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Making their own mark
Commercial real estate by Janet Leiser | Senior Editor
One investor finds the Gulf Coast an inviting place to do business despite the rise in property insurance premiums. All those cars on the road mean customers for merchants creating demand for commercial space.
Commercial investor Steven Kossoff experienced the lure of Florida as he drove across the Courtney Campbell Causeway to Pinellas County.
"I just fell in love with the area," he says. "I called my wife [in Buffalo] and said, 'If we can make money here, we're moving.' "
The Tampa Bay area was the sixth location Kossoff had scouted for commercial investment, including Jacksonville, Baltimore, Columbus, Ohio, Indianapolis and Reston, Va.
A Buffalo, N.Y., native, Kossoff was forced to look elsewhere for investment opportunities after the two institutional funds he works with told him they weren't making any more investments in upstate New York where the population was declining along with the economy.
That was November of 2004 and since then Kossoff and his wife, Ilona, principals in Meridian Development Group, have invested in 2.2-million square feet of warehouse with a value of about $100 million, mostly along Florida's Gulf Coast area.
"The success we've had here has been mind boggling," he says.
Meridian's first purchase was Lakeland Interstate Park in Polk County, which was owned by Duke Realty. Kossoff made an offer for the building, even though it wasn't listed for sale. He paid $7.5 million for the 168,400-square-foot building, which had a 30% vacancy rate.
"We're what's known in the industry as value-add investors," Kossoff, 39, says. "We buy projects that someone isn't doing well with. There's a big vacancy or the whole place is vacant."
Meridian Development Group analyzes the property, identifies the problem, whether it's management or leasing inefficiencies.
"A lot of it is poor management or ownership that has unrealistic expectations or they just don't have any more interest in the property and they're letting it go," Kossoff says.
The Lakeland park was just "opportunistic," he says, adding, "It was great management that had been doing everything right but had a streak of bad luck."
Kossoff found a new tenant immediately and the park is now fully occupied. He claims it was just luck that he met a broker with a client that wanted to rent the space.
"It was a homerun for us," he says.
Earlier this year, Meridian Development announced a deal that is one of the largest commercial transactions, based on space, in a decade in the Tampa Bay area. The company bought the former Winn-Dixie distribution warehouse on McIntosh Road, Sarasota, for $30 million.
He plans to subdivide the 950,000-square-foot warehouse for tenants who need a minimum of 100,000 square feet each. Kossoff plans to sign his first tenant within several weeks, he says. The process has taken about 90 days longer than he expected.
The 58.6-acre complex has been repainted, previously deferred maintenance has been completed and walls will be installed as tenants sign leases.
Kossoff studied the regional warehouse market prior to buying the site, he says. He wasn't really as concerned about the Sarasota market as much as the need for warehouse space throughout the state.
"We looked at Miami," he says. "There's no land left there and rentals are going through the roof. Tenants can't afford it so they're looking north beyond Miami. Orlando has a 4% vacancy rate. There's no land left there."
In fact, Kossoff's target tenants for that site are companies that do business in the Southeast United States, such as large food retailers, logistics companies, warehousing companies and manufacturing companies.
He plans to build 150,000 square feet of office condominiums for professionals on the front 20 acres of the parcel. County approval for the $15 million to $20 million project is expected within 60 days.
"We're looking forward to making a mark of our own," says Ilona Kossoff, chief investment officer for the firm. "It will look great."
Insurance woes
"The only unpleasant surprise we've had in almost two years is the commercial insurance crisis," Steven Kossoff says. "That's hurting us. We've had premiums quadruple. We've closed on two transactions in the last two weeks that fortunately we were able to get portfolio insurance."
Most tenants pay their proportionate increase, he say. Some are protected by leases.
He estimates the company pays $1.25 per square foot for insurance premiums on its 2.2-million-square-foot portfolio. That is about $2.75 million annually.
He's optimistic it's only a temporary problem.
"The solution is we'll have less hurricanes and less national catastrophes and the insurance companies will report their billions of dollars of profits," Kossoff says.
Less than two weeks after Meridian's Oct. 18 announcement of its $17.5 million acquisition of the Sunplex Business Center in Clearwater, with a 25% vacancy rate, Kossoff announced the center was fully leased.
Meridian had signed a long-term lease with CCS Medical for the vacant 60,000 square feet of office space. CCS plans to move 300 of its employees to the center by Jan. 1.
Kossoff's only regret, he says, is he didn't move to Florida sooner.
The Gulf Coast commercial market is in great shape, he says, adding, "This market is good because there's economic growth, there's population growth, there's job growth. There's growth in retail."
Meridian's goal is to own 5 million square feet within five years. Kossoff is looking at property as far north as North Carolina and south to Naples.
Sometimes he complains about traffic congestion, he says, then he catches himself.
"Oh, there's no traffic in Buffalo," Kossoff says. "There are no people. The population is down from 1,150,000 in 1991 to 925,0000."
He has also been pleasantly surprised to realize Florida property taxes are less than New York and he no longer has to pay a 15% income tax.
"We come down here, the weather is better, the job opportunities are better, the economic opportunities are better, your personal income taxes are cheaper, your property taxes are cheaper," he says.
As far as Steven and Ilona Kossoff are concerned, they've found paradise.
Meridian Development group's portfolio
• The company paid $30 million in January for the former Winn-Dixie distribution center in Sarasota. It's now called the Meridian Distribution Center. The nearly 950,000-square-foot warehouse is available for rent to tenants in need of 100,000 square feet or more. An additional 150,000 square feet of professional office space is being planned at the front of the parcel.
• Meridian's most recent acquisition is the Sunplex Business Center in Clearwater. Now called the Meridian Concourse Center, the firm recently leased the vacant space in the four-building center that has 217,382 square feet and is across from the St. Petersburg-Clearwater airport.
• Another acquisition is the Meridian Gateway Center, formerly known as Continental Commerce Center. The four-building complex with 165,013 square feet of flex warehouse is located in the Gateway submarket of St. Petersburg.
• Meridian's first acquisition in Florida was the Lakeland Interstate Business Park, which was acquired in September 2005. The 168,400-square-foot office/warehouse facility is completely leased.
• Meridian owns the 430,000-square-foot former Fleming Foods bulk warehouse in Buffalo, N.Y., as well as 60 Industrial Parkway, which was purchased by Meridian in September 2004. That property is a 121,686-square-foot bulk warehouse.
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