Old as New

Many office investors would have balked at buying a half-empty, 240,000-square-foot property that dates to the 1920s, needed some serious rehabilitation and was leased primarily to a legacy media company.

Steven Denholtz embraced the idea.

The CEO of New Jersey-based Denholtz Associates and partner of Tampa-based Convergent Capital Partners also bought into the notion of spending millions of dollars in the wake of the $19 million acquisition of 490 First Ave. S., in downtown St. Petersburg, to renovate, modernize and improve the eight-story structure.

In all, the duo are spending more than $13 million to improve the building's exterior facade, entryway and lobby, cafe, elevators, restrooms, flooring and lighting. Renovations to the three integrated buildings that comprise 490 First Ave. — the oldest dates to 1924 — are slated to be completed early next year.

“We knew going in that we'd be investing millions of dollars in improvements,” Denholtz says. “But we had a good handle on all the systems, we were able to generate engineering drawings for the mechanicals, so most things were known to us. We knew conceptually what we had to do.”

In an era when new office buildings — especially in core urban areas like St. Petersburg and Tampa — are rare, in part because rental rates don't quite justify new construction, Denholtz's approach to modernizing can provide valuable lessons into the efficient adaptive re-use of older space.

And as developers increasingly look to infill sites for new projects, understanding which renovations are necessary and which are purely cosmetic is becoming more important than ever.

“Today, if you buy a property and don't modernize it, with new lighting, a cafe, a gym or other like amenities, it doesn't matter where you are located,” Denholtz says. “Every employer wants those things because they know there's such competition for talented employees. Nowadays, it's a nonstarter if you don't have them or put them in place. It's been a complete sea change on their part of businesses.”

In the case of 490 First Ave., it helped that the building's anchor tenant, The Times Publishing Co., agreed to a 15-year lease renewal for 113,300 square feet in conjunction with the Denholtz and Convergent Capital purchase.

Denholtz says that while the changing media landscape — one that seems to favor digital-based providers that don't require the overhead of legacy companies like the owner of the Tampa Bay Times newspaper — did initially give him pause, he's confident in the company's ability to sustain itself.

“We believe they will ultimately be OK,” Denholtz says. “We understand their financial structure and we have a relationship with them.”

Denholtz has been familiar with Times Publishing since at least December 2000, when the firm bought the 10-story Times Building, at 1000 N. Ashley Drive in downtown Tampa, for $16 million, according to Hillsborough County records.

There, too, the landlord invested roughly $1.5 million last year to upgrade the 180,000-square-foot building's lobby and restrooms and add a fitness center and cafe.

Times Publishing ultimately renewed its 18,250-square-foot lease there, as well.

“They embody the type of well-established and successful tenant that we aim to attract to our office spaces,” says Kristine Hurlbut, a Denholtz senior vice president.

Times Publishing officials say the lease renewals and subsequent renovations have upgraded their work environments while also allowing them to devote resources to their core business.

“The building is beautiful, very modern,” Times Publishing Vice President and CFO Jana Jones says of 490 First Ave. “The lobby looks wonderful, and the common areas are very much updated.

“The building today is far larger than we need, so it just made sense to consolidate and use the capital in a way other than owning a building,” Jones says.

Convergent Capital and Denholtz also had market conditions working in their favor when they acquired 490 First Ave. In the more than 18 months since the purchase, Class A office vacancy in downtown St. Petersburg has dwindled to around single digits as no new supply has come online.

“It's almost like we were able to add to the market inventory without having to build a new building,” says Mercedes Angell, a senior director at commercial real estate brokerage Cushman & Wakefield who is leasing the building together with Lauren Coop.

“The market in St. Petersburg is so tight, so we have truly a unique opportunity to capture what absorption does occur,” Angell adds.

To date, the Convergent Capital and Denholtz gamble on 490 First Ave. appears to have paid off.

In addition to Times Publishing and Bank of the Ozarks, which leases about 20,000 square feet that had been C1 Bank space prior to a merger, Penny Hoarder publisher Taylor Media has committed to take 490 First Ave.'s entire top floor and some rooftop space.

Taylor Media's 22,682-square-foot lease brought the building to roughly 70% occupancy.

Angell and Coop say the remaining roughly 90,000 square feet available will rent for between $26 and $29 per square foot.

“We can put together 70,000 square feet all told,” Angell says. “That's a unicorn in downtown St. Petersburg.”

To spur further interest, Cushman & Wakefield is building out a pair of spec suites, measuring 1,800 square feet and 5,000 square feet. The seventh-floor space will be “move-in ready” sometime early in 2018.

Denholtz, whose firm owns 1.2 million square feet of space in Tampa, St. Petersburg, Orlando, Winter Park and Riviera Beach, as well as in New Jersey, Pennsylvania and Illinois, clearly is proud of the upgrades at 490 First Ave.

“There are strong markets in the areas where we operate now, and as such, we're considering selling some assets,” Denholtz says.

“But this building is not one of them,” he says of 490 First Ave.