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| CLASS-A REUNION By Bill Edwards |
Editor's Introduction: Virginia Business magazine has been in business for more than 12 years, and for the first half of our existence, covering commercial real estate across the commonwealth was fun. | ||
| In the 1980s, flamboyant developers were unveiling enormous mixed-use complexes in Northern Virginia, and each new project seemed to set a higher standard for upscale offices, hotels and shopping centers. Downtown skyscrapers were sprouting up like never before in Richmond, Norfolk and Roanoke, while suburban malls were under construction in virtually every major market around the state. We detailed many of these impressive projects, and we covered the fierce battles between go-go developers and anti-growth activists. Occasionally we even threw in a quote or two from naysayers who said that Virginia was becoming way overbuilt with commercial real estate. |
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photo by Mark Rhodes |
They were correct, of course. Recession reared up and kicked the commonwealth in 1990, and we spent the next two years writing about bankrupt developers, glutted retail markets, empty office buildings and the credit crunch that ensued. Commercial real estate spent the next six years in the doldrums, and our coverage shifted to statistics such as lease rates and vacancy numbers. We were always looking for some sign of when the market for office, industrial and retail space might bounce back. |
We wrote about ho-hum absorption rates as the recovering economy slowly filled up a vast oversupply of empty space. We wrote about the stabilization of lease rates, pent-up demand for office space and ultraconservative build-to-suit projects -- pretty boring stuff.
Enough of that! Commercial real estate is booming again, not with the wild abandon that we witnessed in the 1980s, but in response to a vibrant economy and some successful economic development efforts. This story -- really several stories rolled into one -- marks a return to the fun stuff, the people and the projects that will change the shape of our state, for better or for worse, for many years to come.
Joseph Gianascoli had cash in his hand and adventure in his heart after he sold his Norfolk-based office equipment company to Ikon in 1992.
During his 16 years as head of Copy Data Group, Gianascoli had acquired a taste for commercial real estate as his company built new offices in Virginia Beach and Newport News. And in 1992, there was plenty of room on the ground floor of the development business -- particularly for people with cash and adventure on their side.
His two sons, David and Michael, also were eager to break into the business. David, the elder, says he has always loved the idea of real estate development. That's the career he had in mind when he earned his degree in finance from Old Dominion University in 1989.
| That was the year that the Gianascolis sold
Copy Data Group and bought a half-full, 36,000-square-foot, class-B office
building on Lynnhaven Parkway in Virginia Beach. They also bought five
acres of undeveloped property in the Southport Business Center on Lynnhaven
Drive just south of Route 44, the key link between Norfolk and Virginia
Beach.
Within a year, they had fully leased their office building, but they bided their time with their undeveloped five acres. The real estate recession of the early 1990s kept them safely on the sidelines, where they watched and learned more about how the game was played. But as the office market improved, the Gianascolis started considering their first speculative office building. They came up with a plan for a 65,000-square-foot, three-story class-A structure in a neighborhood that had only a few light industrial/office buildings and an Avis Rent-A-Car call center to brag about. |
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| "There were plenty of naysayers," says Michael Divaris of Divaris Real Estate, a Virginia Beach-based firm that manages properties all along the East Coast. "Everyone said it was on the wrong side of [Route] 44. I think it was a brave move on their part." |
David Gianascoli says he likes to think his company's project was not so much on the wrong side of the Norfolk-Virginia Beach Expressway, just on the undeveloped side. "We positioned our building where everyone would see it from 44. We had to educate them on how to get to it, because the exit was tricky, but once the city finished a third access to the site, it wasn't that hard to sell. There wasn't much other space available."
To build and manage the project, the Gianascolis created a company called the GEES Group, which consists of the three family members and a receptionist. They signed up their first tenant before they completed their building in June 1997, and by June of this year, the building was full. Two months later, they were breaking ground on another speculative office project in Norfolk -- Twin Oaks One at Lake Wright Executive Center.
In a deal with the city, The GEES Group is developing Twin Oaks One plus roads that serve the entire office park in exchange for the building's 11-acre site and the exclusive right to develop speculative buildings on the remaining 30 acres for three years. Twin Oaks One, which is four stories high and 100 percent speculative, will provide roughly 90,000 square feet of class-A office space.
