One of the largest office landlords in the United States is aiming to dust off the effects of the pandemic and bolster its stake in the market, taking a step in that direction with a deal to acquire a recently constructed office building in a Nashville hotspot.
A Shorenstein Properties affiliate has scooped up the Gulch Union building at 1222 Demonbreun St., marking the firm's ninth office investment over the past 14 months. Financial details of the deal, which closed this month with developers Endeavor Real Estate Group and Granite Properties, were not disclosed.
The purchase "exemplifies our strategy of selecting and investing in 'micro markets' that demonstrate compelling long-term dynamics," Shorenstein Managing Director Matt Knisely said in a statement. "With strong tenant demand, local supply constraints and a differentiated live-work-play community, 1222 Demonbreun represents the best of modern office offerings in high-growth submarkets."
The firm's interest in widening its bet on the national office market's gradual rebound comes after years of pandemic-induced challenges that resulted in job cuts, a corporate restructuring and compounded financial distress across Shorenstein's portfolio.
As many landlords hit the brakes as the impacts of the pandemic began to surface, Shorenstein kept acquiring properties in a strategy that was later battered by a collision of depressed demand, rising interest rates and plummeting valuations. In late 2021, for example, it paid $72 million for a building in Denver but handed the keys back to its lender earlier this year after failed attempts to land a single tenant. And in late 2023 the firm sold Aon Center in Los Angeles for $147.8 million, a steep discount compared to the $268.5 million Shorenstein paid for the property in 2014.
At the start of this year, Shorenstein cut its staff by close to 10%, the company’s largest-ever layoff. Over the past half decade, the San Francisco-based landlord has given up ownership or control of at least three buildings, compared with four properties the firm gave up previously in its nearly 75-year history.
It now manages 16.5 million square feet of commercial space; that's 5 million square feet less today than it did at the start of the pandemic in 2020.
Betting on a dual recovery
Yet as the national office market's outlook steadily brightens, so too does Shorenstein's.
While the firm has faced challenges in raising fresh capital, it is honing its portfolio to concentrate on what it believes are the best buildings in the best neighborhoods.
The Gulch Union building, for example, is now almost fully leased, a position Shorenstein executives said indicates not only the ongoing desirability of the area, but also the Nashville market's strength as a growing employment hub.
The joint venture between the two Texas-based sellers broke ground on the roughly 334,235-square-foot Nashville project in August 2018 and completed construction in 2020, right as the pandemic was beginning to deliver a yearslong series of blows to office markets across the U.S. It took a few years, but tenants such as Cahaba Wealth Management, RSM US, Insight Global, among other professional services and legal firms gradually filled the property, boosting it to its current 97% leased rate.
Leasing across the Nashville area has been relatively volatile in recent years, but its roughly 12% vacancy rate is a healthy amount below the national average of more than 14%, according to CoStar data. What's more, areas such as the Gulch have been popular pockets among tenants looking to trade up their office spaces and land in a neighborhood with a bevy of restaurants, retailers, nightlife and new multifamily properties.
The area around Shorenstein's latest purchase, for example, is within walking distance to more than 3,000 apartment units.
Nashville has also served as a longstanding bright spot within Shorenstein's national portfolio, which along with office properties also includes multifamily, retail, research, among other uses. The firm made its debut in the city more than three decades ago with its $53 million purchase of One Century Place. In 2019 it acquired the downtown UBS tower for $135 million, selling it about three years later for just shy of $175.5 million.