With Tampa City Center, Banyan Street becomes downtown's dominant office landlord

With its acquisition of the 38-story Tampa City Center tower last month, Banyan Street has cemented its standing as downtown Tampa’s largest office landlord.

The $110 million deal for the 757,425-square-foot building — one of the largest along the Gulf Coast thus far in 2018 for a single asset — becomes the Miami-based company’s third major holding in Tampa, following purchases of the 31-story Rivergate Tower and the 42-story Bank of America Plaza.

Combined, the three transactions — the larger two with Los Angeles-based Oaktree Capital Management — cost the firm $373.5 million, and should give Banyan Street important leverage with tenants and vendors going forward.

That’s because Banyan Street now controls Class A assets totaling 2.05 million square feet in downtown Tampa, out of a market of 6.02 million square feet.

“It definitely shows their enthusiasm for Tampa,” says Rick Brugge, an executive director at commercial real estate brokerage firm Cushman & Wakefield, which negotiated the building sale on behalf of former owner Alliance Partners | HSP, a Bryn Mawr, Pa.-based firm that bought Tampa City Center in 2014 for $128.1 million.

“And it demonstrates that investor interest in downtown continues to be very strong,” adds Brugge, who worked on the sale together with Cushman & Wakefield Vice Chairman Mike Davis and Executive Director Michael Lerner. “We had 12 to 15 very viable bids, which I think illustrates that investors remain very bullish on the city’s job growth and potential rent growth into the future.”

Members of Cushman & Wakefield’s Equity, Debt & Structured Finance Group — Senior Directors Jason Hochman and Chris Lentz, Executive Managing Director Michael Ryan and Executive Director Brian Linnihan — also arranged $84 million in financing from HSBC Bank for Banyan Street and Oaktree Capital.

The new owners are expected to use at least a portion of the debt to complete future capital and tenant improvement costs at the 201 N. Franklin St. tower.

Banyan Street officials did not return telephone calls for comment on the purchase or future plans for the 37-year-old building.

Tampa City Center is currently occupied by accounting firms Ernst & Young and Deloitte, Masonite, law firm Morgan & Morgan, PNC Bank and the University Club, among others.

Banyan Street’s deal also comes amid declining vacancies and strong rent growth for downtown office buildings downtown, the result of a lack of new development over the past two decades.

Rents for newer, premium Class A buildings in Tampa’s central business district rose 3.8% over the past year, according to a third quarter report from Cushman & Wakefield, pushing average asking rents solidly above $30 per square foot for the first time. As of Sept. 30, average Class A rents stood at $31.78 per square foot.

“There’s been considerable rent growth for office space over the past two to three years, and Water Street Tampa is bringing a lot of excitement and energy to the city,” Brugge says. “And, of course, much of the office rent gains are being driven by residential growth and the job increases directly tied to that.”

Alliance Partners appears to agree with that assessment. While selling the Tampa City Center improvements, it retains ownership of the land underneath the tower under a split it formulated upon its purchase four years ago.

Alliance Partners’ decision to hold onto the land beneath the building also explains why, despite the robust office market, Tampa City Center sold for $18 million less than it had in 2014.

Such 99-year ground leases are typical in major office markets like Manhattan or San Francisco, but they have been less common in Florida.

“It’s not been a super common structure here,” Brugge says. “But it is a trend we’re seeing increasingly nationwide at this point.

“It’s true that it’s a phenomenon that we used to see almost exclusively in major metropolitan markets, but we’re seeing ground lease deals in more sunbelt states of late, for sure, because it can be an effective way to finance a deal and still be involved with potential upside going forward.”

Alliance Partners officials did not respond to requests for comment on the disposition or its decision to retain the downtown land.