A potential new buyer is ready to seek a deal on downtown Jackson’s Landmark Center now that the University of Mississippi Medical Center no longer wants the vacant office building.
The Hertz Investment Group, owners of 1.2 million square feet of metro Jackson office space, wants to be 100 percent sure UMMC is out of the deal before approaching representatives of the 366,500 square-foot Landmark, said Jim Ingram, Hertz executive VP and chief investment officer.
“We would do anything to help UMMC get to buy the building. But if that can’t happen we might step in and be a player ourselves,” he said.
Ingram said the price would need to be right, though he did not say how far it must drop below the $6.1 million to $6.5 million range UMMC was negotiating.
“At some point we may reach out to Johnny Lamberson,” a broker in the CB Richard Ellis Memphis office who represents Landmark owner U.S. Bancorp, Ingram said.
Hertz had an option to buy the seven-story building at 175 E. Capitol but let the option lapse after state officials passed over the Landmark as the new Department of Revenue headquarters.
The Landmark carried a price of just over $14 million as recently as 2011.
UMMC officials say they ceased negotiations with owners of the building after other needs arose, including the cost of moving nearly 2,000 unmarked graves from land off Lakeland Drive north of the campus needed for expansion. Also contributing was a decision not to do a public-private hotel project that would have displaced a significant number of UMMC workers on campus and created a needed for additional office space that the Landmark could fill.
The Board of Trustees of the Mississippi Institutes of Higher Learning approved the purchase of the building at 175 E. Capitol St. in November UMMC was looking to pay between $6.1 million and $6.5 million and planned improvements such as a new roof for the seven-floor structure.
The deal’s demise is “a big disappointment to a lot of people in Jackson and lot of people here on campus,” UMMC spokesman Jack Mazurak said. “It is just not financially responsible right now.”
The pending purchase helped ease the pain downtown proponents felt when state officials selected Clinton’s SouthPointe Business Center over the Landmark as the new home of the Department of Revenue. But without an occupant for the Landmark, downtown’s office space vacancy will remain in the high 30 percent range.
The Landmark has been empty since the departure of former main tenant AT&T. Commercial real estate brokers had estimated that once the Landmark regained a major tenant, vacancy in the Central Business District would drop to the mid to high 20s.
Believing the Landmark would get UMMC as an owner “is why we didn’t raise too much hell” about losing the DOR to Clinton, said Ben Allen, president of Downtown Jackson Partners, a public-private entity responsible for promoting and enhancing downtown as a destination for working, shopping and living.
The arrival of 300 or so new workers downtown, and the likelihood of more to follow as space in the Landmark filled – was to bring a significant economic boost to downtown. Mississippi Main Street has statistics that show the average worker downtown spends a $125 a week, including parking, eating, happy hours and miscellaneous expenses such as dry cleaning, according to Allen.
“It could put $30,000 a week into the downtown economy,” Allen said last year after UMMC confirmed it wanted the Landmark to provide office space and a home to its rapidly growing Tele Health Services. Tele Health Services has since signed a lease for additional space in its current home in the UBS building at Interstate -55 and County Line Road. Tele Health provides rural emergency rooms voice and picture two-way linkups to medical specialists at the Tele Health ops center.
The inaugural office market report for metro Jackson prepared by the Jackson office of CB Richard Ellis Commercial Real Estate firm put the fourth quarter 2013 Central Business District office vacancy rate at 34.9 percent, but based its prediction for occupancy increases in 2014 partly on the sale of the Landmark going through.
The CBRE report, released late week, noted that Rentable Building Area for the Central Business District totaled 2,950,224 square feet at the end of 2013. The CBD’s average asking lease rate was $16.88, with net absorption for the final quarter of last year standing at 16,452 square feet.
The report noted that demand for residential space downtown has developers to convert many vacant older office buildings in the CBD to multi-family housing.
Richard Ridgway of the CBRE’s Jackson office said it would be wrong to describe the CBD office market as flat. “We’re seeing new tenants and existing tenants expanding,” he said in an interview Friday.
But the “game changer” for the CBD won’t come until the Landmark begins to regain occupants, Ridgway predicted.
The Hertz Group’s Ingram said he agrees. “If we can find the right user for the Landmark and we complete the redevelopment of the Regions building to residential, it would essentially take 500,000 square feet of vacant office space off the market,” he said.
The California-based Hertz Group has applied to the U.S. Park Service for placement of the circa 1928 Regions Building on the National Register of Historic Places. The placement would make the building eligible for federal historic tax credits, said Ingram, who added that with the tax credits “we’re off and running” in doing the conversion of the 18-story Regions Building to residential.
On the government side, state Sen. Blount has tried for the past two years to persuade lawmakers to approve moving many of the state’s far-flung offices into downtown. He has said the relocations would not only lower CBD vacancy rates but also save the state over $5 million annually in office space rents.
Blount’s legislation has passed the Senate unanimously the past two years but failed to get a vote in the House either time.
BEFORE YOU GO…