Record Southwest Florida Deal Closes

The Offices at Pelican Bay. Image courtesy of JLL Capital Markets

A joint venture between Steelbridge Capital, Square2 Capital and funds managed by Apollo Global Management has sold The Offices at Pelican Bay, a two-building property in Naples, Fla., for $55.5 million. CRC Cos. acquired the approximately 177,600-square-foot, Class A asset, according to Collier County land records.

The trade marks the largest office transaction on Florida’s Southwest coast in 2021, according to JLL Capital Markets, which represented the joint venture in the sale.

“Previous ownership made significant capital investments prior to the sale, which helped attract a deep bidder pool vying for this opportunity,” Matthew McCormack, director with JLL Capital Markets, told Commercial Property Executive. “This trade helps solidify investors interest in Naples, driven by the incredible flight of capital and wealth due to the stable economic outlook, pro-business/low-tax environment and overall quality of life.”

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Pelican Bay last changed hands in 2014, when Steelbridge acquired the asset, then known as Pelican Bay Executive Center, from Health Management Associates for $33.6 million. The six-story buildings, sited on nearly 10 acres at 5801 and 5811 Pelican Bay Blvd., made their debut in 1980 and 1985, respectively, and offer a premier location adjacent to the upscale Waterside Shops retail destination. Furthermore, a portion of the 10-acre site allows the opportunity for additional development.

Leading tenants at Pelican Bay include NewsBank, Wells Fargo, Hahn Loeser, Moran Wealth Management, Fischer International Systems and Lupin Pharmaceuticals. As noted in JLL’s offering memo, “Major tenants have been at the property for an average of over 11 years, largely in part to the abundance of above-market standard amenities offered at the property including structured parking, on-site management staff, barber shop, conference/training area and a cafe.” Pelican Bay was 76 percent leased at the time of the sale.

JLL Capital Markets’ Chris Drew, Hermen Rodriguez and Ike Ojala joined McCormack in representing the joint venture in the Pelican Bay transaction, while Patrick Fraley of Investment Properties Corp. of Naples stood in for the buyer.

Catnip for the office-buying set

The U.S. office sector may not have been held in the same esteem as the industrial sector among the investment community in 2021, but it still had its fans in certain markets. “Florida’s business-friendly and tax-friendly environment continues to attract new companies and investors to the market. As a result, we are finding investor interest continues to grow for well-located office properties with value-add components such as The Offices at Pelican Bay,” McCormack said in a prepared statement.

Pelican Bay offers great upside potential not only down the road with the potential for added development, but also in the immediate future with lease-up. The average asking rate for office space in Naples continues to climb, reaching $29.14 in the third quarter of 2021, according to a report by Lee & Associates.

And there’s something else about the Naples market that has been catching the investment community’s eye: strong fundamentals. In the third quarter, Naples’ year-over-year office-using employment increased across all sectors, and the Naples MSA posted the fastest annual job growth rate compared to all other metro areas in the state of Florida in professional and business services with an increase of approximately 17.1 percent as of August 2021, according to the Lee & Associates report. In the third quarter, Naples’ office market stabilized with strengthened leasing activity and a decreased overall vacancy rate that, at 7.7 percent, had dropped down to pre-pandemic levels.

The office sector has had quite a year across the Southwest Florida coast. On the construction front, five assets totaling approximately 286,900 square feet came online in the region through August, accounting for 1.2 percent of inventory in the Sunshine State.

“Momentum markets like Naples and South Florida will continue to see sustained demand from new to market tenants and capital sources alike due to structural tax tailwinds and a search for an increased quality of life,” McCormack told CPE.