Connecticut firm plans apartments, offices on downtown site
SARASOTA — A Greenwich, Conn.-based real estate investment trust that specializes in properties located in federally qualified Opportunity Zones has acquired the Main Plaza office and retail complex in downtown Sarasota for $20 million.
Belpointe REIT Inc., which sold initial shares to the public in March, plans to develop apartments, new office space and parking on the 8.6-acre tract, which is currently anchored by a Regal Cinemas’ Hollywood 11 theater. Belpointe officials couldn't be reached for comment immediately, but the deal was confirmed by the seller, BBC Main Street.
BBC Main Street is a Sarasota investment group comprising area investors and entrepreneurs Eric Baird, Jesse Biter and David Chessler. They bought Main Plaza in November 2015 for $18.1 million. That group will retain ownership of the Hollywood 11 theater, which is two-years into a lease extension at Main Plaza that will keep it there through 2029. The sellers also retain the bank and pizzeria next to the theater, and plan to look into getting a new tenant for the back pad of the movie theater, which totals about 30,000 square feet.
The property is zoned for roughly 400 apartment units and contains a height limitation of 10 floors, based on the city's Downtown Core zoning. It is expected that at least a portion of the existing two-story building will be razed to make way for the new space.
“The residential market downtown continues to be very strong, and apartments in that location should be successful,” says John Harshman, president of Sarasota commercial real estate brokerage firm Harshman & Co. Inc., who wasn't involved in the transaction. “They will likely be pricier, in regards to rental rates, than what is currently on the market, because of rising construction costs and other factors, but they should be able to overcome that through location and design.”
Harshman was somewhat less enthusiastic about the prospect for new office space, in a market where more than 17% of all office space is either vacant or available.
“The Sarasota office market is challenging, in large part because businesses have significantly changed the way they operate and utilize office space since the last economic recession. At the same time, financial institutions and other mainstays of the office market locally have shrunk their requirements.”
New offices would likely also rent at a premium to existing space, which in a Class A building in downtown Sarasota is about $26 per square foot to $28 per square foot. New space, by comparison, would likely need to command rents of roughly $39 per square foot to $41 per square foot.
Belpointe is expected to redevelop the property through the use of federal tax benefits contained in the U.S. Tax Cuts and Jobs Act of 2017 that would allow the company to defer some capital gains and taxes for as long as a decade, if certain criteria is met.
Florida has more than 425 such Opportunity Zones, which have been designated in the hope of revamping economically blighted or disadvantaged areas. In some cases, however, Opportunity Zone properties have been located in vibrant downtown areas or even waterfront locations.
Earlier this year, the U.S. Internal Revenue Service reaffirmed that investments in Opportunity Zone properties must be solidified by the end of 2019 to qualify for the full capital gains benefit offered.
The 259,000-square-foot Main Plaza dates to 1985, when another Sarasota investment group led by developer Mark Kauffman and attorney David Band revamped the site and brought in new office and retail tenants.
Main Plaza has struggled in recent years to retain tenants and consumer acceptance as either a retail or office destination, however. Several restaurants have failed to gain traction, including Applebee’s and Ker’s Wing House, and a YMCA branch also closed. The property is currently about 50% occupied.
BBC Main Street bought the property from Westport, Conn.-based Paragon Realty Group, which spent $40 million on the 1991 Main St. property in 2005.
For its part, Belpointe says it is targeting an equity offering of $3 billion and hopes to list its stock on either the New York Stock Exchange or NASDAQ by 2027, according to its website.
Harshman says any revitalization at Main Plaza would breathe new life into the property and generate economic ripples that would spread throughout the city.
“It would be a tremendous addition to downtown, even if the new office space were to struggle initially,” he says. “Having that site redeveloped in a comprehensive fashion would benefit the entire east end of downtown.”