Former Parkway executive named Hertz Group senior VP

Hertz Investment Group, landlord to many of downtown Jackson’s office buildings, has named the former chief investment officer of Parkway Properties, James M. Ingram, its senior VP and chief investment officer.

James Ingram will oversee Hertz Group properties in Mississippi and three other states.

James Ingram will oversee Hertz Group properties in Mississippi and three other states.

Ingram will continue to be based in Jackson and will oversee leasing operations of Hertz properties in Mississippi, Tennessee, Louisiana and Virginia.

Ingram will also manage all acquisition and disposition activity in the multi-state region.

Hertz Investment Group has been a major buyer of downtown Jackson office properties. Today, its properties include Regions Plaza and One Jackson Plaza. The California-based form also is reported to have an option on the 325,000 square-foot Landmark Center, one of three finalists to in the competition to be the new headquarters of the Mississippi Department of Revenue.

In addition to Jackson, Hertz Investment Group has been on a buying spree in Memphis and Richmond, Va. In total, the company acquired 15 properties in the three cities.

Nationwide, Hertz has 12 million square feet of commercial space in 14 cities across 10 states.

Judah Hertz, CEO of Hertz Investment, said Ingram’s nearly three decades of success in commercial real estate led to his appointment to the key executive position. “We will benefit greatly from his experience and vision as we move forward,” Hertz said in a press statement.

In his 23 years with Parkway Properties, Ingram helped the company acquire and sell more than 120 office properties representing 26 million square feet and $3.7 billion. Parkway, a real estate investment trust, moved its headquarters to Orlando from Jackson last year.

 

Wanted: Replacement for Parkway’s downtown leadership

The coming departure of Parkway Properties from Jackson leaves a leadership void for downtown causes, says Ben Allen, president of the Downtown Jackson Partners, a public-private partnership created to promote and facilitate downtown’s revitalization.

Parkway’s executive corps brought a “care factor” that will be hard to replace, Allen said.

“As far a losing the emotional capital, I can’t sugar coat stuff like this,” he added. “Parkway was the one business I could depend on for guidance.”

Allen’s agency came to life through the efforts of Leland Speed, who as Parkway’s chairman led efforts to create a Business Improvement District, or BID, for downtown. “The BID was formed because Leland Speed shepherded it,” said Allen of the arrangement by which downtown property owners agree to be taxed to pay to improve and promote downtown.

Speed, as chairman of downtown-based EastGroup Properties, will remain a force. But unlike Parkway, EastGroup has nearly zero holdings in Jackson, having concentrated since the mid 1990s on industrial warehouse space in major markets across the Sun Belt.

Ben Allen

Steve Rogers, who stepped down as Parkway CEO at the start of the new year, has been Allen’s go-to-person on efforts to convert Capitol Street to two-way traffic. “Parkway was carrying the flag” for that, said Allen, who noted the effort has progressed to the point the city is doing engineering work needed to initiate the change.

But for future big projects?

“I’m hoping that someone might step up into their shoes,” he said.

That could be Allen himself, said Walter Becker Jr., a longtime Jackson commercial real estate broker. He sees Mayor Harvey Johnson in that role as well.

“Someone is going to have to provide the leadership,” Becker said.

“What you had with Rogers was downtown leadership. Rogers was one of those guys who tried to make everything better.”

In the end, Rogers paid a big price for the focus he put on Jackson and other secondary markets. Analysts blame years of concentration on these markets for Parkway’s underperformance and say new CEO Jim Heistand is the polar opposite of his predecessor.

“We think the next step may be a change to the name of the company, as the new management team looks to bury the past,” wrote analyst Richard Anderson of BMO Capital Markets in a report titled “Severing the Jackson Umbilical Cord.”

Judah Hertz, head of Hertz Investment Group, has an agreement with Parkway to buy One Jackson Place, the Pinnacle building and 111 Capitol Building, among others. Hertz, as owner of Regions Plaza in downtown Jackson, has been supportive of the Business Improvement District, according to Allen.

Duckworth Realty manages Regions Plaza for Hertz. Allen said that is a plus for downtown.

“Fortunately, the former chairman of the Downtown Partnership, Ted Duckworth, is the foot solider for the Hertz company here,” Allen added. “I think we’ll be fine as far as that goes.”

John Michael Holtmann, VP of brokerage for Duckworth Realty, has not ignored the issues facing the downtown Jackson market. “I think they have been pretty involved”… but “again they are not boots on the ground here like Parkway.”

Jackson’s EastGroup an entity all its own

While Parkway Properties is shifting its operations to Orlando and selling off nearly all its Jackson office properties, a company often incorrectly thought of as a cousin to Parkway – EastGroup Properties – is staying put in Mississippi’s capital.

EastGroup CEO David H. Hoster II says the only reason his company and Parkway are believed to be joined at the hip is that they share the same founder – Leland Speed.

Both are publicly held real estate investment trusts and both came to Jackson more than 25 years ago under Speed’s direction. Speed, too, has had a hand in guiding the growth of both.

But these days operational management and the specialties in which they operate – office properties for Parkway, industrial warehouse for EastGroup – are separate.

