An announcement by Belz Enterprises to build a Class-A, 185,000 sq. ft. office building in downtown Memphis as a centerpiece to its Peabody Place proved to be a capstone to a string of commercial real estate developments across the city.
The Tower at Peabody Place, a 15-story building, is to start construction this year and be completed in the fall of 1996. It will be part of the mixed-use development and the first major multitenant office building erected downtown since Morgan Keegan Tower several years ago. AutoZone, an automotiv aftermarket supplier based in Memphis, is well under way on its single-tenant 250,000 sq. ft., eight-story national headquarters a block away from the Tower's future site.
15 miles to the east in Memphis, the Class-A office market continues to be tight. There, a 170,000 sq. ft. building is being constructed for Sedgwick James of Tennessee Inc., an insurance company.
Memphis has 19.7 million sq. ft. of office space, of which 83.5% is occupied, says IRC Corp. The 8.3 million sq. ft. quotient of Class-A space is 93% occupied. There have been few large blocks of contiguous Class-A office space in the city.
The east Memphis submarket is the largest and most active.
ServiceMaster's expansion lease in Boyle Investment Co.'s Ridgeway Center became the largestof its kind in the history of the center. It signed a 15-year lease to double its office space to 153,000 sq. ft.
David Peck, president and CEO of Weston Cos., says east Memphis is the recipient of some 85% of the new business growth into the city.
The sector now is experiencing singledigit vacancy rates.
Curt Grantham of Trammell Crow Co.'sServices Group says the completion of Nonconnah Parkway and the continued growth in the Interstate 40 corridor will continue to make larger east Memphis an active development market.
Most office construction is of build-to-suits -- rental rates still are 15% to 20% below what they would need to be to justify new construction. Now, 80% preleasing levels are required in most cases for construction to commence.
Interest in office buildings from outside investors are in the form of institutional pools, wealthy individuals and foreign investors. An example was the purchase by One Memphis Place Venture L.P. of Florida of One Memphis Place downtown for $8.5 million. All but 37,000 sq. ft. of the 203,000 sq. ft. structure was occupied.
Earl Blankenship of IRC says 1994 saw office property, rental and occupancy rates increase for the first time in recent years and he believes the trend will continue.
"The office market is out of intensive care and on the path to full recovery," says Larry Jensen of Commercial Tennessee Inc. He says almost every submarket experienced positive absorption in 1994.
Longer-term leases are often being sought to counteract a rise in rental rates.
Numbers also look good for the hotel industry. In Memphis, the average daily room rate increased 7.9% to about $60 in 1994 with downtown hotels experiencing the largest rate increase, up 13.3% from $65 in 1993 to about $74 in 1994.
Hotel construction also is taking shape 45 miles southward in Tunica County, Miss., which has seen a dozen casinos built.
New retailers look to Memphis
In the retail sector, JMB Retail Properties Inc. plans a regional shopping mall on the northeast side of the city near I-40. The city now has a half-dozen regional malls.
A quarter of the overall retail space in the local market is in southeast Memphis, an area with 95% occupancy, according to Weston Cos. Some 5 million sq. ft. out of a total of 20.5 million sq. ft. in the Metropolitan Statistical Area (MSA) is in that sector. Next in line is east Memphis with about 3 million sq. ft.
The retail market as a whole is about 90% occupied, Weston calculates. The submarket of Cordova has the highest mark of all at 97%.
Brad Smith, retail partner with Weston, expects more than 1 million sq. ft. to be under construction in 1995. Weston will start building the 300,000 sq. ft. Cross Creek Shopping Center in 1995 near the new Nonconnah Parkway.
Three new Super K mart stores also will be under construction in 1995.
JMB expects site work to start on the regional Germantown Mall off I-40 in the spring.
Chicago-based Homart is planning a 500,000 sq. ft. power center in northeast Memphis across from the announced site of the JMB mall, says Charles E. Fancher Jr. of Homart. It foresees a late fall 1995 or early spring 1996 construction start.
Boyle Investment Co. is completing a second phase at the Village Shops of Forest Hills on Poplar, bringing that center to 365,000 sq. ft.
In 1995, Boyle plans a 120,000 sq. ft. center at Poplar and Johnson Road called Village Commons.
Belz Enterprises plans an addition to its Factory Outlet Mall.
Another example of current retail development is a $15 million development at Forest Hill-Irene Road and Poplar Pike by Mid-South Investment Co.
Trammell Crow Southeast expanded its southeastern retail operations through acquiring interests in the Miami-based Brandon Co.
(1)Employment is for Shelby, Fayette and Tipton counties in Tenn.; Crittenden County, Ark.; and Desoto County, Miss.
Source: The Memphis Economy, published by the Bureau of Business and Economic Research, The University of Memphis.
Multifamily surpasses occupancy ideal
The Memphis apartment industry has surpassed the idealized occupancy rate of 95% by one percentage point, creating a catalyst for increased rents and limited, specialized construction in that market.
It's reached a supply equilibrium with waiting lists at some apartments, says Scott P. Ledbetter, chairman of SPL Corp. and LEDIC Management Group. Low construction levels continue to fuel the improvement.
Unit completions for the year were expected to be 450 compared with only 183 completions in 1993. This scarcity of new supply has driven the occupancy to about 96%.
Rents also are climbing at about a 9.6% annualized increase. They're expected to continue to do so during 1995 and may approach the level needed to justify new construction.
