Parkway Properties Takes Orlando’s Gateway Center for $55M, Nears Completion of $500M Fund
- Jan 22, 2008
Parkway Properties Inc. has acquired the Gateway Center, a 16-story, 228,000-square-foot, Class A office tower in Downtown Orlando for $55 million through its Parkway Properties Office Fund L.P.Parkway president & CEO Steven Rogers said two more acquisitions are expected this quarter to complete the $500 million investment fund. He said only that the purchases would involve two other office properties for a total combined purchase price of over $180 million. The closings are expected to occur in the first quarter. “We are pleased with our investment in this high-quality asset in the Orlando CBD near our Citrus Center building,” Rogers said of the Gateway Center acquisition. “This investment, along with the two additional investments currently under contract, will complete the $500 million investment by the Fund. We are proud of the high-quality, well-diversified portfolio that we have assembled on behalf of our Fund partner, Ohio PERS, and our shareholders.”The fund was formed in July 2005 to acquire high-quality, multi-tenant office properties. Parkway is a 25 percent investor in the fund, which upon completion will be capitalized with approximately $200 million of equity capital and $300 million non-recourse, fixed-rate first mortgage debt, according to the Parkway news release. In addition to Orlando, the fund targets acquisitions in Houston; Phoenix; Atlanta; Chicago; Charlotte, N.C.; Tampa, St. Petersburg, Fort Lauderdale and Jacksonville , all in Florida; and Memphis, Tenn. As of Jan. 18, the fund had invested $329.3 million of capital and owned 11 assets with a total of 1.8 million square feet that were 91.5 percent leased.Gateway Center, built in 1989, is located in Orlando’s CBD directly off Interstate-4. It has 10 floors of office space and six floors of parking as well as surface parking for a total of 915 spaces. Parkway said it was 79 percent leased to 17 clients at the time of purchase. A Sept. 26 CPN story reported that tenants included R.W. Beck, Carter & Burgess, Inc., Shuffield Lowman and the federal General Services Administration.The Orlando Business Journal reported today that the Parkway fund bought the property at 1000 Legion Place from Jones Lang LaSalle Inc., which had reportedly purchased the building in 1999 for $26.9 million. Parkway officials said the fund expected to invest an additional $2.8 million on closing costs, building improvements, leasing costs and tenant improvements during the first two years of ownership. The acquisition was financed with a $33 million first mortgage provided by Babson Capital Management L.L.C. that has a fixed interest rate of 5.92 percent, an initial 36-month interest- only period,and a maturity date of January 2016. Parkway contributed an initial $5.5 million in equity obtained through an advance on the company’s existing line of credit.Parkway Realty Services will provide property management, construction supervision and renewal leasing services for the property. New leasing will be handled by an unaffiliated third-party agent.The Orlando market has seen several Class A buildings sell within the last year, most within the third quarter of 2007, when Sun Trust Center, One Orlando Centre, Eola Park Center and Sunbank Office Building all changed hands. Sales of all office buildings in Orlando totaled $783 million last year, up from $654 million in 2006, but short of the record years of 2004 and 2005, according to a GVA Advantis report.In 2007, 47 office properties with a total of nearly 3.75 million square feet, sold for an overall price per square foot average of approximately $209.11, the report noted. For the fourth quarter, however, GVA Advantis said the average price per square foot sold dropped to $174.94.Vacancy has risen in the leasing market, the report noted. GVA Advantis statistics showed the Orlando office market began 2007 with total vacancy of 10.1 percent and ended the year at 13.4 percent. The highest rental rates remain in the CDB with overall average rents of $26.44 and Class A average rents at $28.50.Rogers could not be reached today for further comment on the Gateway Center acquisition or the pending office deals for the fund. The news release noted that the fund has commitments from Babson Capital Management for first mortgage financing of approximately 60 percent of the purchase price of both properties. The interest rates on the mortgages are locked at fixed interest rates below 5.8 percent with terms that will be made public at the closing, according to the Parkway release.Parkway is a self-administered REIT specializing in the operation, leasing, acquisition and ownership of office properties primarily in the southeastern and southwestern United States as well as Chicago. Parkway owns or has interests in 67 office properties in 11 states with about 13.2 million square feet of leasable space. Of that total, it owns 19 properties totaling 2.9 million square feet in joint ventures.