CSX Corp. bought the 550 Water Street Building on Tuesday for $30 million, exercising a purchase option in its lease at the Downtown office structure where about 1,000 of its employees operate.
Jacksonville-based CSX, through The Atlantic Land and Improvement Co., bought the property from BP Graham LLC, based in Alabama. The sale was recorded Wednesday with the Duval County Clerk of Court.
The transportation company leases almost 75 percent of the structure, which sits next to its riverfront headquarters at 500 Water St.
“This investment is a reflection of CSX’s long-term commitment to its employees, the economic vitality of the region and the future of downtown Jacksonville,” said CSX spokeswoman Kristin Seay in a statement.
It also reflects investor interest in Downtown buildings. The 550 Water Street building acquisition comes after five other Northbank and Southbank towers were sold the past year, showing that buyers had funds and sellers had the right pricing.
The Atlantic Land and Improvement Co.’s officers comprise executives with CSX Transportation and CSX Real Property Inc.
The 14-story 550 Water Street building comprises 234,310 square feet, according to the Duval County Property Appraiser’s office. CSX occupies 172,000 square feet, or all but three floors.
Seay said CSX has leased the majority of the building since 2011. It is a 15-year lease. CSX will serve as the landlord for the six tenants in the building, she said.
Seay said CSX’s purchase of the 550 building will reduce operating costs and secures the company’s long-term control of a strategic asset.
The acquisition comes in light of news in November that CSX wants to cut 300 jobs, mostly in its Jacksonville headquarters staff, by offering voluntary buyouts to some employees.
If the buyouts don’t reach the target of 300 jobs, the company might need to lay off employees starting in January, reported logistics magazine DC Velocity, citing a letter from CSX Chairman and CEO Michael Ward to employees.
CSX spokeswoman Melanie Cost said in November by email that the voluntary separation program is part of the company’s long-term planning.
According to DC Velocity, Ward said he also plans to cut so-called nonessential costs by 10 percent. Those cuts, also by year-end, will come from CSX’s general and administrative budgets.
“This investment is consistent with the company’s strategy to streamline our cost structure by reducing operating expenses,” Seay said.
CSX employs more than 31,000 people throughout its system in the Eastern U.S.
CSX employs about 3,600 people in Jacksonville. In addition to the 1,000 at 550 Water St., it has more than 1,500 in the headquarters building and the remaining employees in other locations.
CSX, one of the city’s major corporate headquarters, is based in a 17-story structure on almost 6 acres at 500 Water St., Duval County property records show. The structure, at almost 355,600 square feet, opened in 1960 for the Atlantic Coast Line Railroad, the predecessor of CSX.
Downtown Investment Authority Chair Oliver Barakat said Wednesday the investment in buying the 550 Water Street building further cements CSX as a long-term Downtown corporate resident.
“Whenever a company goes from leasing space to making a large investment to owning a building, obviously they are signaling they plan to stay put in the longer term,” Barakat said.
“It speaks well that they decided to keep their employee base in the Downtown area and they think well enough to make another real estate investment,” he said.
BP Graham LLC of Birmingham, Ala., bought the building for $23.3 million in October 2007. The structure, built in 1982, carries a 2015 assessed value in progress of $14.25 million and sits on 1.9 acres.
Graham & Co. LLC is the manager of BP Graham LLC. Michael Graham, manager of Graham & Co. LLC and president of Graham & Co. did not return a telephone call or email for comment.
It is the sixth Downtown high-rise to be sold within a year. On the Southbank, Riverplace Tower was sold in October and the Aetna Building sold in December 2013. On the Northbank, the Wells Fargo Center was sold in June, the Bank of America Tower in July and EverBank Center in September.
Barakat, who is a senior vice president of the CBRE Inc. real estate company, said the sales represent investor interest in Jacksonville.
“There is a lot more capital flowing into commercial real estate. Secondary markets like Jacksonville are seeing a lot more investor activity and they are seeing these buildings being offered at reasonable prices,” he said.
Barakat said it took many years for the capital markets to recover and some of the owners that sold over the past year might have wanted to sell earlier but were waiting for the right price.
“The past year, that has finally occurred,” he said.
Asked if more Downtown buildings could be sold, he said it’s very possible.
“If the leasing fundamentals improve, that will further fuel more interest among buyers and create more opportunities for owners to sell while the market is strong,” he said.
The deal under negotiation for Citizens Property Insurance Corp. to lease more than 230,000 square feet of space at EverBank Center is a sign of improving leasing fundamentals, he said.
Barakat said there was no singular common reason for the spate of Downtown building sales. Some owners had been ready to sell for some time, he said.
Those buildings that were most occupied, meaning a full house of strong tenants that were paying rent, might have traded in a weaker real estate market, but not at as high a price.
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