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Tenants on the move.

Which Little Rock Landlords Will Cash In On The Next Big Office Migration?

The Little Rock real estate market is in flux.

The city might soon undergo a real estate shift that could realign up to 3 percent of its office space.

Three percent comes to almost 300,000 SF and $2.7 million in annual lease fees.

The catalysts are the state government and the federal government.

Arkansas State Building Services is close to buying 100,000 SF of the Freeway Medical Building on Interstate 630 from the Federal Deposit Insurance Corp. The purchase price would be more than $3 million.

The state Department of Health would occupy about 60,000 SF of the building. The University of Arkansas for Medical Sciences would occupy another 40,000 SF.

"The market is in our favor right now," says Chris Burrow, director of State Building Services.

So much so that the buying spree won't likely end with the Freeway Medical purchase.

Movement of other state agencies has halted while the state negotiates with federal caretakers to buy another well-known Little Rock office building, the Lafayette Building downtown. The 11-story property has 127,000 SF of space, but only 95,951 SF is considered rentable.

Meanwhile, the federal government's General Services Administration has advertised for bids on 52,000 SF of office space. A contract could be awarded before the end of the year for offices for the Department of Housing and Urban Development, the Small Business Administration, the Equal Employment Opportunity Commission, the Department of Labor, the Department of Commerce and the Secret Service.

The agencies currently are scattered around Little Rock.

There could be two successful bidders for the federal contract.

"We're willing to split this into 26,000-SF blocks," says John Cartwright, director of the GSA's Fort Worth, Texas, real estate division.

The leases will be for 10 years with a five-year cancellation provision. The fact there is no guarantee the leases will extend beyond five years creates problems for landlords.

Bidding for GSA contracts is a tricky proposition in other ways, too. For example, leasing agents don't know what the floor plans will be until the bidding process is over and the government has awarded contracts.

Who Stands To Gain?

The leading contender for landing the 52,000-SF package is downtown's TCBY Tower. The 40-story building has 131,000 SF available for lease, the largest chunk of empty space in Little Rock.

On the other side of Capitol Avenue, the Savers Building has 56,000 SF available, the second largest block in the city. Some of the agencies up for bid already are located in the Savers Building, but the 11-story structure may not be among the contenders.

Blue Cross & Blue Shield of Arkansas bought the 274,000-SF property through a subsidiary, USAble Corp. The $10.5-million purchase included an adjoining parking deck.

"By the year 2000, elements of our company would occupy about 56 percent of the building," says Bob Cabe, senior vice president of external services for Blue Cross & Blue Shield. "Our ultimate goal is bring in all of our leased-space operations."

That adds up to about 60,000 SF of leased space.

The company hopes to consolidate those external operations at its 601 S. Gaines St. headquarters or the Savers Building, which will become the USAble Corporate Center.

More than half of the 60,000 SF is in the First Commercial Building. About three floors of Blue Cross leases expire next summer. But the company's exit could allow the First Commercial Building to contend for the entire 52,000 SF Uncle Sam has up for bid.

First Federal Plaza also might have enough room for the federal agencies once USAble and the Resolution Trust Corp. move out following the sale of First Savings of Arkansas.

The Channel 4 Building has 52,200 SF of space available downtown. It might be able to handle the federal agencies as well.

The Lafayette Building already is home to HUD. It has room to house the federal agencies, too, if the building is not purchased by the state.

In addition to the above buildings, there are at least six other potential contenders that have 26,000 SF to lease -- the Stephens Building, the Old Federal Reserve Building, MainStreet Market, the 711 Main Building, the Tower Building and the Atkins Building.

East Vs. West

Tenants and landlords traditionally have viewed downtown and west Little Rock as distinct markets.

Those distinctions are beginning to blur as some tenants who relocated to the west take a closer look at their options.

"They're getting very competitive trying to get quality tenants back downtown," says Mark Bentley, president of Irwin Bentley Rystrom Management Co.

At the very least, west Little Rock tenants are using those competitive downtown rates as a powerful negotiating tool. There's a growing trend among tenants to play landlords in west Little Rock off against landlords downtown.

That's what Simmons First Mortgage Co. did when its lease in west Little Rock's Pleasant Valley Office Park came up for renewal this year.

Simmons asked for proposals on a five-year lease for 20,000 SF from landlords in west Little Rock and downtown. The mortgage company recently decided to stay in the 45,000-SF Simmons First Building. But Simmons no doubt used the competitive bids to work out a favorable deal.

"They're not the first ones to do that," says one property manager.