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Joseph Gianascoli is now semi-retired, acting principally as an adviser to his sons, and Michael is in charge of managing the existing properties. David, who heads up new development and construction, says Twin Oaks One will be a brick, pre-cast concrete and glass structure, predominantly Colonial in design, with a marble lobby and a curved staircase. And yes, the name Twin Oaks One does suggest there will be a Twin Oaks Two. |
| "It will be an interesting project to watch," Divaris says. "They're up against some big competition in this market, like Highwoods Properties and Olympia Development, but they've done it before, and they just might do it again." |
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Executives at Wheat First Union learned an important lesson about office space in 1988, when they built their operations center at Innsbrook Corporate Center in Henrico County: If you're a growing company, it's hard to build too much office space.
By the time its 100,000-square-foot Innsbrook building opened, the ambitious stock brokerage and investment bank needed even more space. So in 1995, when the company was completing plans for a second Innsbrook building, company officials decided to try their hand at real estate speculation.
They understood the risks associated with leasing space to other tenants. But William J. Fields, a Wheat managing partner who has handled several expansion projects for the firm, says they also knew it would be expensive and disruptive to split up operations and to lease temporary offices while awaiting construction of a yet another building sometime in the future.
| The Wheat execs decided to build more than enough space for their immediate needs and to rent out the excess space until they needed it, too. The decision was fortuitous: "The soft market in real estate had turned around," Fields says. "Our timing was good. Developers were beginning to build spec office projects again." |
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| When Henrico County issued the certificate of occupancy for Wheat's 112,000-square-foot building in December 1997, the company had dibs on only 60 percent of its total space. Wheat managed to prelease some of the remaining space to other companies, and by the time the investment firm announced its merger with First Union Corp. in February, all of the extra space was occupied. Now the newly merged firm has notified tenants that they'll soon need to move out to make room for another expansion of Wheat First Union. |
Richmond real estate experts say the city's prospects for speculative office space are much better than they were in the mid-1990s, but Fields insists that the high quality of Wheat's new building helped make it a winner in the speculative market. "It's definitely not a cookie-cutter spec office building. We wanted to make it interesting -- something our associates would be proud of."
Designed by the Richmond architectural firm of Scribner, Messer, Brady & White, the structure has already picked up an award from the Virginia Chapter of the American Institute of Architects. Faced with etched and polished granite in horizontal ribbons, the new structure mirrors the design of the original building. A huge central atrium, which serves both buildings, is designed to draw employees out of their cubicles and to encourage interaction, Fields says. "The great thing is that we ended up with a building like this by spending an amount that's not that much different than what we would have spent for a cookie-cutter office building."
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Northern Virginians seem to spend a lot of time on the road -- whether moving or not. So the L&B Group, a Dallas-based asset manager for pension funds that invest heavily in real estate, decided to give those weary commuters an opportunity to park their cars and forget them for a while.
L&B is developing the former site of Providence Baptist Church in Tysons Corner into the Gateway to Tysons Corner, a class-A, speculative office building with 177,000 square feet of space. The building will be distinguished by pedestrian access to restaurants, a health club and the 1.9 million-square-foot Tysons Corner Center shopping mall. L&B acquired the mall from its original developer in 1985 and added three anchor department stores to the complex, which now includes Nord-strom, Lord & Taylor, Bloomingdale's, Hecht's and J.C. Penney.
"The whole idea is to make this a small community, where people can get pretty much whatever they want," says L&B's Kathy Hannon, asset manager for the office building. "By making it a multiuse complex, we are offering amenities to the people who work here and bringing new customers to the mall."
The office building will have six occupied floors and a curved glass wall that will soar 117 feet above the roof, blurring the distinction between structure and sky. All parking for tenants and visitors will be underground, with elevator access to the building. First-floor space is reserved for shops and restaurants.
The pedestrian emphasis isn't a new concept in Northern Virginia: Reston Town Center, for example, has won awards for doing similar things. But most of the existing buildings in Tysons Corner are office-space islands surrounded by a sea of cars. Likewise, speculative office buildings aren't anything new in Northern Virginia: Construction cranes are more common than cell-phone towers in virtually every major market between Leesburg and the Pentagon. But Hannon says speculative office space in Tysons Corner is still pretty scarce.
