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Business Observer Friday, Oct. 20, 2017 4 years ago

Strategic Pivot

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Boston-based Farley White Interests has targeted the Gulf Coast as its primary market for acquisitions outside of New England.
by: Kevin McQuaid Commercial Real Estate Editor

For the majority of its 22 years, Farley White Interests focused its commercial real estate investments relatively close to its home base in Boston.

It bought office buildings in Bedford, Hudson, Nashua and Manchester in New Hampshire, as well as properties in Lowell, Billerica, Methuen, Pittsfield and Chelmsford in Massachusetts.

Geographically, the farthest it strayed from its headquarters was when it acquired the 67-acre Corporate Ridge office park in Rocky Hill, Conn.

But sometime in 2015, partners John Power and Roger “Sam” Altreuter decided to strategically diversify the firm's holdings by buying in an unlikely place far from New England: A swath stretching from Tampa to Naples.

In early 2016, the company completed its first Gulf Coast purchase when it acquired the two-building Collier Health Park, in Naples, for $15.75 million.

Around then, too, Farley White hatched what seemed at the time an unlikely goal — acquire 1 million square feet of space in Florida within three years.

Earlier this month, the company got within striking distance of that mark, when it bought the 281,1870-square-foot Fifth Third Center, in downtown Tampa.

The estimated $52.5 million deal — Hillsborough County property records from late last month note only that Farley White Gaslight LLC assumed partnership interests from seller Bridge Investment Group, and Power declined to reveal the amount — represents the company's first urban acquisition regionally, following a string of suburban purchases.

The deal also marks the largest office transaction in the Tampa Bay area thus far in 2017, save for the $65.75 million sale of the 28-story, former One Progress Plaza in downtown St. Petersburg, which was purchased in May by an affiliate of Third Lake Capital.

Taken together, Farley White's six-building, Gulf Coast portfolio now totals 913,328 square feet, concentrated primarily in Tampa. In all, the firm has spent in excess of $155 million along the Gulf Coast.

Power says the company was attracted to the Gulf Coast — and Tampa in particular — because of the region's corporate base, growth and high-caliber inventory of buildings.

“The city of Tampa is committed to corporate growth, and we're attracted to the quality nature of the companies and the properties,” he says. “It's a lot of the reason we're there. Then add on what's happening downtown, with Jeff Vinik's property, and that's a game changer.”

Farley White's new geographic focus is equally game changing for a company whose portfolio remains heavily tilted toward the Northeast. Of the nearly two dozen properties listed on the company's website, all but two are in New Hampshire, Connecticut or Massachusetts.

“We try to look for properties where we can make a material difference,” says Power. “And that extends to areas, too. Look, we're in New England and Tampa to Naples. That's it. That's our focus.”

Christian Lee, a CBRE Group vice chairman who together with Dale Peterson and Jose Lobon, firm senior vice presidents, represented seller Bridge Investment in the transaction, says office landlords and investors will continue to benefit as long as buildings trade at prices below replacement costs.

CBRE Vice President Amy Julian also arranged for $34.12 million in new financing for Farley White in conjunction with the sale.

Peterson says the Tampa area's fundamentals make for a “perfect storm” for office sales.

“Our job growth over the past several years has fueled office demand, and as a result vacancy rates have declined and rental rates have gone up, even as there's been almost no new construction,” he says.

“Moreover, rental rates don't quite justify new construction at the present time, and I think that will continue for the foreseeable future,” Peterson adds.

Perhaps not surprisingly, then, officials at Bridge Investment, whose predecessor firm Fairlead Commercial Real Estate bought Fifth Third Center for $47.25 million in summer 2014, also say they have no plans to abandon the Tampa market, despite the sale.

“Tampa is a great city with a great story,” says Jeff Shaw, president of Atlanta-based Bridge Investment. “And we still own assets in that market and consider it a growing area, the kind of place we want to be in.”

In the wake of its purchase of the 201 E. Kennedy Blvd. tower, Bridge Investment spent more than $1.5 million to renovate the building's lobby and a cafe and add 5,500 square feet of tenant amenity and conference space.

Power says Bridge Investment's investment means Farley White can focus more on customer service than capital improvements at the 36-year-old building.

“Near term our goal will be to work to create an environment where the customer service is as high as it can be,” he says. “Job No. 1 will be to take care of the customers we already have.”

Fifth Third Center is currently 80% committed, leaving Farley White the opportunity to boost both occupancy and rental rates.

Meanwhile, its three-building Hidden River Corporate Center, in East Tampa, has pushed occupancy up from about 87% to 92% in the past year.

“They're very focused on high-caliber real estate,” Peterson says. “And they're very entrepreneurial. They're very effective at creating efficiencies and sustainability. I think they're going to be here for a long time.”

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