Simmons occupies about half of its namesake building since moving from the 18,000-SF KSSN Building. Pleasant Valley Office Park is located at the southwest corner of the intersection of Interstate 430 and Cantrell Road.

After shopping both the downtown and west Little Rock markets, tenants wield competitive quotes like a hammer to nail down the best possible deals.

"The word hammer might be a bit strong," Terry Richardson, vice president of administration for Riceland Foods Inc., says with a laugh. "But it certainly was helpful to have some quotes in hand."

Riceland employed the same tactics as Simmons when it negotiated a new five-year lease in west Little Rock's First Little Rock Plaza. The Stuttgart-based company signed a deal for 6,100 SF to house its retail marketing and management information services operations.

There was a similar situation last year involving New York Life Insurance Co., which occupies 19,000 SF in the Koger Center, and the Sunmark Cos., which occupy 14,000 SF in One Financial Centre.

Out-of-state players such as Trammell Crow of Dallas and Koger Properties Inc. of Jacksonville, Fla., heightened the competition when they came to town. The two companies created havoc in the Little Rock real estate market by offering cut-rate deals many tenants found too good to refuse.

Take the state Department of Computer Services. A branch of the state agency signed a 61-month lease for 12,908 SF in the Koger Center last year. The rate was $6 per SF ($77,448 per year) in addition to four months free rent for Class A office space.

Things have settled down since Koger and Trammell Crow lost control of their Little Rock projects.

And with little new construction, the options for larger tenants are becoming fewer.

"I sense that people are looking more favorably on downtown," says Hank Kelley, partner in the Little Rock commercial real estate firm of Flake Tabor Tucker Wells and Kelley Inc. "I think that's more out of a sense of the competitive rate structure downtown. If you are a 10,000-SF prospect and looking for space in west Little Rock, there are not a lot of choices available."

Growing companies could one day face the option of leasing space downtown or building their own project in west Little Rock.

"We may go a year and sell $2 million worth of land or sell $1 worth," Financial Centre Corp.'s Ed Willis. "There's more land than buyers, but we think we're going to get our fair share.

"Downtown is filling up, too, and that's good for everyone. But people have certainly suffered along the way."

Bankruptcies and failed real estate projects brought on the current conservative atmosphere among lenders and developers.

But the surplus of office space is slowly but surely evaporating.

Going Against The Flow

A Small Business Breaks The Trend, Heading Downtown Instead Of West

Fleming and Barbara Stockton, the owners of Your Mama's Good Food, went against Little Rock's westward migration trend.

Like salmon swimming upstream, the Stocktons went east with their restaurant.

The recent success of Your Mama's is even more noteworthy because downtown Little Rock has no shortage of downhome eateries.

Your Mama's first opened in west Little Rock's Westchase Plaza in July 1990. The restaurant was to specialize in the take-out and delivery trade. That part of the business was to be augmented by a small number of dine-in customers.

However, the restaurant developed a booming dine-in business. Dinner business was not heavy, but Your Mama's lunch business was at times overwhelming. The 1,200-SF location couldn't handle the number of hungry customers who wanted to sit down and eat there.

The Stocktons tossed away their innovative delivery ideas when the customers wanted something else.

After discovering they didn't have enough space, the couple was confronted with an even bigger problem. They learned that a national chain, Black-eyed Pea, was setting up shop in their front yard.

The Stocktons were beginning to understand the difficulties of doing business near the cross hairs of west Little Rock's restaurant row -- Shackleford Road and Markham Street.

"It's real hard to compete with the big guys," Fleming Stockton says. "The smart thing is to give up the business or move."

The Stocktons had intended to open a downtown location all along. With the increased competition and need for space, they decided to shut down their west Little Rock restaurant and move downtown in April.

Your Mama's now calls 402 S. Louisiana St. home, sharing the block with four other restaurants. The Stocktons have a 2,000-SF location that rents for less than the smaller west Little Rock site.

Your Mama's serves lunch only, a move that has reduced the payroll by two-thirds.

"We're doing as much business from 11 a.m. until 2 p.m. as we were in west Little Rock when we were open from 11 a.m. until 8 p.m.," Barbara Stockton says.
COPYRIGHT 1991 Journal Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:includes related article; real estate office market in Little Rock, Arkansas
Author:Waldon, George
Publication:Arkansas Business
Date:Sep 23, 1991
Previous Article:Raising Arkansas.
Next Article:Whatta place at the heart of the Arkansas River Valley, Russellville is thriving.

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