Why SC’s tallest office towers are being sold off

South Carolina’s tallest office buildings – most clustered around Main Street in Columbia and peopled by law firms, lobbyists, insurance companies and other professionals, many dealing with state government – are being snapped up by investment houses capitalizing on the country’s soaring stock market and low interest rates.

The Palmetto State’s tallest office building – the 26-story Capitol Center at 1201 Main St. in Columbia – sold last week to a New York state equity group for $43 million. And last month, the 20-story IT-oLogy building at 1301 Gervais St. sold for $28.1 million to a Greenville investment firm.

In June, the 16-story Wells Fargo building at 1441 Main St. sold for $29 million to Atlanta investors. And in the most eye-popping sale of the year and maybe ever in Columbia, the 18-story Tower at Main & Gervais was purchased for a staggering $65 million by a California investment firm.

And that’s just this year. In the past three years, no fewer than 30 major office buildings in and around Columbia have been snapped up by big money investors.

“Just about every downtown tower has changed hands,” said Matt Kennell, president and CEO of Center City Partnership, which encourages and guides investment in the central business district.

Kennell said the mass turnover is caused by good times. Occupancy rates are high – 90 percent for the highest quality buildings. Interest rates are low, below 5 percent nationally. And investors are looking to cash in on the robust stock market and put their long-term money in high dollar real estate.

“There is so much private equity money and offshore money and (investors) are looking for a place to put it,” said David Lockwood, executive vice president and chief operating officer of Colliers International, South Carolina. “They want yields that are better than the stock market and better than the bond market. So the investment market is really hot.”

Added Kennell: “It’s a perfect storm for creating a market for these buildings. (Sellers) are getting offers they can’t refuse.”

Many of the firms purchasing the buildings have never done business in Columbia before, brokers and investors said. Why are they now? Profitable buildings in major cities have already been snapped up in the commercial real estate boom, so investors are turning their attention to up and coming secondary markets like Columbia.

The advent of the Vista, the ongoing revitalization of Main Street and the stable economic drivers of state government and the University of South are catching their attention.

“If you had asked me 16 months ago if Columbia was a destination for us to invest I would have said, ‘Absolutely not,’” said James Cate, managing principal for Atlanta’s Glenfield Capital, which purchased the Wells Fargo building. “But what we are seeing happening there now is what we have seen in other cities like Nashville (Tenn.) and Austin (Texas). Just a dramatic change in their downtown.

“Columbia started a little later,” he said, “but the momentum is as strong as any I have seen at this (early) stage.”

Cate added that he and other new owners also plan to make renovations to the buildings.

Most of the major buildings sold for $90 to $200 a square foot, depending on the age, location and quality of the property. However, the Main & Gervais building, one of Columbia’s newest on perhaps the most high-profile location in South Carolina – the corner of Main and Gervais streets directly in front of the State House – was sold for a whopping $348 a square foot.

“Investors are looking for trophy buildings,” said John Holder, the Atlanta developer who built Main & Gervais and was a co-owner with primary tenants Edens retail developers, National Bank of South Carolina and the McNair Law Firm. “And this is the trophy building in a second tier town.

“The difference is we had a full building,” he said. “We had long leases and high rents. And its location was exemplary. We were attracting a lot of attention.”

Patrick Gildea, executive vice president of CBRE commercial real estate arm in the Carolinas, which brokered three of the four most recent sales – Main and Gervais, the Capitol Center and I-ToLogy – said investors feel like they are getting in on the ground floor of a growing city.

“Downtown has a cool factor now,” he said. “But we’re not as far along as downtown Greenville, Raleigh and Charlotte. So they feel like they are making an investment early on, that Columbia still has some room to run.”

This story was originally published October 6, 2017 at 12:13 PM.