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VOL. 126 | NO. 25 | Monday, February 7, 2011

Shifting Gears

Longtime Memphis commercial real estate firms adapt to new market

By Sarah Baker

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Memphis has long been a real estate town.

Boyle Investment Co. has bought majority ownership in Belz Enterprises Inc.’s Germantown Village Square shopping center. (Photos: Lance Murphey)

Family names like Belz, Boyle, Clark, Fogelman, Loeb, Snowden and Wilkinson – to name a few – have become synonymous not only with local commercial and industrial development but also with the city’s business fortunes and cultural identity.

“When teaching the history of Memphis real estate I start with the fact that Memphis was an agrarian city in its roots and therefore land and real estate was a very noticeable and prominent amongst the city’s elite,” said Shawn Massey, principal with The Shopping Center Group LLC and an adjunct professor of real estate at the University of Memphis.

“The great thing for Memphis is that I try to emphasize is how benevolent the real estate families were to the city of Memphis in education, arts, charitable giving, etc.”

Coming off the heels of the Great Recession, firms that remain complacent and unwilling or unable to adapt will likely get left in the dust.

But those with the right mix of cash and confidence have prime opportunities to seize advantageous deals – and perhaps enjoy substantial returns.

That’s why several of Memphis’ longtime commercial real estate firms are responding to current market conditions by tweaking their business models.

Some are shedding assets and some are rebranding. Some are in acquisition mode and some are retooling through joint ventures.

LEDIC Management Group LLC, for example, recently announced it is selling a significant stake of its company to El Paso, Texas-based investment firm Hunt Cos. Inc.

Founded in 1979, LEDIC manages more than 25,000 multifamily units, with a total goal of 100,000 units in the next five years – 10,000 additional units in 10 markets with Hunt’s investment.

While LEDIC’s operation will remain business as usual – headquartered in Memphis as the same privately held company it was when formed more than 30 years ago – Hunt’s investment will allow it to expand geographically from its current concentration to other areas.

“We view the current cycle as the ideal time to execute,” said Scott “Pierce” Ledbetter, president and CEO of LEDIC. “A great deal of distressed apartment debt will mature during 2011-2014. From the supply side, very few apartments are being built today. From the demand side, the renter population is growing. LEDIC is positioning to meet demand with supply.”

Another seasoned Memphis firm that has seen changes in the past year is Colliers Wilkinson Snowden, which became known simply as Colliers International in 2010.

The decision to rebrand allows the firm to better tap into the resources of its parent company, the third-largest CRE firm in the world with 15,000 professionals operating out of more than 480 offices in 61 countries.

Marketing and branding are important for any company but is approached differently based on where a company is in its life cycle, said Colliers’ Memphis president Gene Woods.

Market conditions were only coincidental to the firm’s decision to remain affiliated with the newly integrated Colliers International and to adopt the Colliers International name.

“We’ve actually had Colliers as a part of our brand for 20 years and have been in the market for more than 60,” said Woods, who said the emphasis on local real estate needs hasn’t changed dramatically over the years.

“Memphis offers a comprehensive multimodal transportation hub that is unique among markets of our size, and has an available labor pool trained in transportation and warehousing.”

Colliers has been an integral part of Memphis’ commercial identity. One of the firm’s co-founders, Bob Snowden, even helped coin the phrase “Memphis: America’s Distribution Center,” which served for years as the city’s marketing slogan.

Belz Enterprises Inc. sold Eastgate Shopping Center last month for $31.5 million to a Dallas-based company. Belz has been shedding its retail portfolio of late.

“Since then, we’ve been involved in sale, lease and property management assignments on almost every industrial building in the market – many multiple times – and often, for the same owners and/or tenants,” Woods said. “Great client relationships and the referrals that result from them are the lifeblood of our business.”

The branch is still locally owned with Woods, Andy Cates, Brad Kornegay, Bayard Snowden and Dan Wilkinson continuing to serve as principal stakeholders.

“We’ve been steadily growing our business by hiring good people and leveraging their skills for the past several years and will continue to partner this approach with our strategy to maintain a leadership position in industrial real estate and grow our presence in office, retail and investment sales,” Woods said.

Boyle Investment Co. is another firm to undergo a transformation. The longtime Memphis company kicked off 2011 by announcing the formation of Midsouth Capital Fund I LLC, which is targeting $80 million in real estate investment opportunities throughout the Mid-South, with a focus on Memphis and Nashville.

