VOL. 131 | NO. 18 | Tuesday, January 26, 2016
International Real Estate Firms Find Purchase Potential in Memphis
By Madeline Faber
International investors and developers are increasingly looking to Memphis because the market is stable and the returns are high, according to a variety of real estate professionals doing business locally.
Adir Levitas, CEO of Israel-based Faropoint Investments, stands with NAI Saig Co. broker Brian Califf, left, in front of Champion Hills Office Park, one of dozen properties Levitas has purchased in the Memphis area.
Last year, Melbourne, Australia-based Drapac Group purchased a vacant lot and three-story building at 324 S. Front St., the northeast corner of Vance Avenue and Front Street. Within a few months, the boutique investment and development firm owned an entire Downtown block along the Riverfront Loop trolley line.
It purchased the 186,263-square-foot Nylon Net building at 7 Vance Ave. and the 105-year-old Walgreens building at 2 N. Main.
“Historically, Memphis was a bustling city,” said Max Cookes, property director for the U.S. affiliate of Drapac. “And we believe that the Downtown area is in the very early stages of the recovery, and going through a gentrification process. The local government is definitely assisting in this potential recovery, which is fantastic to see.”
The firm plans to close on two more Downtown properties in the next two months: A mixed-use development opportunity on South Main Street and the historic Mid-South Cotton Growers Association building at 44 S. Front St.
Within the next two months, Drapac plans to start cleaning up and stabilizing the Nylon Net building as it finalizes plans for development. Cookes said his firm is in the long-term development game. All of the properties are up for redevelopment with 324 S. Front St. and the upper floor of 2 N. Main St. currently marketed for office tenants.
“We would love to add more properties to our portfolio as we continue to source and evaluate different commercial and residential opportunities in the city’s core,” he added.
“The investors targeting the Southeast market specifically are looking for stable investments but at slightly higher return than something on the East or West Coast,” said Brian Califf with NAI Saig Co., adding that international sales are strong across all Memphis sectors.
Califf represents another international investor, Israel-based Faropoint Investments.
Faropoint started buying in Memphis in 2011 as an alternative to the expensive property – and low returns – available to it in Israel.
“Investors are looking to invest any cash outside of Israel,” said Adir Levitas, CEO of the investment firm backed by private equity. Other markets in the U.S. were harder hit by the recession but were also quicker to recover while Memphis is still going to see growth potential for the next few years, Levitas added.
“Memphis has really good fundamentals to keep growing slowly and keep rates low overtime,” he said. “In any market, not just real estate, stability is the product that is most hard to find.”
To date, Faropoint owns more than 500,000 square feet of office and retail space in the Mid-South area with some of the larger holdings being the 77,000-square-foot Champion Hills Office Park at 3725 Champion Hills Drive and the 55,000-square-foot Shops of Wolflake in Bartlett. In December, Faropoint bought the Orleans Place in East Memphis. With one 2,500-square-foot vacancy left in the 30,000-square-foot shopping center, Faropoint is planning an extensive renovation and rebranding for the property. The firm has set aside $50 million for further Memphis-area acquisitions in 2016.
Montreal, Canada-based Olymbec is another international player in the market. The private real estate investment firm entered the Memphis area in 2004 with its purchase of a 500,000-square-foot distribution center in Southaven.
Justin Klumak, director of acquisitions and development, said Memphis provided more opportunity, and his company hasn’t purchased in Southaven since that transaction.
“Since we began our acquisitions in Memphis five years ago, we’ve already seen prices going up and the economy grow over the last year or so,” Klumak said.
The firm, which owns more than 5 million square feet in Memphis, operates two local offices and employs nearly 25 people in town. In 2012, Olymbec purchased the Brinkley Plaza building at 80 Monroe Ave. This year, two government agencies signed on as new tenants.
“Our real estate portfolio consists of value-add office and industrial,” Klumak said. “We buy buildings per square foot. We’re not really cap-rate buyers. We were attracted to Memphis because of the price per square foot and saw the potential value of buildings and saw opportunity to expand.”
Klumak added that Olymbec plans to continue expanding in Memphis, especially in the airport area where it’s purchased the former FedEx corporate headquarters.