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New Leases on Life
When FCCI moved and Arthur Andersen collapsed, two of Sarasota's largest corporate office centers went vacant. The landlords' solution: convert them to multi-tenant use.
By Sean Roth
Real Estate Editor
From a development standpoint, 100,000 square feet is a dream opportunity, but for real estate professionals who have to sell it, that space can be a nightmare.
In the past three years, the economic downturn has left several large, single-tenant buildings vacant. But as the economic recovery gains momentum, these buildings are seeing new life as multi-tenant centers.
The Enron/Arthur Andersen collapse was a nightmare for many investors, but one often-overlooked victim was the landlords. Arthur Andersen in particular hit Sarasota, the site of its former accounting software operations, especially hard.
Arthur Andersen previously leased two buildings, totaling 238,000 square feet, in what was called the Technology Park, an area on Fruitville Road a half-mile west of Interstate 75 in Sarasota. After layoffs and the acquisition of the tax software division by Berwyn, Pa.-based Vertex Inc., only 52,300 square feet of the two buildings remained leased. Arthur Andersen's two landlords were faced with filling about 185,000 square feet in the two buildings.
For the past year, Richard Kingan, a senior associate with Los Angeles-based CB Richard Ellis, has had his hands full trying to lease one of Arthur Andersen's Sarasota buildings. Kingan represents Atlanta-based Wells Real Estate Funds, which owns the 157,500-square-foot Technology Park II (101 Arthur Andersen Parkway), of which 113,000 square feet was left vacant by Arthur Andersen. That is slightly less than two football fields in size - a costly space, particularly when there are no tenants. According to the Sarasota County tax collector, the property itself costs Wells Real Estate Funds $303,389.39 in annual taxes. Every month the property is vacant, Wells pays $25,282 in taxes with no rental income to offset that expense.
"We are creating a team to reposition the single-tenant building into a multi-tenant (facility)," Kingan says. The team is made up of Kingan; Anne-Marie Ayers, a CB Richard Ellis agent handling national marketing; and attorney Peter Skokos of Sarasota-based Norton, Hammersley, Lopez & Skokos PA. Wells Real Estate Funds hired Sarasota's ADP Group to design a new multi-tenant layout.
The sales team is currently considering bids from general contractors and hopes to begin renovation in 60 to 90 days. The conversion is expected to create spaces in the building from 2,000 to 52,300 square feet.
Kingan says the decision to divide the space is market driven. "There is greater demand from companies seeking 10,000 to 20,000 square feet," he says. "We would prefer to have someone take the entire (52,300-square-foot) second floor. But this is the market."
Their decision is not unique.
Troy, Mich.-based Osprey S.A. Ltd. and Sarasota management company Osprey Management Co. LLC came to the same conclusion for the former FCCI headquarters in Sarasota. In July 1998, Osprey bought the 72,000-square-foot, five-story building on Cattlemen Road along with four other smaller buildings (a total of 77,300 square feet) from FCCI Insurance Group Inc.
"We purchased the property from FCCI knowing that ultimately their goal was to free up enough cash to move to Lakewood Ranch," says Brian Kennelly, leasing agent for Osprey Management Co. Kennelly says also that there was almost no doubt the main building would be converted to multi-tenant use. "We understand the market,'' he says. "The average size of a tenant in Sarasota is 2,500 to 8,000 square feet. Plus with a single user you always run a risk that the tenant will run into financial trouble."
FCCI relocated in July 2001. At a cost of about $1.5 million, Osprey S.A. then renovated FCCI's former headquarters, adding a covered entry, remodeling the lobby, creating new bathrooms, constructing walls, renovating elevators and upgrading heating and air conditioning.
"It was pretty easy to convert the building," Kennelly says. "The building is pretty much a square, which we could just section off."
The first tenant, Oasis Outsourcing, moved in a year and a half later. Currently the facility, renamed Live Oak Corporate Center, has a vacancy rate of 17%. Including proposals he has out for the remaining 12,000 square feet, Kennelly expects to have it fully leased in the next 60 days. Rent is $14 a square foot.
The most recent newcomer to the Live Oak Center is Kimley Horn and Associates, which will lease about 21,000 square feet. They are scheduled to relocate Nov. 15.
Technology Park I, the smaller, 81,000-square-foot former Arthur Andersen building, was renamed Commerce Center.
Unlike Technology Park II, Commerce Center is 100% leased and has been since Arthur Andersen vacated the space. The building is owned by Denholtz Associates, a Rahway, N.J., development, investment and management company. Stewart Denholtz, managing director of Florida operations for Denholtz Associates, attributes the full vacancy to the multi-user design. "We almost always own multi-tenant buildings because of risk management and value creation," Denholtz says. "We don't like the exposure of just one tenant." Center tenants include Blue Cross-Blue Shield, State Farm, Cendant Corp., CSC Computer Corp. and Sarasota County.
Meanwhile, Kingan expects the new renovations to make all the difference in leasing Technology Park II. One key example of the reason for converting the property to smaller users is the sales team's negotiations with Sarasota County.
Negotiations with the county, which considered relocating much of its administrative operations there, lasted about six months. Talks collapsed after public pressure apparently persuaded the county to stay downtown.
"That isn't all we were doing," Kingan says. "We were marketing the building, but we couldn't give any special assurances. We probably lost one - maybe two - large users because we couldn't respond" during the county talks.
To date, Kingan says the staff is close to completing two deals for about 32,000 square feet. "(The leases) are both for local companies that are looking to expand," Kingan says. "We have letters of intent out for one of the leases. The tenants will spur the renovation on." The sales team plans to lease the first floor, about 52,300 square feet, by the first quarter of 2004 and the second floor by second quarter.
"We would still love to have a 52,000-square-foot user take the second floor," Kingan says. "We have contacted all the brokers in the region ... and all the Fortune 1000 companies. That would be the perfect situation.''
Although Kingan declined to comment on the specific amount, he says the multi-tenant conversion will generate more money than the property did as a single-tenant. The rents will range from $15 to $17.50 per square foot, plus taxes, utilities and maintenance.
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