The James Center office complex in downtown Richmond is for sale
One of downtown Richmond’s best-known office buildings is on the market after escaping foreclosure earlier this year.
The 1 million square-foot, Class A, three-tower James Center office complex on East Cary Street has been listed for sale.
Holliday Fenoglio Fowler (HFF), based in Washington, D.C. has been retained as the exclusive sales representative.
HFF confirmed to Virginia Business that the James Center is on the market. While there is no list price on a promotional flyer HFF prepared for the sale, local brokers speculate that it could sell for $100 million, or perhaps less since a new owner would have to invest in building and tenant renovations and carry the interest on a loan while the property continues to lease up.
Currently, the center is about 66 percent leased. “It will take some big money to carry this building, not just to buy it,” says Mark Douglas, a senior vice president and broker with Cushman & Wakefield | Thalhimer. “I don’t believe it will be a local buyer, because of the size of the risk. But you could get a local buyer with a joint venture partner.”
The good news, adds, Douglas, is that “interest rates are fabulous right now.”
In the HFF flyer, the firm says the complex “represents a rare, generational opportunity to acquire three of Richmond’s most iconic assets. Investors will immediately benefit from James Center’s attractive credit tenant roster, coupled with an irreplaceable CBD (central business district) location at a highly attractive cost basis. Moreover, current occupancy of the property is significantly below historical occupancy, leaving investors with considerable upside potential.”
Occupancy took a big hit when the McGuireWoods law firm moved out of nearly 300,000 square foot into a space in Richmond’s newest skyscraper, Gateway Plaza, located just down the street.
Currently James Center 1, 2, and 3 are occupied by tenants such as the Virginia Economic Development Partnership, Virginia Tourism Corp., Wells Fargo Bank, JP Morgan Chase Bank and two insurance companies, Connecticut General Life Insurance Co. and Minnesota Life Insurance.
The expected sales price of $100 million is below the latest appraisal value and the total CMBS debt, according to TreppWire, a news wire service of Trepp, a real estate research firm based in New York.
Trepp says the property is currently valued at $132.4 million — down from $192.5 million in 2005 — while the existing James Center loan totals $150 million.
In its most recent report on the James Center in 2015, Trepp puts the complex’s total annual operating expenses at $10.4 million, or about $10.70 per square foot, and it’s NOI (net operating income) at $9.74 million, or $10 per square foot.
A foreclosure auction on the property scheduled on March 8 was canceled. Shortly after that, The James Center deed was transferred to LNR Partners, a Miami Beach-based special mortgage servicer. This occurred after the previous owner, an entity of New York based JEMB Realty, defaulted on two loans totaling $150 million.
With what it describes as “modest capital improvement,” HFF says that a new owner could drive up rental rates, allowing for a “strong return on a capital investment.”
The flyer estimated the building’s replacement cost at $350 to $375 per square foot, or about $350 million.
Chris Wallace, the director for office brokerage with Colliers in Richmond, the leasing agent for the building, says the sale of the James Center is generating interest. “If you have anyone looking downtown, the James Center is going to get a look. It’s a premiere asset in terms of location and assets,” he says.
Currently, some money has been aside for improvements, he adds, including large-screen tenant directory boards, upgraded seating in the atrium area of James 2 and 3 and a new canopy for the Ninth Street entrance of James 1. “A lot of folks are wanting to get some information about it, ” he says.
Richmond’s central business district has seen plenty of activity in the past five months. HFF notes five significant office transactions, defined as deals worth $40 million or more, resulting in a weighted average price per square foot of $222.