Building design key issue in Primerica deal

By Martin Sinderman
Atlanta Business Chronicle Online, November 4, 2011

Building design issues presented the biggest challenge in hammering out the deal for metro Atlanta’s biggest build-to-suit office transaction in some time.

In a deal that closed in September, Duluth-based Primerica, a distributor of financial products to middle-income families in the U.S. and Canada, entered into a long-term lease agreement with Duke Realty Corp.in which the Indianapolis-based REIT will develop a 344,476-square-foot office facility which will serve as Primerica’s new international headquarters.

Slated for delivery in spring 2013, the two-building project will be located in Legacy, a Duke-developed office park at Interstate 85 and Georgia 120, not far from Primerica’s current headquarters at 3120 Breckinridge Parkway {Editor’s Note: Primerica is located on Breckinridge Boulevard}. As part of the deal, Duke is making a number of infrastructure improvements to enhance accessibility to the building, the first in the 111‑acre park.

Primerica was represented in the deal by Cushman & Wakefield of Georgia Inc. Senior Directors Sam Hollis and Travis Jackson. Duke was represented internally by Chris Brown, senior vice president of Georgia operations; and Craig Flanagan, Duke vice president of office leasing.

Tenant‑rep side
Hollis’ and Jackson’s relationship with Primerica dates back to 2006, when the company was still owned by Citigroup. Primerica was also considering a build‑to‑suit at that time, according to Hollis; but the project came to a halt when the economy turned south, following which the Cushman & Wakefield team represented the company in renewing at its Breckinridge location.

A build‑to‑suit, as opposed to existing space, was right for Primerica for a number of reasons, according to Jackson.

“We had considered existing buildings, but there were limited alternatives for a requirement that large,” Jackson said.

A build‑to‑suit enabled Primerica to achieve productivity and efficiency improvements over its 10‑building campus in Breckinridge, he notes, in part through accommodating elements specific to its business, including an in‑house TV studio to broadcast programming to its agents, and enhanced climate control, depressed slab and redundant power for housing data center operations.

The biggest challenge to getting the Primerica build‑to‑suit deal completed “was designing a building and a solution that worked for Primerica and met their financial criteria,” Hollis said. “While construction costs may be competitive today, new construction can still be expensive.”

In getting this and all other build‑to‑suit deals done, “The two most important things are availability of capital on the part of the developer, and creditworthiness of the tenant – whether or not you can get a deal done, and at what terms, is largely a function of these two things,” Jackson said.

The developer side…
Primerica had probably been considering doing a build‑to‑suit for some 10 to 12 years, with Atlanta‑based Weeks Corp. (acquired by Duke Realty Investments in 1999, creating Duke‑Weeks Realty Corp.) and Duke itself “both involved in chasing this deal at various times throughout,” Brown said.

This time around, Duke sent out its initial proposal roughly a year ago, Brown recounts, with negotiations conducted in earnest during the better part of summer 2011. As is the case with all transactions of this type, there was an extensive laundry list of details that had to be worked out between Duke and Primerica.

“Any time you are doing a build‑to‑suit, there are lots of issues you have to go through – site planning, the physical configuration of the building, lease terms, infrastructure improvements – the list is long,” Brown said.

At a size approaching 345,000 square feet, the magnitude of the development was a key challenge that had to be dealt with in this deal, said Flanagan, “especially determining where the best place was on the site to place it in relation to the infrastructure.”

There are not that many differences in negotiating a build‑to‑suit transaction now as opposed to pre‑recession days, according to Brown.

“They are certainly rarer, and there are a lot of us out there chasing fewer of these types of deals now,” he said. “Until you have the ink on the paper, it is hard to be certain if the deal is actually going to get done or not.” Successfully negotiating these transactions “is always a lengthy process,” Brown adds, “and it feels especially good to get one done in these times.”

On Oct 20, roughly a month after the Primerica deal became public, Duke announced it had entered into “a definitive agreement to sell” an 82‑building, 10.1 million‑square‑foot portfolio of suburban office properties located in seven markets to an affiliate of Blackstone Real Estate Partners VII for just over $1 billion. According to a statement from Duke, the deal includes “substantially all of the company’s wholly owned suburban office properties in Atlanta, Chicago, Columbus, Dallas, Minneapolis, Orlando and Tampa.”

The transaction won’t have any impact on the Primerica deal.

“The Primerica project is not affected by our recent announcement to sell a portion of our office portfolio,” said Brown in a prepared statement. “Duke Realty will develop and own the Primerica buildings, and will remain a developer and owner of Class A office buildings. We will continue to market the land we have available in Legacy for office development, as well as our sites at Northwinds and Windward in Alpharetta.