Just weeks after setting up the fund, Boyle made its first Memphis acquisition by purchasing a majority interest in Belz Enterprises Inc.’s Germantown Village Square Shopping Center for $14 million.

Boyle already leases and manages more than 1 million square feet of retail space and almost 2 million square feet of office space in the greater Memphis area. The Germantown Village Square acquisition will add another 140,000 square feet of retail space and 60,000 square feet of office space to Boyle’s Memphis portfolio.

The Midsouth Capital Funds gives Boyle a chance to diversify its portfolio and deploy capital, said Mark Halperin, executive vice president of Boyle.

But Boyle isn’t as concerned with achieving portfolio goals as it is with taking advantage of market devaluation and investing accordingly.

“Just like we have for the last 78 years, we will operate very carefully, conservatively, try to take advantage of opportunities when they present themselves, and do our very best to preserve cash,” Halperin said. “Our goal is to continue being good stewards of our capital and taking great care of all the tenants we’ve already got in our different investment properties.”

Since its founding in 1933, Boyle has changed immensely, growing and shrinking in efforts to adapt to market conditions.

At one time or another, the firm – which helped create the East Memphis office market with its Ridgeway Center office complex in the early 1970s – has been involved in every aspect of the real estate industry, de-emphasizing some areas along the way.

Currently, Boyle employs 120, compared to other stints in history when it employed as many as 700.

“At one time we were a large residential mortgage originator and at some point in time we got out of that,” Halperin said.

“We used to build houses, we used to build apartments – we’ve done a lot of different things over the years and we’ve changed as the family’s investment appetite has changed and as the markets have changed.

“We’ve got more than three quarters of a century invested in what we think is kind of a gold standard brand, certainly in this community and in this region, really.”

Boyle’s investment in Germantown Village Square underscores a shift for another longtime Memphis company, Belz Enterprises Inc., which has changed direction with a trio of high-profile deals in the past month.

The longtime Memphis commercial, office and industrial development company sold Park Place Centre for $10.3 million to Loeb Properties Inc. at the end of December and Eastgate Shopping Center to a Dallas-based entity for $31.5 million in January.

Belz is likely taking advantage of the influx of buyers on the market.

Company representatives did not respond to numerous requests for comment on this report, but Ron Belz told The Daily News in January regarding the Eastgate sale, “We will continue to pursue strategic investment opportunities in various markets and property types and in doing so we shift assets from time to time.”

This tack has created an environment that helps acquisition specialists like Loeb Properties thrive.

“Quite frankly, we’ve been sitting around through a long-term expansion, and not hoping for bad times, but waiting for them, because that’s where we can find some opportunities for properties that we can acquire, improve and reposition,” said Bob Loeb, president, CEO and chairman of the company.

“Cap rates are going up, the margin between the cost of debt capital and return on investment on the purchase of new assets creates a bigger profit margin, so we do hope to be more active to take advantage of those situations.”

But Loeb’s recent Park Place purchase is a bit of an exception to its business model, considering it was not a repositioning.

“It was a stabilized asset and we just had an opportunity to acquire that property and finance it so that it was an attractive sale for Belz and purchase for us,” said Loeb.

Since 1887, four generations of the Loeb family have been involved in more than a dozen businesses, including convenience stores, barbecue restaurants, outdoor advertising and laundry/dry cleaning businesses.

The family decided to focus solely on real estate in 2003. For the most part, Loeb’s bread-and-butter deals are small bay retail transactions – a notion the company has retained since its shift.

Loeb currently employs about 30, and it maintains a direct correlation between properties under management and number of employees.

“Between 2005 and 2008, we shrunk by a third just by selling assets, so our head count shrunk, along with our property count shrinking,” Loeb said. “So as we grow, we expect employment to grow also.”

But the growth will be gradual, and will likely remain local. To Loeb, too many good deals at the same time aren’t good deals at all.

“We look for opportunities to make sense and we’ll focus on closing those deals,” Loeb said. “Memphis offers plenty of opportunity to us and so we’ve deliberately chosen not to go out of town.”

Despite shifting gears amid the current market fluctuation, Memphis’ longtime local companies operate much the same way they did when founded generations ago. And though each company is going in its own direction, a common thread still runs through the city’s CRE business.

“You look around the room (at a conference) and you see these other developers, city planners and elected officials, architectural, engineering and contracting firms, and most of them are your friends,” Loeb said. “It’s a very collegial environment.”

PROPERTY SALES 69 119 21,696
MORTGAGES 64 113 16,530
BANKRUPTCIES 28 64 6,781