- September 7, 2024
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At $42 million, last month's sale of the glass-skinned office tower at 501 E. Kennedy Blvd. would have been significant under any circumstances.
But the 19-story tower's sale is also distinctive in that it may be the last major office building to trade hands in downtown Tampa for the next three to five years, brokers say.
“The timing was certainly right,” says Dale Peterson, a senior vice president at services and brokerage firm CBRE Inc., who sold 501 E. Kennedy together with the firm's Chris Lee, in Miami, and a team of others.
“The building is in really spectacular shape, downtown Class A space has been on fire, and the sale was significantly below replacement costs,” he adds. “And this could very well be the last major office building in downtown Tampa to trade this cycle.”
The February sale of the roughly 300,000-square-foot building, to a partnership between New York-based Angelo Gordon & Co. and Equitable Real Estate Partners, of Boca Raton, followed deals on the Bank of America Plaza; One Tampa City Center; SunTrust Financial Centre; Wells Fargo Center; and Rivergate Tower downtown in the past two years.
Investors have gravitated to downtown skyscrapers in response to a growing U.S. re-urbanization trend, Southwest Florida's white-collar job growth and a lack of new inventory.
Downtown Tampa, for instance, has not had a new office tower debut since 1992.
Even more extraordinary, 501 E. Kennedy sold despite — or perhaps because of — the pending vacancy of an anchor tenant, law firm Fowler White Boggs P.A., which is merging with Buchanan Ingersoll & Rooney.
When Fowler White exits 501 E. Kennedy on March 31 for space in the nearby SunTrust building, vacancy in the 35-year-old tower will jump from roughly 16% to 47% — leaving all or a portion of five floors and about 130,000 square feet available.
At that rate, 501 E. Kennedy will have more available space than any other downtown Tampa office building.
Still, new owner AG EREP East Kennedy Owner LLC seems undeterred by the looming empty space.
“If ever there was a time to have 100,000 square feet available, now is the time,” says Mercedes Angell, a senior director with the Tampa office of commercial brokerage firm Cushman & Wakefield, which has been retained by the new owners to lease the building.
“The new ownership recognizes that rents are increasing and the vacancy rate downtown is in the single digits.”
Angelo Gordon and Equitable also will be able to take advantage of more than $1 million in improvements made by previous owner SCIP 501 LLC, a partnership between the Silver Cos. and IP Capital Partners, both of Boca Raton.
Together, Silver and IP Capital installed an “amenity floor” on the second floor of the building, with an 1,800-square-foot fitness center and conference facility able to accommodate 75 people at a time.
The pair, which acquired the building in early 2014 for $30.36 million, also spent money to upgrade the building's air conditioning system, its roof, elevators and lobby.
Angell says Angelo Gordon and Equitable are considering their own capital improvements, which could include a new ground-floor restaurant.
Officials from Angelo Gordon declined comment, and Equitable President Allen de Olazarra could not be reached because he was traveling out of the country.
Despite the investments, 501 E. Kennedy's rental rates are expected to range from $23 per square foot to $28 per square foot — well below the $30 per square foot rate other downtown Class A Tampa properties are seeking.
The space occupied by Fowler White, an original tenant, will be gutted once the firm leaves and upgraded to more modern standards.
Angell says the building is ideal for tenants who want or need to be close to Tampa's City Hall or circuit or federal courthouses.
“This is a value-add play,” CBRE's Peterson says. “It's well-positioned now. Anything that moves will gravitate to that building, and the deal was hotly contested. I think there were a lot of groups that wished they would have stepped up. So there are a lot of positives.”
- K.L. McQuaid