SPL's Ledbetter says completions for 1995 are projected at 1,800 units.
The city also claims a REIT in the apartment industry: Mid America Apartment Communities, an outgrowth of The Cates Co.
Outside interest in Memphis apartment properties was seen in the purchase of a 30-acre tract in Germantown by Gables Residential Trust of Atlanta, which plans to develop a 252-unit community. And Capital Apartment Properties Inc., of Rockville, Md., bought the 182-unit Farmington Gates in Germantown as well as the 127-unit Ridgeway Commons in Memphis. Together, they went for $11 million.
"The apartment market that was so overbuilt and in the financial doldrums five years ago is now as strong as it has ever been since its emergence in the late 1950s," says Fogelman Enterprises president and CEO Avron B. Fogelman. "It is more like a phenomena, though, than just a strong market. There has never been a situation that the demand, coupled with a good economy, has run in the face of such low supply." Fogelman Enterprises owns over 13,500 units in 23 cities and 11 states.
SPL has recently handled several successful multifamily sales transactions, including the 330-unit Trinity Lakes Apartments for more than $14.4 million, the 210-unit Autumn Creek Apartments for over $8.2 million, the 270-unit Meadow Oaks Apartments for approximately $5 million and the 152-unit Silver Creek Apartments for $4.77 million.
Industrial activity, "highest in 10 years"
Of all sectors, the distribution/warehousing property type gets as much business as any, and is as active an arena as many can recall.
Pfizer Inc., Volvo/GM Heavy Truck Corp., Reebok International Ltd., Asics Tiger Corp., Starter Corp., Daisytek Inc. and Intelligent Electronics now call Memphis home to their central distribution depots after recent relocations. A drawing card to many of these is the central hub for FedEx.
All told, the industrial sector gained the most momentum through voluminous leases and speculative construction. Joe Steffner of Trammell Crow Southeast Inc. says new construction in the Memphis industrial market represents the highest level of industrial activity in 10 years.
Of the warehouse absorption in Memphis in 1994, about half has been into new construction.
Tracy Speake of Realty and Financial Services (RFS) says some 2.3 million sq. ft. of industrial space was constructed during the year and that 2.5 million sq. ft. was absorbed. The industrial vacancy rate, he says, is only about 13%.
Wilkinson & Snowden calls the industrial market pace "furious" and considers available facilities exceeding 200,000 sq. ft. few.
"In the years I've been involved in industrial real estate, this is by far the largest surge of distribution activity," says Robert Milner, a broker with Wilkinson & Snowden.
"This is definitely a landmark time for Memphis," echoes Steve Nelson, senior vice president of Industrial Developments International (IDI).
Most properties to be developed are in the southeast market, which has expanded to 38.8 million sq. ft. out of a total Memphis industrial market of 98.1 million sq. ft.
1994 provided many examples of inbound relocations and expansions, including Avery Dennison Corp. (400,000 sq. ft.); Pfizer Inc. (300,000 sq. ft.); Asics Tiger (336,000 sq. ft.); R.R. Donnelley & Sons (60,000 sq. ft.); Nissin Foods (153,000 sq. ft.); Reebok (235,000 sq. ft.); Anixter Inc. (230,000 sq. ft.); Cutler-Hammer (178,000 sq. ft.); MG Products Inc. (120,000 sq. ft.); Intelligent Electronics (360,000 sq. ft.); Ozburn-Hessey (110,000 sq. ft.); Volvo GM Heavy Truck Corp. (80,000 sq. ft.); ADVO Systems Inc. (152,000 sq. ft.) and others.
IDI bought a 186-acre tract in southeast Memphis with plans to build an industrial warehouse park of more than 3 million sq. ft. The new Memphis Distribution Center was necessary for IDI, after reaching the limit of development space at Southpark nearby.
A lease by Norfolk, Va.-based Only One Dollar in Southpark was a springboard for the construction of the fourth phase there of 446,950 sq. ft. in two buildings, one of which is 397,200 sq. ft.
Trammell Crow Southeast has partnered in Memphis with developer Panattoni and Van Valkenburgh Inc. in a building in Airport Industrial Park.
In other major construction, Wilkinson & Snowden is developing a 353,500 sq. ft. bulk facility in Memphis International Airport Center (MIAC).
Belz Enterprises is building new warehouses in Shelby Oaks Corporate Park and a facility in Southridge Corporate Park.
At Shelby Distribution Park, RFS is completing the third phase. "Demand has been incredible," says Mark Whitaker, vice president of RFS. "We are over 95% leased and have another 165,000 sq. ft. building for delivery August 1."
RFS also is developing Hickory Ridge Business Park.
Corporate-driven industrial expansions are also prevalent, including ones by O-Z/Gedney, Kumho Tires, Williams-Sonoma and Smith & Nephew Richards.
At Farnsworth Investments' Distriplex, Canon Computer Systems moved into a new 190,000 sq. ft. facility last summer and Farnsworth is expanding that by another 120,000 sq. ft. for Canon to occupy April 1, 1995.
Last summer, the California Public Employees Retirement System bought two Memphis industrial properties for more than $20 million. Mendenhall Business Center and Malone Distribution Center were purchased from Metropolitan Life Insurance Co. Together, they span more than 1 million sq. ft.
"This supports the strong interest in Memphis as a distribution center by national institutional investors and pension fund managers," Weston's Peck says.