In exchange for the property, Highwoods issued 183,587 operating partnership units to Belz and assumed $7.8 million of 8.1% secured debt maturing in February 2016. Brokers throughout the country have been expressing the need for creativity in order to complete transactions in this market, and this deal is certainly an example, says Steve Guinn, Highwoods vice president and Memphis division manager.
"The seller has effectively taken their equity and converted it into units, which is convertible into stock," Guinn tells GlobeSt.com. "They've diversified their equity from one building to a large portfolio of buildings, and now get a dividend coming in every quarter," regardless of management or leasing.
PennMarc Centre is valued at $11.8 million, according to the Shelby County property assessor. Instead of selling to obtain that capital, Belz has instead bought itself a stake in Highwoods' 384 in-service office, industrial and retail properties encompassing approximately 35 million sf and 610 acres of development land, all located in Florida, Georgia, Iowa, Kansas, Missouri, North Carolina, South Carolina, Tennessee and Virginia.
This is the first time the Raleigh, NC-based, self-administered REIT has completed a purchase with this type of transaction in a decade, says Guinn. The 91% leased building adds to Highwoods' existing holdings in the Poplar Corridor, which now encompasses 840,000 sf that are 94% leased. The company is also currently developing a 148,000-sf class A office building on Poplar Avenue which is scheduled to be completed in the fall of 2009. The project is expected to be the first LEED certified office building in Memphis.
"The Poplar Corridor is the number-one office submarket in our metro area," says Guinn of the REIT's choice to acquire PennMarc Centre. The building's location within walking distance from a number of the company's other assets and good visibility on Poplar Avenue also attracted the REIT to the deal.
Tenants at the building include medical and business users such as Diagnostic Imaging, Charles Retna Institute and the DeVry Institute of Technology. According to Highwoods, $1.7 million in improvements are planned for PennMarc Centre, which generates an annual net operating income of approximately $1.5 million.
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