by Bradley Parsons
Staff Writer
Growing demand for downtown’s relatively limited premium office space will allow The Humana Centre’s new owners to fill the building without lowering rents, according to the owning partnership’s chief operating officer.
Bill Evans of Capital Partners Inc., called the $16 million purchase a “show of confidence” in downtown’s commercial real estate market. Although one in five downtown offices sits empty, Evans said the demand for premium Class A space appears ready to increase. By adding the Humana Centre to a roster that already includes Independence Square, Evans said CPI would hold two of the four buildings known to cater to high–end renters. The Bank of America tower and One Enterprise Center are the other two.
The building — soon to be rechristened the SunTrust building after its primary tenant — will offer space at a small discount from space in Independence Square, said Evans. But its rates will be comparable to other Class A space. Premium space was renting around $25 to $30 a square-foot, he said, compared to about $16 to $19 for the downtown market as a whole.
Evans said the new acquisition would allow CPI to compete for renters who couldn’t afford Independence Square and eliminated a potential source of future competition.
“That space is going to be there whether we buy it or not, so, in a way we’re protecting ourselves,” said Evans. “It’s a defensive move and an offensive move.”
After renting about 60,000 square feet to SunTrust and 40,000 to Humana, CPI will have about 225,000 square feet to fill, about 60 percent of capacity. Evans said CPI would not cut rents to fill that space.
CPI was nearing terms with two “major law firms” in the area to relocate to the building, both seeking more than 20,000 square feet, said Evans. The building’s expansive vacancies will allow CPI to go after large tenants that would not fit into Independence Square. Evans said a new tenant would move within the next three months into 18,000 square feet in Independence Square, bringing the vacancy rate in that building down to around 10 percent.
Plans for renovations to the Humana Centre are still being developed, however Evans said they would include improvements to the lobby and landscaping. The changes would “add value” to the building, said Evans.
At $16 million, the transaction is regarded as a relative value for CPI. Humana bought the building for $32 million. The agent for that transaction said CPI paid less in exchange for taking on risk as a landlord. Humana bought the building as an occupant and didn’t have to worry about finding tenants, he said.
Jack Garnett, president of Garnett Commercial Real Estate, sold the building to Humana from the Ohio Public Employees Pension Fund. Despite the discounted price this time around, Garnett said he was excited by the recent activity in the downtown market. The Humana Centre deal followed the $45 million purchase of One Enterprise Center in January.
Garnett said he wasn’t worried about increased competition downtown. His sole downtown client, 100 Laura Place, will enter the Class A market soon. He took the Humana deal as a positive indicator of gathering market momentum.
“I view it as a major endorsement of what’s going on downtown,” said Garnett. “They’re obviously very savvy investors, and when you look at the success they had with the Modis Building, (Independence Square) there’s no question they see an opportunity here.”