Office landlords embarking on improvements to remain competitive

The need to upgrade the 36-story Park Tower building in downtown Tampa was black and white to owners City Office REIT Inc., Feldman Equities LLC and Tower Realty Partners.

Literally.

As part of a more than $10 million renovation to the 400 N. Tampa St. property, Whiting-Turner Contracting Co. painted the exterior façade of the tower white, covering up the black hue that had been a signature part of the 471,000-square-foot office block for decades.

The roughly two-year capital improvement program, directed by design firm Gensler, also added new glass, LED lighting, tenant amenities such as a fitness center and “chill lounge” and modernized the building’s elevator banks and lobby with lighter tile and a concierge desk.

Repositioning the downtown tower with the “BB&T” logo atop it also meant adding new tenants, including a ground-floor Buddy Brew Coffee café, which joined the U.S. Attorney’s Office, Level 3 Communications, Pipeline Workspaces and Nestle, Lykes Bros. Corp., and others.

“The building hadn’t been substantially renovated since it opened in 1973,” says Feldman CEO Larry Feldman, whose company acquired Park Tower together with City Office REIT and Tower Realty for $79.8 million in November 2016.

“It really needed to be upgraded, both to keep the tenants we have and to attract new business to the building,” he adds.

But Feldman, whose firm co-owns a handful of office properties in downtown St. Petersburg and Tampa containing more than 1.4 million square feet, argues that renovations are about more than adding paint and shiny amenities.

They’re about remaining viable.

“There’s new office product that’s about to come online in downtown Tampa and in Westshore,” he says. “And so you have to keep up.  Because what frequently happens in the office sector is you have a Class A building, and new product comes along, and suddenly you have a Class B building.”

Among more than a dozen new office buildings that have been announced for downtown Tampa and the Westshore business district, Strategic Property Partners has proposed a trio of new office towers at its $3 billion Water Street Tampa; SoHo Capital and the TPA Group have begun work on a seven-story, 300,000-square-foot office building within its 45-acre Heights development; and Cousins Properties expects to break ground soon on a 180,000-square-foot project known as Corporate Center at International Plaza V, in Westshore.

At the same time, Bromley Cos. is anticipating delivering a trio of new office buildings as part of its 22-acre, mixed-use Midtown Tampa offering; Zons Development is beginning work on a 13-story mixed-use project with roughly 100,000 square feet of new office space; and VanTrust Real Estate LLC will construct a net 158,000 square feet of new office space on the grounds of Tampa International Airport.

Feldman says the heightened competition means that timely capital improvements are critical.

“As a landlord of an existing building, you always have to upgrade,” Feldman says. “You can’t sit on your laurels. That’s why every building we buy, one of the first things we set out to do is figure out what requires renovating and improving,” Feldman says.

Increasingly, landlords such as Feldman and City Office REIT are proactively spending money to improve office buildings to add new amenities desired by tenants, lighting to provide a more modern feel and tenant improvements aimed at convincing companies with younger workforces to sign leases.

The moves stand in stark contrast to the way capital programs were often looked upon decades ago, when many landlords embarked upon renovations only after occupancy had plunged or a lender demanded them.

Downtown Tampa’s office market has no such issue.

Park Tower’s occupancy stands at 94%.

At the 19-story Fifth Third Center, at 201 E. Kennedy Blvd., vacancy is roughly 16%.

But that hasn’t stopped Boston-based owner Farley White Interests from plowing more than $3 million into the 281,187-square-foot office building to boost that figure and keep existing tenants satisfied.

Recent cosmetic work and amenity additions, such as a new fitness center and upgraded common areas and a new lobby, follow renovations to the building’s parking garage, elevators and heating, ventilation and air conditioning systems.

“We wanted initially to focus behind the scenes, as it were,” says John Power, a principal at Farley White, which acquired Fifth Third Center in October 2017 for $52.5 million.

“When we acquired the property, we spent about $500,000 bringing the garage up to speed, and another $1 million or so making sure the (heating, ventilation and air conditioning) was performing at peak, and we spent money the same way on the elevators — day-to-day systems that are vital but that most people don’t really consider,” Power says.

“That’s often our approach — to do things behind the proverbial curtain to help our existing customers first, and then work on things that are more easily noticed,” he adds. “That was our plan at the outset, to renew existing leases and then work on attracting others.”

The approach appears to be working. In the first quarter of this year alone, commercial real estate brokerage CBRE Group leased more than 22,000 square feet in Fifth Third Center through a combination of lease renewals and new deals.

Law firm Marshall Dennehey Warner Coleman & Goggin, Riesdorph Reporting Group and government services provider Metis Solutions combined to renew commitments for more than 18,000 square feet, while The Law Office of Paul M. Sisco and Onicx Energy have together taken down more than 3,770 square feet of available space in the building, CBRE notes.

More leasing activity also could be in the offing as renovations continue and reach fruition later this year.

Power, whose firm controls more than four million square feet of space in Boston and Tampa — including a trio of Westshore office buildings in the Hidden River Corporate Center and the nearby 8800 Hidden River Parkway — hopes to boost occupancy at Fifth Third Center to 94% by the end of this year.

He concurs with Feldman that renovations are essential to surviving and thriving in a competitive environment.

“The only way to compete is to continually invest,” says Power. “There’s a lot of good competition in the Tampa area now, what with Water Street Tampa downtown and what’s been announced for Westshore. But we view our building, Fifth Third Center, as being at Main and Main downtown.

“So we want to maintain it as a Class A building, and at the same time elevate a more boutique experience,” he says.

Strategic capital improvements can have a dramatic effect, as evidenced by Convergent Capital Partners and Denholtz Associates’ $13 million upgrades to 490 First Ave. South, in downtown St. Petersburg.

When the pair acquired the eight-story building in 2016, occupancy was less than 50%.

But after a series of improvements to the 239,000-square-foot building’s roof, elevators, lobby, lighting, security and other systems, tenancy bumped upward to over 90% and helped push a $39.35 million sale at the end of last year.

Back at Park Tower, City Office REIT executives say their renovations are having a similar impact.

“There was so much hidden potential in this building,” says City Office Vice President of Operations Ken Pool. “The results are evident.”