$206M Charlotte office deal highlights what neighborhoods mean to asset values ​​- Business Observer

For CBRE Investment Management, the South End neighborhood of Charlotte, North Carolina, has a bit of everything.

The institutional investor, an arm of global commercial real estate giant CBRE, acquired The Line office building for $206 million earlier this month from co-developers Portman Holdings and National Real Estate Advisors. The acquisition is part of a multi-faceted investment approach to the neighborhood. Through other funds, CBRE Investment Management also owns a 350 apartment building, 25,000 square feet of retail space and an 85,000 square foot one-story office building nearby. The Line deal was completed as an all-cash transaction and the new owner is in the process of arranging a loan on the property.

“It’s a choppy capital markets environment right now where all sectors are being impacted,” said Mike McDonald, vice president of capital markets at Cushman & Wakefield, who represented the sellers with his partner Jonathan Napper. “Trades are subject to retrades and price adjustments across all asset classes.”

This transaction, however, was very competitive and concluded at the same price at which it was concluded under contract. This points to demand for new buildings in desirable neighborhoods such as Charlotte’s South End, which McDonald’s compares favorably to similar tech-focused office submarkets throughout the Sun Belt, such as East Austin and Nashville’s The Gulch neighborhood. . These types of creative office projects are attractive even when the buildings are not stabilized from a rental perspective. The line was 45% occupied at the time of acquisition.

In fact, McDonald’s said the buyer pool is greatest for buildings less than 80% leased in Sun Belt submarkets with strong demographics and projected job growth.

“A value-added rent role is the magic elixir,” McDonald said. “We sit down with a lot of customers and tell them there’s no need to get a 95% lease. There is greater depth in the buyer pool for a less than stabilized asset like The Line, and loan capital also likes these types of office properties. I don’t see that changing in the near future.

Atlanta-based Portman Holdings acquired the site in 2018 for $12.7 million and began construction in late 2019 on the 16-story tower. The Gensler-designed building has 298,600 square feet of Class A office space and 24,400 square feet of retail space on the ground floor as well as seven floors of above-ground parking. The top nine floors contain offices with 34,500 square foot floor plates with architectural elements, such as exposed concrete, evoking the area’s industrial history.

Tenants can use shared work spaces, a lobby, an exclusive pleasure terrace, several outdoor terraces, bicycle storage, lockers and showers. Plans call for a 364-unit luxury apartment tower with ground floor retail on an adjacent plot that will be connected to the office building and could deliver by early 2024. This site was not part of this transaction.

Although more offices are planned for the neighborhood and the long-term impact of remote working weighs on the entire office sector, net migration to Charlotte has been positive since the start of the pandemic. The region has a well-educated workforce that attracts financial and technology companies.

Charlotte has seen one of the strongest job and population growths in the past two years, according to commercial real estate data and analytics provider Markerr. The city ranks in the top five nationally for job growth since March 2020, in the first quarter. Median income growth is in the top 10 of the 25 largest metropolitan areas tracked by Markerr, with first quarter gains of 4.2% year over year, 20% above the national average.

The South End neighborhood was poised for growth long before the pandemic, but the region’s evolution has been uneven. Several light rail stops were added to the LYNX Blue Line in 2007 and 2008. Multi-family residential development followed, but growth stalled during the Great Recession, which severely affected the city’s dominant financial sector.

Tech workers began to gravitate towards the South End during this time. The city’s first coworking space opened here in 2009, and a weekly food truck night has become a neighborhood institution. Developers then added thousands of new apartments, and office space has more than doubled over the past decade to 4.5 million square feet in an area that was not considered a submarket of traditional offices.

Major companies such as Lowe’s, Allstate, EY, and LendingTree have located technology operations in the area. Restaurants and shops followed, some of which became known outside the city. The neighborhood’s “Confetti Hearts Wall” mural has been recognized as the most tagged spot on Instagram in Charlotte. The Line’s retail lineup includes craft brewer Sycamore Brewing, which moved into the building when it opened and is Charlotte’s No. 3 Uber destination.

“When a neighborhood is the largest amenity in an asset, we believe that every dollar invested in the cluster – whether in retail, well-appointed apartments or quality offices – will indirectly increase the value of all the assets of this cluster,” Sondra Wenger, head of the Americas division, trading operator, for CBRE Investment Management, said in a statement.

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