COVER STORY, JANUARY 2005

A LOOK BACK AT 2004
Southeast firms review 2004 and look forward to 2005.
Susan Fishman

In a recovering economy, it’s often helpful to hear how your peers have adapted, what they’ve learned and how they continue to move their business forward. To that end, we talked with some of the leading Southeast real estate firms as they wrapped up 2004 to find out how they fared and to see what’s in store for 2005. They include Karen Burkhart Dick, Ackerman & Company; John Davis, Collateral Mortgage Capital; Gerald Divaris, Divaris Real Estate; and Chris Wasko, Jones Lang LaSalle.

SREB: How did your company as a whole fare during 2004?

Dick: We had a great 2004, particularly on the brokerage and management side of the business. Development is starting to pick up, and we expect to have a good 2005 because there are a lot of projects in the works on that side of the business.

Davis: We had a production goal of $2 billion for 2004, and that’s coming off the year 2003 of $2.1 billion. For the past several years, the fourth quarter in this business has been the quarter of highest volume, and that’s proving to be the case again in 2004. So while our production was lagging earlier in the year, it’s really picked up again in the fourth quarter. Last year, we had several large transactions exceeding $100 million, and we’ll probably do more deals this year and still reach the $2 billion mark. And our servicing portfolio during the year has grown by more than 12 percent. So all in all, it’s been a good year and that’s due to a good production platform as well as continued abundance of capital available for real estate.

Wasko

Wasko: We’re doing reasonably well overall because of the business climate improving in the Southeast. It’s been a tough year because there’s been a lot of hesitation in the market in many of the transactions that have taken place in Atlanta, Tampa, Orlando and South Florida. The economy isn’t really robust yet, and Corporate America is hesitating in that regard. There is movement in terms of transactions that are taking place, but it’s not something that anybody can track and say that it’s starting to become robust.

Divaris: Frankly, 2004 was one of our best years in the last decade. It was a year during which we were able to begin to prove our niche, which is to become intimately involved in mixed-use projects. We’ve been touting the concept of mixed-use developments for more than 20 years, and it’s only been in the last few years or so that it’s caught on and everybody’s talking about it. As a result, we are now involved in projects in Tampa, Maryland, Virginia, Pennsylvania, and North and South Carolina. They include a mixture of retail, office, residential, hotel, cultural and entertainment facilities. Several have public/ private partnership components, which help enable more dense developments to occur in a suburban location. So that was a pretty good lynchpin for us in terms of how well we’ve done.

SREB: How has your company adapted its business lines to meet the challenges of the current economy?

Dick

Dick: Though it’s not just because of the current economy, our core business strategy is to focus on smaller, more entrepreneurial businesses, both on the tenant and owner side. They are the ones that have been growing, not only for the last couple of years but for the last 10 or 20 years. It’s the big companies that have been downsizing and that’s not a new phenomenon, so we actually changed that business strategy a while back. Secondly, and more on the development side of the business, is a focus on more acquisitions of existing properties versus new development. We found that it’s probably a better place for capital. The one exception to that is special niche projects like a medical office building or some land development where you purchase the land, entitle it, run the roads in and sell off sites.

Davis: We’ve added new sources of capital to try to address the needs of borrowers, and we’ve expanded not only our permanent first mortgage capacity, but we’ve also added mezzanine preferred equity providers and shorter term providers in capital. We’ve done business with over 52 investors or lenders this year, and many of our capital partners have provided new tweaks in their programs, whether they be some interest-only features or fixed-to-float or float-to-fix-to-float interest rates. Many of our insurance company lenders have been willing to commit against properties that have not reached occupancy stabilization yet. And lenders are becoming more adept at providing early interest rate locks.

Wasko: In 2004, we continue to put the interest of our clients first and advise them on which select assets to pursue or tenants that they should go after to renew. We’re basically advising our clients when it’s appropriate to invest capital or to sit on the sideline. For example, Midtown, Buckhead and Perimeter would be markets where key assets would be sought out. We would not advise our clients to pursue Downtown Atlanta because of the turmoil that’s occurring there.

SREB: Has there been any change in strategy, in terms of how you serve your clients?

Dick: One thing that has crept into our business in the last few years is to be more responsive to demands for information technology. We have a couple of clients who we need to give regular reports to on what’s going on in the local economy and the local market. They want things in electronic format, and that change has taken place over the last 5 years because the clients are getting a little savvier.

Divaris

Divaris: We’ve seen growth in our tenant representation services division, where we do a lot of work for retailers who are expanding and growing, some on a national basis, some on a regional and local basis. And many of the projects we’ve been involved with are natural homes for these retailers. The other thing that really distinguishes us from some of the other brokerage houses or developers is we also are a full-service company. We have a very large office component as well as retail, and we are very well versed in residential. So we can bring to the development a mix of disciplines that ensures that the project is not skewed one way or the other.

SREB: What new projects, sales or dispositions have you recently completed or do you have in the works?

Dick: On the development side, we have three new medical office buildings, for a total of 200,000 square feet, that we will probably start construction on next year. We have a current land deal, called Tramore Pointe, on the East/West connector in South Cobb in Atlanta, and they’ve been selling off sites to groups like Kaiser Permanente and Zaxby’s. In addition, we have a 40,000-square-foot retail center on the site of a development called Corporate Campus, which is an office complex in the Central Perimeter market. It’s a 20-acre site with about 200,000 square feet of office space. And finally, a big deal by one of our agents, Michael Lipton, is with WebMD for projects in both New York and Tampa. Ninety percent of our business is out of Atlanta, but we do some national business, and we continue to do about 10 or 12 deals a year for Coke Enterprises as well.

