The new owner of downtown Jackson’s City Centre will consider converting the two-tower office complex on South Lamar Street into a convention center hotel should it lose a main tenant whose lease is up at the end of 2016.
Hertz Investment Group, the Central Business District’s dominant landlord, emphasized it bought the 266,700 square feet of buildings and accompanying 518-space structured parking deck as part of a national strategy of buying up downtown properties in a “cost efficient way.” But that could change if law firm Forman, Perry, Watkins, Tardy & Krutz declines to renew its lease on 120,000 square feet spread within the two towers, said Jim Ingram, Hertz’ executive vice presidenta and chief investment officer.
“All things are subject to change. Today it is an office building,” he said of City Centre.
“It really all depends on what the law firm does.”
Forman, Perry has not said what it intends to do after 2016. But its relocation options could be limited by the near capacity occupancies at the three-building Highland Colony Parkway’s Renaissance campus and the space law firm Baker Donelson has claim to at the soon-to-open One Eastover Center, a 120,000-square-foot Class “A” office building located in the District at Eastover.
For Hertz, re-purposing City Centre into a hotel to serve the Jackson Convention Complex is an option – but not the only option, Ingram said. “It’s likely the building could be redeveloped into a hotel or even residential.”
The other option: Keep the buildings as offices.
“We can make money with any of these three,” Ingram said.
The bargain price of $6.2 million for which Hertz picked up the property from seller Parkway Properties makes a conversion a viable option, according to Ingram.
The garage itself cost $9 million when built in 2005, Ingram said.
“At $23 a square foot for a building 87 percent occupied and essentially redeveloped in 1997, we think it’s a pretty good deal.”
Ingram added Hertz has had City Centre on its shopping list ever since the privately held California commercial real estate investment firm began buying up such Parkway properties as the Pinnacle at Jackson Place and One Jackson Place in 2012. Parkway, a real estate investment trust, put its buildings on the market after moving its corporate headquarters to Orlando.
Ingram, a former Parkway executive, said acquiring City Centre from Parkway came as “part of a natural progression.”
Hertz Investment Group has 1.4 million square feet of office space in metro Jackson, most of which is in central downtown and includes 111 East Capitol, Regions Plaza and Regions Bank Building.
Even before City Centre’s acquisition, Hertz controlled more than 60 percent of downtown office space, mostly Class A.
The real estate company began buying its Jackson properties in 2007.
Hertz owns more than 19-million square feet of office space in 20 cities across 15 states. In June, the company controlled by Judah Hertz of Santa Monica, Calif., made its largest acquisition to date. It bought a portfolio of six Class A buildings totaling more than three million square feet for $417 million. The properties are in New Orleans; Birmingham, Columbia, S.C., and Greensboro, N.C. Earlier this month Hertz acquired Skylight Office Tower, a 12-story, 321,000-square-foot property in downtown Cleveland, Ohio, which marked Hertz’s second major purchase in Cleveland this year.
Also in June, Hertz offered to buy the Jackson Redevelopment Authority’s parking garage at Jackson Place for $3.5 million in cash.
The company made the offer in a letter to the JRA board. The letter detailed Hertz’ conclusion that converting the City Centre, an acquisition for which it was awaiting a closing, into a convention center hotel did not appear financially viable.
But Hertz based that conclusion on turning the office property into a 5-star, full service hotel, Ingram said in an interview Tuesday.
“We think we can dial that back and produce a hotel that will work” within Hertz’ redevelopment economics, he added.
Such a conversion could not begin, however, until the last of City Centre’s tenant leases expire at the end of 2018, according to Ingram.
The Jackson Redevelopment Authority has created a citizen-review committee to examine a pair of responses for developing a convention hotel on land across Pascagoula Street from the convention complex. Two developers – Engineering Design Technologies of Washington, D.C., and Red Leaf Development of Herndon, Va. — are competing for a development contract.
An announcement of the review panel’s selection, which would go to the mayor and City Council, is scheduled for Oct. 29.
The JRA may be forced to push that date back after the review panel’s failure to raise a quorum on Oct. 5, which was to be the next-to-the-last meeting before deciding on a developer.
Meanwhile, Hertz’ buying spree in Jackson is over, according to Ingram, who added: “I would say we own all the Class A buildings downtown… at least what we consider to be the Class A buildings downtown.”
Hertz will now shift more fully to converting some of its properties, chiefly the 18-floor Regions Building, a circa 1928 tower that formally housed Guaranty Trust.
“We’re still pushing that agenda every day,” Ingram said of the planned conversions.
Plans for turning the Regions Building, an historic landmark, into apartments stalled last winter when the state ran out of historic tax credits. Legislators, including House Speaker Philip Gunn, say they will push for replenishing the allocations in the 2016 session.
Ingram said he thinks converting City Centre into a convention center hotel and the Regions Building into apartments would create a profound turnaround for the Central Business District, including a greatly strengthened office market.
“I think you’ll see a drastically different downtown if those two events take place,” he said.