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Commercial Real Estate
Business Observer Friday, Feb. 1, 2019 5 months ago

NetPark Tampa Bay was a creative conversion

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The former East Lake Square Mall in Tampa stands alone as the only successful office conversion in the U.S.
by: Kevin McQuaid Commercial Real Estate Editor

Internet search and advertising giant Google grabbed national headlines last month when it announced it had signed a lease for a 584,000-square-foot space that had been part of the Westside Pavilion Mall, in Los Angeles.

Co-developers Macerich and Hudson Pacific Properties Inc. intend to convert the former retail space to offices, with Google occupying the space in 2022.

Some 2,150 miles to the east, successfully converting a mall into office space is proverbial old hat — though a process not for the faint of heart, the impatient or the light of checkbook.

“What happened here was a huge risk, because there was no precedent for it at the time — or since — anywhere in the country,” says Vesna Cherry, director of leasing at NetPark at Tampa Bay, the only retail hub in the U.S. to be sustainably converted purely to office space.

What happened was that 20 years ago, life insurer John Hancock took control of the former East Lake Square Mall through a deed-in-lieu of foreclosure, nearly a quarter century after DeBartolo Corp. opened it.

At the time, the area around the 5701 E. Hillsborough Ave. mall was sketchy. Retail anchors Montgomery Ward, J.C. Penney and Dillard’s department stores were sagging, and the nearly 1 million-square-foot mall’s inline tenants weren’t faring much better.

Faced with the prospect of continuing to operate a sagging retail operation amid heightened competition from then-newer properties nearby like Westfield Corp.’s Brandon Town Center and the University Mall, John Hancock decided to abandon retail altogether.

“What happened here was a huge risk, because there was no precedent for it at the time — or since — anywhere in the country.” — Vesna Cherry, director of leasing, NetPark at Tampa Bay.

 

 

It was a moon shot, but East Lake Square slowly began divesting itself of tenants. The final business to leave was a dental practice that occupied 1,200 square feet.

John Hancock brought in Divaris Real Estate Inc., of Virginia Beach, Va., as master developer and tapped architectural firm HOK to redesign the space. They, in turn, hired ABI Cos. to do the general contracting work.

Divaris brought in Nat Cherry, a real estate veteran with Tampa’s Paragon Group, to quarterback the conversion in November 1998. He’s been with the project ever since. Vesna joined the team, and her husband, in September of the following year.

“I remember they told us you might have a job for six months or you might have a job for 20 years,” Nat Cherry says. “It might work, it might not.”

Still, the Cherrys dove in. ABI gutted the mall’s interior, stripping it down to dirt floors in some places. Elevators and escalators were removed linking the mall’s two floors.

“We spent a lot of time sitting around a table, brainstorming about how to solve problems — how we’d be able to secure the facility, how we’d fix it up, how we’d operate it going forward,” Nat Cherry says.

Problems like what to do with the mall’s heating-ventilation-air conditioning and electrical systems, its plumbing and common areas.

Nor was the conversion cheap. Nat Cherry estimates John Hancock spent upwards of $50 million in the first couple of years.

“Figuring out the costs were a problem because no one really knew how to do what we were doing,” Nat Cherry says.

But NetPark also caught some breaks and made the most of its physical plant.

Together, Divaris and John Hancock decided to phase NetPark and dribble out costs, rather than renovate the entire structure all at once.

The conversion also coincided with a flurry of call center operations that flocked to Tampa for the cost of living and quality of life.

“We came to realize through our research that the Tampa area had more people working in call centers than virtually anywhere else in the county,” Nat Cherry says.

The trend dovetailed nicely, as call centers required large, open floor plans, ample parking and inexpensive space. NetPark had all three.

In June of 1999, NetPark debuted with a single tenant: General Motors Corp., which took down 115,000 square feet for a call center. As part of its lease, Vesna Cherry stipulated that GM had to allow Divaris to show its space to other prospective users.

Eventually, others followed — including John Hancock, which maintained a 50,000-square-foot call center.

“It’s because of John Hancock that we’re where we are today,” Vesna Cherry says. “They spent a lot of money here, and they were committed to doing something that was very classy. And they had an asset manager who really understood the concept and had vision to support it.”

To accommodate their call center tenants, NetPark installed individual power meters for them and drafted net leases so clients could have more control over their power usage.

Divaris also outfitted the place with 24/7 security so call centers could operate seamlessly day or night.

As the tenant base grow, so did the amenities that NetPark offered. In place of the mall’s food court John Hancock put in a 22,000-square-foot restaurant. Where the Montgomery Ward Auto Center had stood, NetPark installed a childcare center for up to 300 children.

Another space was converted into a corporate auditorium capable of seating 200. Yet other former store space became the project’s expansive fitness center.

In 2003, John Hancock sold a half interest in the property to a company called Triple Net Properties and the other 50% stake to a group of “tenants-in-common” as part of a 1031 tax deferred exchange.

Two years later, the group of 35 tenants-in-common consolidated their position and took full control, buying out Triple Net. That group, which still owns NetPark, is led by a steering committee of five principal investors, Vesna Cherry says.

In the years since, management has changed several times, though the Cherrys have stayed put. Since mid-2014, NetPark has been managed by Bluett Capital Realty, a California company.

Along the way, too, the Cherrys have refined their pitch to tenants and considered where NetPark stands in Tampa’s commercial real estate universe.

MARK WEMPLE — Manager Bluett Capital Realty has made numerous improvements to [email protected] Bay over the past five years.

“We’re not a downtown, Class A office tower,” she says. “We’re just very functional space. We work hard to keep our operating costs low and we’re fortunate that we have ownership that supports the project.”

In 2017, the support led to a $2 million renovation of common areas and other improvements.

Tenants such as Terminex, TruGreen, Preferred Materials, Humana and others seem pleased with the somewhat unorthodox operation.

“We were able to build out our space the way we wanted it, and the project is so centrally located to all our employees,” says Rob Glisson, a co-founder of architectural firm ROJO Architecture LLC, which has been a NetPark tenant since 2001.

“We were founded in 1998, and the first three years in business, we must have moved six times,” Glisson ads. “When we found NetPark, it fit. When our lease was up, we looked at a lot of other space, and it was all a lot more money in rent. And the property is well managed. If something breaks, they fix it right away and they go the extra mile and do things right.”

That level of customer service has paid off. In December 2017, the building achieved full occupancy (though two larger tenants have since left, dropping occupancy down to 75%).

Vesna Cherry says she’s confident that NetPark’s attractive rental rates — $18.50 per square foot, with tenants picking up the tab for utilities and janitorial service — will draw new tenants in the coming months.

Perhaps surprisingly, though, the couple doesn’t believe NetPark could be replicated.

“I think it would be hard now, because construction costs have risen so dramatically,” Nat Cherry says. “And good luck finding a lender who would give you $100 million to finance such a project.”

“It would take a lot of money to it right,” Vesna Cherry says. “And people who believe in the concept and have vision.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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