And, as Hoster is quick to note, EastGroup is capitalized at a much higher level than Parkway. EastGroup has common equity of $1.2 billion and assets in the $2 billion neighborhood. Parkway, which recently acquired Orlando’s Eola Properties in a $436 million deal, has common equity of about $200 million, Hoster noted.

Today, with Speed in the role of chairman emeritus of Parkway, EastGroup has no board or management overlap with Parkway, according to Hoster.

However, the two real estate entities had substantial board and management overlap up to the early 1990s. Change came, Hoster said, when EastGroup determined that for it to grow “the companies had to be totally independent from that point going forward.”

From then on, the only connection between the two companies was Leland Speed’s chairmanship of both.

Parkway originated as a real estate investment firm in Houston in the early 1970s. An investor group headed by Speed got control of the company and moved it to Jackson around 1980, Hoster said.

Meanwhile, EastGroup started life in New York City as ICM Realty in 1969 and went public in 1971. Jackson investors led by Speed subsequently took over the firm’s board and moved the operation to Jackson in 1983.

EastGroup, which rents headquarters space at Parkway’s Pinnacle at One Jackson, is not going anywhere, Hoster said.

The company has regional offices in Orlando, Phoenix and Houston and a half dozen property management offices around the Southeast and Southwest. Having the right management on the ground in key markets makes it possible to remain in Jackson, Hoster said. “We have sent senior people out into the field to live and work in the markets they are responsible for.”

Parkway’s exit from Jackson market seen as needed step

Parkway Properties’ planned exit from office markets in Jackson, Memphis and Richmond, Va., gets a thumbs-up from analysts who call the market departures an overdue course correction.

The consensus is the self-administered real estate investment trust is giving itself its best chance for success by leaving tertiary, or secondary, markets for core markets that can bring higher returns.

With Parkway’s departure, Jackson and the other two markets are to gain the Hertz Investment Group, a Santa Monica, Calif., real estate investment company that specializes in secondary markets. The company has agreed to pay $147.5 million for 1.9 million square feet of space in Jackson, Memphis and Richmond that is 76 percent occupied.

In Jackson, the properties set for a change in ownership include One Jackson Place, Pinnacle at Jackson Place and the 111 Capitol Building.

Hertz Investment Group either owns or operates nearly 10 million square feet of office space in the central business districts in Jackson, Indianapolis, Louisville, New Orleans, Shreveport, Lake Charles, St. Louis, Kansas City, Pittsburgh and the Ohio cities of Columbus and Cincinnati.

The buildings it will be getting have about $41.7 million in mortgage debt, of which $32 million is Parkway’s share. The sale is expected to close during the first quarter.

One analyst report said sale metrics indicate weak pricing — $78 a square foot and 9+ percent cap rate for 76 percent occupied portfolio, but noted this isn’t unexpected given weak pricing of late for non-core sub office properties.

Judah Hertz, who founded Hertz Investment in New York in 1979, is known for his ability to recognize a building’s hidden potential, the company Web site says.

The Hertz Group’s Jackson property is Regions Plaza, an office tower on Capitol Street that recently underwent a several-million-dollar renovation of its first two floors but has struggled since losing such major tenants as Butler Snow and HORNE CPAs in the last few years.

The sale will leave Parkway with one Jackson property of 267,000 square feet

Once these remaining assets in Jackson and Memphis are sold, Parkway’s core markets of Atlanta, Houston, Fort Lauderdale, Jacksonville, Orlando, Tampa, Philadelphia, and Phoenix will comprise about 90 percent of the total portfolio, said a Wells Fargo Securities equities research report issued last week.

“ We sense New Orleans, Charlotte, and Nashville could be the next in targets for non-core dispositions,” Wells Fargo said..

The Jackson company Leland Speed founded in New York and moved to Mississippi 30 years ago has little choice but to leave the Central Mississippi market, said analyst Richard C. Anderson in a report issued last week titled “Severing the Jackson Umbilical Cord.”

Shedding of the 1.9 million square feet of office product is another clear sign of the cord cutting that includes the headquarters move from Jackson to Orlando, new top executive leadership and the $103 million sale of the majority of its Fund 1 properties, Anderson of BMO Capital Markets said.

“We think the next step may be a change to the name of the company, as the new management team looks to bury the past.”

BMO Capital will maintain its “Under-perform” rating on Parkway, though the rating could change after new CEO Jim Heistand details Parkway’s strategy for 2012 and beyond in a 4th quarter earnings conference Feb. 7.

Heistand indicated Parkway’s new course in a press statement announcing the pending sale of the office buildings to California-based Hertz Group. A “portfolio sale of these assets allows us to quickly realign our overall portfolio and focus our resources and capital on building critical mass in our remaining core markets,” he said.

Anderson saw the course correction coming a couple of months ago with the announcement of a Dec. 31 departure for CEO Steve Rogers and the naming of Heistand to replace him. Heistand was founder and chairman of Orlando-based Eola Capital, which Parkway acquired for $462 million last fall in a deal the Jackson company said it was attracted to by Euloa‘s extensive properties management business.

