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Columbia Property Trust to Sell Offices in Atlanta, Pittsburgh to Focus on San Francisco, Washington Markets

REIT Hires Brookfield Veteran David Cheikin as it Hones Strategy
July 30, 2018
Columbia Property Trust is planning to sell office holdings in Atlanta and Pittsburgh as part of its strategy to focus on more expensive markets such as San Francisco, Manhattan and Washington, D.C., as part of its next stage as a real estate investment trust.

With most of that transition "essentially complete" after sales in other secondary markets, Columbia's Chief Executive Nelson Mills has tapped David Cheikin, formerly the vice president of leasing at real estate developer Brookfield Property Partners, to serve as senior vice president of strategic real estate initiatives at Columbia Property. Cheikin will also serve on the REIT’s national advisory board.

Based in New York City, Cheikin will directly oversee its East Coast properties but have operational leadership nationwide.

"The company’s focus since inception has been on fewer properties as prime assets" in central business districts, Mills said in an interview. Through the repositioning of its portfolio, the REIT has disposed of more than 60 properties in secondary markets and redeployed most of the $3.6 billion in proceeds into key markets that are harder for competitors to enter because they are relatively expensive, he said.

The bulk of its portfolio now comprises office space in New York City, San Francisco and the District of Columbia. And in the second quarter of 2018, its 8.8-million-square-foot office portfolio was 97 percent leased, compared to 95 percent for the same time last year.

Its $1.7 billion joint venture with asset manager Allianz Real Estate on four properties has worked to expand the REIT’s reach, Mills said. And its 2015 strategic partnership with New York-based real estate developer L&L Holding to reposition an office building at 315 Park Avenue South has been singled out by panelists at industry events as an example for a successful restoration of an older building. Columbia Property knew when buying the property that 17 of its 20 floors would turn over in the coming three years – now just one floor remains available for lease at that building.

"We are set up for success in redeploying capital, but we can’t accomplish that without creative people and strong leaders," Mills said of hiring Cheikin. "It was key for us to bring in a strong New York-based leader to take us to the next level."

Cheikin spent 16 years at Brookfield. Last fall, he spoke with CoStar News to give a development and leasing update on Manhattan West.

"I get to focus on objectives hitting the bottom line today like leasing and rent rolls, but also on what could impact us tomorrow, like proptech, new workspace environments and redevelopment," Cheikin said.

As Cheikin’s work gets underway, he said in an interview he is "definitely going to explore new strategic ventures and how to further our existing" joint ventures and strategic partnerships. But he will also get to flex creative muscle for the REIT, with investments in infrastructure and technology to try to entice prospective tenants.

"We have the scale to focus on individual tenants’ wants when we reposition a building, so we will absolutely continue to reinvest in our assets," Cheikin said. Top of mind is Columbia Property's "total building rehabilitation" of 149 Madison Ave., a 127,000-square-foot Midtown South office building it acquired in November 2017 for $87.7 million.

Regarding 149 Madison Ave., Cheikin explained the real estate investment trust is equally considering both leasing paths, single-tenant or multi-tenant.

"Our scale gives us the ability to have a flexible strategy. In that one case, we are recreating old-world New York to meet millennial needs. But we are doing these types of repositionings across the entire portfolio," Cheikin said.

One disposition the REIT has already made this year was 222 E. 41st St. in New York City. It returned the $332.5 million garnered in the deal to its portfolio, using it to pay off debt.

Still to go are two office properties that Columbia Property owns in Atlanta, and the Cranberry Woods Drive corporate campus in Pittsburgh. Nelson said the REIT would eventually exit those investments.

But in its target markets, the REIT will not shy away from a compelling acquisition, according to Mills.

"We are still very interested in acquisitions in Manhattan and see opportunity to keep being active. Fundamentals have softened, that’s being seen in net effective rents and concessions. But we don’t feel it so much in Midtown South, where we think over the next year there may be some opportunities," Mills said.

"The portfolio in New York City is generally in great shape today. We have a significant renovation of 149 Madison underway," he added. "We are wrapping up our renovation program at 315 Park Avenue South. Since acquiring the building in 2015 and announcing our plan to reposition it as best-in-class on Park Avenue South, we have secured more than 265,000 square feet of leases, bringing the building to 95-percent leased."

Directly ahead for the REIT, however, is further renovating its properties to offer a "bespoke experience" to tenants, Cheikin noted, stressing there is no "blanket amenity" cure.

"It has to be based on those needs of tenants in a specific building and market. When adding amenities, you have to do so thoughtfully and side-by-side with the class and mix of tenants you want – think about who’s inside now and who you want to attract," Cheikin explained.

In the District of Columbia for instance, lack of a rooftop deck was hurting the REIT’s bottom line at its Market Square property.

"Rooftop decks are not for every building or tenant roster, but in D.C., that has been a huge attractor. The amenity is in demand there by government affairs agencies, law firms and tenants in the political sector mainly for entertaining," Mills said. "We lost tenants at Market Square who told us, the terms and rates are great but we left because we didn’t have a rooftop deck. I’m happy to say we got through the massive approvals required to add one and will be opening it for our tenants soon."

The investment trust had $4.26 billion in assets as of June 30. It generated nearly $75.4 million in revenue in the second quarter this year, compared to $74.8 million in the same time a year ago.



Diana Bell, New York City Market Reporter  CoStar Group   
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