Crescent Center owner plans Memphis exit in favor of growth in 'dynamic' North Carolina

Highwoods Properties, the real estate investment trust that owns the Crescent Center in East Memphis, has plans to exit the Memphis market in favor of growth in Charlotte, North Carolina, the company announced Wednesday.

"Our plan is to enter the dynamic Charlotte market and rotate out of Greensboro and Memphis, consistent with our long-term strategic plan of owning high-quality, trophy office buildings in the BBD's (best business districts) of markets with favorable economic and demographic trends," CEO Ed Fritsch said in a statement. "With its strong, diverse and growing economy, Charlotte has been at the top of our list for future market expansion."

Highwoods will purchase the Bank of America Tower at Legacy Union, an 841,000-square-foot, 33-story office tower in uptown Charlotte for $436 million. The Raleigh-based company has already put $50 million toward the purchase. It plans to close on the building by November.

Then will come a two-phased plan to sell all properties in Memphis and Greensboro and shut down operation in both cities.

The company will start with select properties in both Memphis and Greensboro to fund the Charlotte investment. It did not say which properties would be sold first. That phase is expected to be complete by the middle of 2020. The rest of the properties will be sold at a later, unspecified date as part of Phase 2.

"Remaining properties will be third-party managed and leased, which will provide us flexibility around the timeline of Phase 2 sales," said Highwoods Chief Financial Officer Mark Mulhern.

Highwoods Properties was set to work with One Beale developer Chance Carlisle on office space that was part of a plan to build offices, apartments, retail and a hotel along Downtown's riverfront. 

The departure won't cause delays for One Beale, said Carlisle, who held a groundbreaking ceremony for the project Tuesday.

Demolition and construction started with the apartment tower and the hotel. Before starting on what would be the office space, Carlisle will decide if he will find a new partner in Highwoods' absence or find a different use for the land and not build offices at all.

Leaving Memphis 'wasn't an easy decision'

Including the Crescent Center, Highwoods Properties owns more than 1.6 million square feet of office space in Memphis.

Company leadership met with 42 employees in Memphis and Greensboro to share the news Wednesday. 

In a conference call Thursday morning, Fritsch said the exit "wasn't an easy decision for us" but said the move would simplify their business, save money and spur future growth.

"When we fully exit Greensboro and Memphis, we will have reduced our number of properties by 61, a 36% reduction and we will have reduced our number of leases by over 400, a 20% reduction," Fritsch said, adding that this will improve efficiency and reduce the cost of building improvements.

According to Fritsch, Highwoods has wanted to expand in its home state for some time.

"It's a mid-tier market where we can gain scale and market share and establish Highwoods’ brand recognition well within our current geographic footprint," he said. "In addition, Charlotte being in our home state where we already have deep relationships, we believe we will be presented with ample opportunities for growth via acquisition and development."

Both division offices in Memphis and Greensboro will close by mid 2020. It's not clear if any of the employees in those offices will be offered positions in Charlotte or Highwoods offices in other cities. The company anticipates severance packages could cost up to $3 million.

Highwoods has also offices in Atlanta, Nashville, Orlando, Pittsburgh, Richmond and Tampa.

If Charlotte is 'dynamic,' what is Memphis?

In the past year, a wave of projects have pointed toward an economic development boom in Memphis.

Indigo Ag made Memphis its North American Commercial Operations headquarters, adding 700 high wage positions.

FedEx Logistics decided to renovate the Gibson Guitar Factory building and move its headquarters there. 

Longtime real estate broker Kevin Adams embarked on a $950 million project to build a hotel, office space, apartments, retail space and a grocery store in the heart of Downtown.

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Still, Highwoods Properties executives see Charlotte as "dynamic" and are ready to leave Memphis.

After spending 35 years of his career as a developer on Beale Street and other parts of Downtown, John Elkington says Highwoods' decision makes sense.

"Is Charlotte a more dynamic market? Yes," Elkington said. "Is Nashville? Yes. Is Birmingham? Yes. We didn't used to compete with these cities. We used to compete with Dallas and Atlanta. We're not competing with them anymore."

Elkington pointed to the FedEx Logistics move that economic development leaders tout as a success and said that was part of Memphis' problem.

He said Indigo Ag's decision moved the economic needle but instead of bringing new companies to the area, corporate office announcements like that of FedEx Logistics — a local company moving from one part of town to another — are more common. 

The FedEx Logistics move was revealed among much fanfare including speeches by Memphis Mayor Jim Strickland and Gov. Bill Lee. It resulted in more than $13 million in state and local grants and other incentives.

While Elkington applauded the move as meaningful for Downtown, he also said bodies like the Greater Memphis Chamber and other local officials will need to attract more companies from outside if Memphis is to have a more dynamic economy.

"What you've got to have is tenants," he said. "We are having difficulties finding tenants to come into the market."

Still, chamber CEO Beverly Robertson said Memphis is seeing billions of dollars in development and she thinks Highwoods will have an easy time selling their buildings.

"Memphis has seen $19 billion in new and planned investment since 2014," Robertson said in an email statement. "The office market has seen headquarters investments from large employers including FedEx Logistics, ServiceMaster, Indigo Ag and Mimeo. AutoZone and St. Jude Children’s Research Hospital continue to expand their office footprints as well.

"The East Memphis Poplar Corridor, where many of Highwoods’ current properties are located, represents a very high quality office market. We anticipate substantial interest from national investors, and are offering our assistance to Highwoods in the transition and recruitment of new companies.

Desiree Stennett covers economic development and business at The Commercial Appeal. She can be reached at desiree.stennett@commercialappeal.com, 901-529-2738 or on Twitter: @desi_stennett.