Davis

Davis: We recently closed two multifamily transactions in Alabama: The Parc at Cahaba River Apartments, a 348-unit development in the greater Birmingham area, for $24.66 million and Riverside Parc Apartments, a 400-unit property in Birmingham, for $18.25 million. Both loans were funded through Fannie Mae DUS. We also recently closed a $4.42 million first mortgage loan secured by an industrial warehouse building in Birmingham. The property houses a Federal Express ground facility of approximately 96,000 square feet. In the retail area, we closed an $8.8 million first mortgage loan secured by Bellewood Commons, a neighborhood retail center located on 5.33 acres outside of the Washington, D.C., metro area in Leesburg, Virginia. And we funded a first mortgage loan secured by Apple Blossom, a seniors housing facility in Rogers, Arkansas.

Wasko: In terms of our leasing and management business, we have pretty much stayed the course in 2004, so there hasn’t been a whole lot of change in that regard.

Going into 2005, I anticipate hiring approximately 10 percent more to my professional staff in anticipating that the market will continue to improve in 2005 and 2006, and because of that, I need to attract additional leasing personnel to build my leasing and management business in the Southeast.

Divaris: Projects underway include the Town Center at Virginia Beach, a 1.8 million-square-foot project with 500,000 square feet of office, a hotel, 342 deluxe apartments and 300,000 square feet of retail. We are a development partner with Armada Hoffler Development Company and handle all the management and leasing and have been involved in the conception and orchestrating part of the design. We’re about to embark on the third phase, and the rest is under construction and gradually opening. We’re also in the final planning stages of Rock Springs Center in Bethesda, Maryland, another very exclusive development. We’ve broken ground on some of the 2,000 apartments. There will also be 350,000 square feet of retail, a hotel of 300 rooms and about 550,000 square feet of office space. Another current project is Gateway Center in Tampa, Florida, which is being built on 100 acres of land, and will have about 450,000 square feet of retail in a Venetian format, two hotels, 1,000 residential units, an industrial park with light industry and offices.

SREB: What areas of the Southeast do you think will be hot in 2005?

Dick: I think the Southeast markets are still in a recovery mode, and I see that continuing next year, particularly on the office and industrial side of the business. We’re finally starting to see positive absorption again, but that didn’t really start happening until 2004, and I don’t see it regaining to the mid- to late-90s level for a while because I don’t see the economy growing that rapidly. So we’ll continue to see improvement, but it’s going to take these markets a while to reach equilibrium again in terms of the supply/demand balance.

Davis: We opened a new office in the Piedmont Triad area of North Carolina, which is a huge growth area, and that office will grow and cover all of the Carolinas. We also opened an office in Washington, D.C., which is a dynamic market with plenty of strong competition, and our two new associates are well-versed and will focus on multifamily business initially out of that office. We also have an office in Atlanta, which has been somewhat of a soft market over the past few years, but it’s a large market, and we think it’s showing some improvement.

Wasko: I think there will be a lot of interest in South Florida on the capital market side, and it will continue to be a market in which investors will want to invest for the international appetite that it offers our clients. We’ll see growth in Atlanta in 2005 and 2006 because it generally leads the economy in terms of business growth activity. I see those markets growing and prospering more so than the national average in 2005. Tampa, Orlando and Charlotte will be progressively better, but not to the extent that you’ll see in Atlanta and South Florida.

Divaris: Actually, I think the Mid-Atlantic will be the hot area for 2005. If you look at the number of people who live within a day’s drive of Washington, D.C., which I call the lynchpin of the Mid-Atlantic (which to me, stretches into the northern sections of North Carolina, all of Virginia, all of Maryland, parts of Delaware and even the southern part of Pennsylvania), that region is really poised to benefit because of the fact that people still prefer to drive. There’s still a tremendous amount of government investment in infrastructure and homeland defense and all of the other things that are really spin-offs from the stability of government investment. And you still have a reasonable climate. You’re also still close to the South, as well, so you get the benefits of the dynamic of the South without being too far into the North, and you have a balance between union labor and non-union labor. The other interesting thing is a lot of discount airlines have found the Mid-Atlantic, and that opens up a tremendous amount of movement of folks. So the whole Mid-Atlantic has come of age in terms of transportation, development and economic well-being, and I think there will be a great amount of development and economic robustness in this area.

SREB: What’s in store for your company in 2005?

Dick: We feel like we have the right market niche and an approach to business that works, so we’ll continue to plug along. We’ll certainly have more people in 2005. We have a gameplan of developing young, aggressive members for our team, particularly on the brokerage side of the business.

Davis: We have two offices in Florida, one in Jacksonville and one in Orlando, and we plan to grow significantly in Florida in 2005. We recently merged with Fort Lauderdale, Florida-based CareyKramer Company. With a population base of $15 million, Florida is a market that’s going to pay big dividends for us in the future.

And in Birmingham, where we’re headquartered, there’s been controlled development growth, so we’re seeing markets across the entire state that are probably not as dynamic as some of the other states, but are good solid markets that provide excellent lending opportunities.

Wasko: In my business line, it’s definitely hiring people and growing within an improving economy and advising our clients to continue to invest in real estate because it will benefit them in the immediate and in the long-term, based on the way the market trends are heading right now. I think Corporate America will add a little more momentum going into 2005 because of a lot of the broader issues — the election has been settled, hopefully the economy will react to more favorable Wall Street news going into 2005, good consumer holiday spending and other things of that nature.

Divaris: We have a mixed-use project that will have about 825,000 square feet of retail space in a street format. It will have about 3,000 residential units, two hotels and entertainment components. I can’t tell you where it is, but I can tell you that it’s such a fantastic site and a wonderful project, it’s going to be the hottest piece of real estate in the country.


©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.