Westshore sale highlights bay's office recovery

BUYER: Angelo, Gordon & Co. LP (AG-EREP Westshore Owner LLC, AG-EREP Cypress I Owner LLC, AG-EREP Cypress II Owner LLC, AG-EREP Cypress III Owner LLC and AG-EREP Cypress IV Owner LLC), New York City
SELLER: Parkway Westshore LLC, PKY Fund II Tampa I LLC and PKY CYP4 LLC
PROPERTY: 600 N. West Shore Blvd., 5400 Gray St., 402 N. Hoover Blvd. and 5310, 5404 and 5405 Cypress Center Drive, Tampa
PRICE: $66 million
PREVIOUS PRICE: $21 million, May 2011; $18.92 million, November 2012; and $2.9 million, August 2013
LAW FIRM ON DEED: Driver McAfee Peek & Hawthorne PL, Jacksonville

Following strong improvement in the office market, particularly in Westshore, an Angelo Gordon & Co.-led group purchased five office buildings and a parking lot for $66 million.

The Westshore sale included the 11-story, 173,566-square-foot Westshore Corporate Center; 152,758-square-foot Cypress Center I; 50,697-square-foot Cypress Center II; 82,871-square-foot Cypress Center III; and 93,150-square-foot Cypress Center IV.

The price equated to $119 per square foot.

Tenants in the Cypress Center buildings include A&B Insurance and Financial, Albertelli Law, C&D Engineering, Excite Health Partners, Hyland Software and State Farm. Westshore Corporate Center serves as the headquarters for Amscot Financial and also houses Bayshore Solutions, 21st Century Financial Inc. and &Barr among others. The properties are all at or above 90% occupied.

Parkway Properties Inc. previously owned all the properties. The public Orlando-based firm and its CEO have made a point of the company's plans to refocus its portfolio on trophy properties along the southern United States. Last year, it purchased a portfolio of 22 properties for $475 million to acquire the 974,000-square-foot Corporate Center I, II and III at International Plaza in Tampa.

The five buildings it sold are B class assets, according to Jeff Tolrud, managing director of office services for Colliers International Tampa Bay. However that lower class level doesn't mean the properties aren't posed to see healthy returns.

“We're really seeing rental rates for office space rising across the board, A, B and C,” Tolrud says.

He is not alone in predicting higher rents. Marcus & Millichap's Office Research Report for the second quarter is forecasting that office rents in the Tampa Bay area will increase by 3.4% this year to an average of $21.14 per square foot. That would be the highest rate of rental growth the region has seen since the recession.

A big reason for those increases, Tolrud says, comes from the growing absorption of vacant space and the lack of large new multitenant inventory. The biggest new office buildings being built in the Tampa Bay area are all leased to single tenants, including the Laser Spine Institute and financial services firm USAA.

CoStar Group research reports that the Tampa/St. Petersburg region has seen more than 400,000 square feet of absorption in every quarter since at least the third quarter of 2014. The region as whole absorbed 511,114 square feet of office space in the second quarter.

Further, it reports that the vacancy rate for office has declined from 11.2% in the first quarter of the year to 10.9% in the second quarter.

Michael Holmes, Parmenter's regional chief operating officer and senior vice president for acquisitions, says the company saw new leasing momentum firsthand at Island Center and Waterford Plaza. That played a big part in the company's recent decision to buy the 181,014-square-foot Rocky Point Centre in Tampa for $35.1 million ($194 per square foot).

“Tampa overall has seen an increased trend of new users coming in from outside the market looking for large blocks of space,” he wrote in a statement to the Business Observer. “This bodes well for the overall metropolitan area.”

Along with diminishing supply, another factor driving office rents is new investor interest. There has been a surge in value-add buying across all commercial real estate, where rents naturally increase to pay for property improvements. Investment buyers have also been paying more for stabilized office properties and increasing rents to cover those higher purchase prices.

“Because there hasn't been a lot of competition out there, they've been able to do that,” Tolrud says. “We're seeing rental rate increases in some areas by as much as $3 a square foot. What's huge for Westshore is we are approaching $30 a square foot. That's a benchmark that we've never seen, and I believe it's right around the corner.”

Angelo Gordon & Co. had not returned requests for comment as of deadline. The company is a New York City-based private investment adviser that manages about $27 billion.