“Work is under way to try to undo a lot of what has been done in the past,” wrote Anderson in a late 2011 report titled “A Strategic Lobotomy” that largely targets the tenure of Rogers.

Anderson said the leadership change could reverse strategies of the past five years that have produced “significant stock under-performance.”

Parkway’s recently completed sale of Fund I assets included nine properties totaling about 2 million square feet in five markets, representing a majority of the Fund I assets. The sale of the remaining four assets in the Fund I portfolio is expected to close during the first quarter. Parkway held ownerships in the properties ranging from 25 to 40 percent.

David AuBuchon, a Robert W. Baird & Co. analyst who covers Parkway, said he thinks selling the Fund 1 interests makes Parkway more apt to buy assets it can hold to its balance sheets going forward. And it furthers its aim of concentrating in core markets, AuBuchon said.

“What’s been happening recently is that I’ve seen a lot of companies move out of the tertiary markets,” he said. “A lot of capital is going to the core markets.”

What Parkway is doing, he said, reflects “how tough the office operating environment is right now.”

Any edge, AuBuchon noted, has to come from going into markets that are showing job growth. “This is what you see from many big real estate companies,” he added.

Robert W. Baird & Co is keeping a “Neutral” rating on Parkway. “We’ll stay on the sidelines until their leadership give us an idea of their strategies,” AuBuchon said.

Parkway, as a publicly trade real estate investment trust, has traded at $20 a share in the last three years and was at $17 in early May 2011 before falling to $12 in early November, according to a report by Wells Fargo Securities.

Wells Fargo said Parkway’s repositioning of its portfolio of office assets should increase long-term growth potential. “Yet, recycling assets and capital raising will likely suppress earnings,” Wells Fargo’s report said, and noted as well that elevated leasing costs will limited cash flow generation.

Parkway Properties further reduces Jackson presence

Company sells all but one Jackson building; exiting ‘non-core’ markets

Parkway Properties is reducing its presence the Jackson market with the sale of all but one of its office properties, but Parkway officials will not make definitive comments regarding personnel reductions.

Thomas Blalock, Parkway vice president of investor relations, said in an e-mail: “Given that the portfolio sale has not been completed yet, we cannot provide any additional information beyond what was included in the release, including questions related to personnel.”

The company said Friday it is selling all but one of its Jackson office properties to Hertz Investment Group, and its remaining building is up for sale. Parkway explained it is exiting “non-core” markets, which include Memphis and Richmond, Virginia, in addition to Jackson. The total non-core assets comprising 15 properties totaling 1.9 million square feet are being sold for $147.5 million. The Company estimates it will take a loss of approximately $58 million.

Charles T. Cannada, new chairman of Parkway’s board of directors, said of Jackson employees: “From the corporate standpoint, we have no intention at this stage of doing anything with corporate employees. Some of the local people who service individual buildings … they would go with the buildings. Maintenance engineers or what have you. … As far as corporate employees, like accounting staff and human resource people, this would not affect them.”

Cannada said he did not know what percentage of Parkway’s Jackson employees are considered corporate.

Former CEO Steve Rogers, who retired from the company effective at the end of 2011, said prior to his departure that only a handful of executives would be moving to the company’s new Orlando, Florida headquarters and stressed that due to technology, modern companies were “virtual” and operated from various locations.

Parkway announced in late 2011 it would be moving its headquarters to Orlando, home of Eola Capital, with which the company combined in May, and Jim Heistand who took over as CEO Jan. 1.

Parkway is selling the following downtown Jackson assets: One Jackson Place, 111 Capitol Building, Pinnacle at Jackson Place, Parking at Jackson Place, and UBS Building / River Oaks Place. The company currently retains the City Centre building at 200 South Lamar Street, which is up for sale.

A member of the S&P Small Cap 600 Index, Parkway is a self-administered real estate investment trust specializing in the ownership of office properties. Parkway owns or has an interest in 58 office properties located in 12 states with an aggregate of approximately 12.6 million square feet of leasable space at January 5, 2012.

The company has suffered from poor stock performance recent years.

Parkway’s new chief investment officer, David O’Reilly, told the Orlando Sentinel: “Generally speaking, it’s not difficult to see that, historically over the last three, five, or 10 years, Parkway has underperformed the market, and we would like to restore Parkway to where it was in the mid-1990s as one of the leading REITs in the industry.”

Heistand told the Sentinel he expected a Parkway expansion to focus on such core “growth” markets like Orlando, Tampa and South Florida.

Lawsuit settled

A lawsuit filed against Parkway in Hinds County Circuit Court by its former CFO Mitch Collins, who alleged wrongful termination and fraud, was settled in December, according to a regulatory filing. Parkway fired Collins, who said he had resigned from the company. Parkway estimated it would record an expense of approximately $500,000 related to the suit.

A joint statement signed by both parties includes: “Mitch Collins and Parkway apologize to the other for all the accusations made. Mitch knows of no SEC filings, budgeting, accounting and financial disclosures which have not complied with applicable laws and professional and ethical standards. … We parted company because we were just not a good fit for each other at that particular time. It’s just that simple. We regret anything and everything that we have done that may have caused others to believe otherwise.”