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VOL. 128 | NO. 1 | Wednesday, January 2, 2013

Changing Market

Commercial real estate deals make for an interesting 2012

By Sarah Baker

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Much of 2012’s commercial real estate deals could be summed up in one of three phrases: speculative construction, institutional buyers and unusual transactions.

Brinkley Plaza, at 80 Monroe Ave., was acquired in 2012 by Montreal-based Olymbec USA LLC for $7.2 million. The deal was Olymbec’s third Memphis acquisition in two years and first office endeavor, bringing the firm’s total portfolio here to nearly 2 million square feet.  

(Photo: Lance Murphey)

The first quarter was kicked off when Industrial Developments International Inc. revealed plans to add one build-to-suit and two speculative buildings in its Crossroads Distribution Center in Olive Branch – marking the area’s first spec construction since 2008.

And next year is poised to see more industrial spec development. While fourth quarter numbers aren’t final yet, the last six months of the year have tallied 2.7 million square feet of net absorption, said Jim Mercer, executive vice president with CB Richard Ellis Memphis.

Combine that decrease in vacancy with depleting big box warehouse inventory and some 12 million square feet of active deals being tracked in the Memphis market, and demand is bound to drive more supply.

“We only have in our market right now about three buildings above 500,000 feet that are Class A, newer, high ceilings, ESA fire sprinklers, available right now, which is rare for Memphis,” Mercer said. “Historically, we’ve had more than that.”

Prologis Inc., Hillwood Investment Properties, Panattoni Development Co. and IDI all have “soil cemented pad-ready sites ready to go,” Mercer said.

“They’re all kind of on the fence waiting to pull the trigger on a spec, but we’re hearing that they all want to do one,” Mercer said. “I don’t think they all will, but you might see two.”

Meanwhile, the industrial sector has seen its fair share of institutional buyers entering or expanding in the market, finally setting capital free.

Examples include Freehold, N.J.-based Monmouth Real Estate Investment Corp.’s $28 million acquisition of the Milwaukee Electric Tool Corp. building in Olive Branch; New York-based American Realty Capital Trust III Inc.’s $52.4 million purchase of the Williams-Sonoma distribution center in Olive Branch; Denver-based Industrial Income Trust Inc.’s $24.3 million acquisition of various lots in Memphis Distribution Center; Hillwood’s $37.3 million deal with Brookfield Asset Management for five Class A buildings in Southpark Distribution Center; and Pennsylvania-based Exeter Property Group’s $40 million, 10-industrial building portfolio purchase from Prologis.

Investment sales were also active in the office market last year. Santa Monica, Calif.-based Hertz Investment Group LLC completed its acquisition of five Memphis office buildings from Parkway Properties Inc., marking the firm’s return to the Bluff City and focus shift to secondary and tertiary markets. That sale of Forum I, Forum II & III, Falls Building, and Toyota Center left Parkway with one building in Memphis – Morgan Keegan Tower – an asset with uncertain stability moving forward due to Raymond James & Associates Inc.’s acquisition of the tower’s namesake company in early January.

“The Parkway transaction is something unusual for its size and number of assets for Memphis to see,” Johnny Lamberson, executive vice president with CBRE, told The Daily News early last year. “These are large, $50 million plus deals. Those deals happen office-wise once every two years, maybe even once every three years.”

An additional office building to trade hands was Brinkley Plaza. Montreal-based Olymbec USA LLC acquired the tower from a partnership made up of entities related to CBRE and Loeb Properties Inc. for $7.2 million. That deal marked Olymbec’s third Memphis acquisition in two years and first office endeavor, bringing the firm’s total portfolio here to nearly 2 million square feet.

The Crescent Center, right, which was purchased by Highwoods Properties Inc. in July 2010 for $52.6 million, will have two new restaurants on the property in 2013.

(Daily News File Photo: Lance Murphey)

The retail sector saw a significant transaction as well when Memphis-based Poag Lifestyle Centers partnered with an affiliate of New York-based DRA Advisors for a $55 million purchase of Carriage Crossing in Collierville.

The past 12 months have also brought about some atypical deals for Memphis. One is Johnson Development Associates Inc.’s closing in April on the former Mall of Memphis site for $2.7 million. The Spartanburg, S.C.-based developer has since tapped the local office of Jones Lang LaSalle to market the property for industrial build-to-suit users.

Then there’s Highwoods Properties Inc.’s development of two upscale restaurants on its Crescent Center land in East Memphis. The Capital Grille and Seasons 52, concepts by Orlando, Fla.-based Darden Concepts Inc., have filed permits in recent weeks to begin construction.

Both are scheduled to open in fall 2013 and have the potential to dramatically change the Poplar and Ridgeway corridor.

“We’re effectively creating two outparcels from just the existing property,” said Steve Guinn, vice president of Highwoods who’s leading the project. “A year from now, they will have two restaurants on them, hopefully making good money. So in total, the entire property will obviously be worth a lot more money because of the investment that we’re making, as well as Darden is making in it.”

Yet another interesting commercial real estate topic that circulated last year was a requirement from the U.S. Government to lease 95,580 square feet of space in Memphis, with a preference in Downtown’s Central Business District. The lease term is 20 years beginning April 2015, and local brokers say it could be a chance for build-to-suit construction.

PROPERTY SALES 50 226 2,557
MORTGAGES 44 145 1,731
BUILDING PERMITS 204 569 5,701