L&B's properties are principally in Washington, D.C., Arlington and Tysons Corner. The Gateway to Tysons Corner project, under construction since July, was designed to make a striking first impression on visitors to the entire complex, says Julie Rayfield, principal at Ai in Washington, D.C. Located at the corner of International Drive and Route 7, the building is scheduled for occupancy next September.
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Suffolk broke lots of new ground this past summer. The city formed a unique partnership with a private real estate developer and turned the first shovel of earth for a 50,000-square-foot office building. That structure is said to be the first totally speculative office space ever built in the city.
Norfolk-based Harbour View Development Co. says it is creating Lake View Technology Center One because of recent expansions at the nearby U.S. Atlantic Command's Joint Training Analysis and Simulation Center. Harbour View believes that its Lake View Technology Center will capture the overflow of private-sector tenants from JTASC's 320,000 square foot building in Suffolk.
JTASC, which does training and simulation for all branches of the military, employs about 600 people, most of them civilians. And the JTASC building is just across the road from Harbour View's site near Tidewater Community College.
During its decade in Suffolk, JTASC has attracted a number of private-sector support companies -- like TRW and SAIS -- that have occupied office space in the military building. Lately, however, the training and simulation center has been expanding, and its military tenants have been squeezing out its private-sector contractors.
Suffolk officials acted quickly to keep those high-tech companies from fleeing to neighboring communities in search of office space. The city struck a deal to help Harbour View Development obtain construction financing for the project, which is located off College Drive at its intersection with Interstate 664.
The Suffolk Industrial Development Authority in August signed a master lease for up to 50 percent of the space in Lake View Technology Center One. The authority agreed to rent the space within six months of when the project opens its doors. Lease payments will continue for up to 48 months, or until the building reaches 80 percent occupancy, is sold or refinanced.
The deal was made because Harbour View needed the commitments to make the project attractive to the initial investors, says Tom O'Grady, director of economic development for the city of Suffolk. When the project starts producing income, O'Grady says Harbour View will reimburse the city for its lease payments. And when the developer sells the building, it will pay a percentage of the profits to the city.
Lake View Technology Center One is designed to appeal to government vendors involved in research and development. The one-story building will have office space with glass and pre-cast concrete fronts and laboratory space with drive-in-level loading bays in the back. It is scheduled to open in March 1999.
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Office-industrial space designed for high-tech tenants now offers many of the same amenities that once were found only in class-A high-rises.
Working conditions for hard-to-hire, high-tech workers are improving fast as employers scramble to recruit and retain people who understand the latest technology.
Speculative construction of technology-related real estate is heating up around Richmond, and developer Paul Kreckman of Highwoods Properties says high-tech tenants are demanding better space -- not just for their white-collar workers, but for everyone associated with their high-growth companies.
That's why Highwoods Properties, a Raleigh, N.C.-based real estate investment trust, broke ground this year on an upscale industrial project called Highwoods Distribution Center. Located near the intersection of Laburnum and Darbytown roads east of Richmond, the 80-acre site can accommodate more than 1 million square feet of class-A warehouse and distribution space in seven buildings.
"There is definitely a demand for good, clean, well-designed business-industrial space in Richmond, especially this part of Richmond," says Highwoods' Kreckman. "What is noticeably different about Highwoods Distribution Center is the good architecture and heavy landscaping. It's a place of quality."
The first building in the park, scheduled for occupancy in December, will offer 168,000 square feet of space with brick, glass and pre-cast concrete fronts overlooking a lake. The principal entrance to the park is from Laburnum Avenue across a brick-paved stone bridge.
"This building is more typical of the distribution centers you see in the largest markets," Kreckman said. "What we've done is take the industrial park to the next higher level. It's attractive -- but it still appeals to their demands for access and ease of use."
Kreckman says Highwoods Distribution Center probably would have been built without the presence of the nearby White Oak Semiconductor plant, but he admits that his company will be happy to welcome suppliers to the Motorola-Siemens joint venture.
© DECEMBER 1998, VIRGINIA BUSINESS MAGAZINE