis, to Santa Monica, Calif.-based Hertz Investment Group, essentially exiting the Memphis market.
Parkway Properties, wanting to leave the Memphis market entirely, began gauging Raymond James’ interest in acquiring the office tower.
“We considered all our options but what we were not considering was purchasing this building,” Carson said. “Parkway was mostly interested in moving on but we’re simply not a buyer. We’re a financial services firm and our expertise is not in owning or managing real estate, so we were going to be a tenant.
“I certainly think that extended the period we were in limbo because Parkway’s first interest was in simply selling, as they had done with their other buildings. I think they wanted to exhaust that alternative before they engaged seriously with us.”
Then there was the issue of parking. Built in the early 1980s, the Front Street office tower does not have a parking garage and Raymond James associates park their vehicles at spots scattered across Downtown.
“It’s extremely unusual, and people don’t really focus on it, but there’s no city in America nowadays where you could build a 21-story skyscraper with no parking,” Carson said. “Without a provision for parking we were going to have a really difficult time. This was a major stumbling block and one that Parkway could not address.”
Memphis Mayor A C Wharton Jr. helped find a solution to the parking problem, offering Raymond James a market-rate deal to lease parking spaces on a sliver of city-owned land near the state visitors center underneath the monorail to Mud Island.
“Mayor Wharton was pivotal in standing with us and getting access to parking,” Carson said.
Raymond James’ lease extension was a major boost for Downtown, which has been stung by the emergence of East Memphis as the city’s primary office market and the departure of major corporate tenants such as Pinnacle Airlines, which left One Commerce Square as part of a relocation to the Minneapolis area.
Downtown Memphis Commission president Paul Morris said keeping Raymond James Downtown – either in the Front Street office tower or in another location – was a top priority because of the ripple effect the firm has on the neighborhood, from housing to retail to philanthropic and community involvement.
“It was very important for Downtown to retain Raymond James because they are an anchor tenant Downtown,” Morris said. “Raymond James is better off for being Downtown and Downtown is better off for having Raymond James here.”