The cluster of buildings meant to be a new downtown for Newport News is changing hands, as a group led by an out-of-town insurance giant sold City Center at Oyster Point to 17 local investors.
The $64 million deal is for nine buildings with nearly 575,000 square feet of office, retail and restaurant space — the equivalent of 10 football fields.
The buyers are led by former Newport News Mayor Joseph C. Ritchie and Hampton attorney Robert E. Long.
They're taking over from a group that had been dominated by the Milwaukee-based Northwestern Mutual Life Insurance Co., which bought a stake in City Center a bit more than a decade ago.
"Joe and I are local boys and we'll be dealing with our neighbors," Long said.
The move should bring management closer to home, for faster action on some of the key issues for any landlord with lots of tenants, from signing leases to setting rents to fixing problems, Ritchie said.
"The old way was they had to go to Northwestern, (and) that could take three to four weeks. With the new group, that takes three to four minutes," Ritchie said.
The new group wants to take City Center in a direction city officials have been pushing, with less emphasis on the still-challenging retail scene and more of a push for entertainment-oriented businesses, including more restaurants and such venues as microbreweries that attract young professionals, said City Manager Jim Bourey.
"They'll bring new jobs and more amenities and bring more fun to City Center," Bourey said.
The buyers are financing the purchase with a $54 million loan from Towne Bank and Union Bank & Trust. The banks are splitting the loan 50-50.
Each of the 17 investors is putting in $250,000 to $1.25 million, for a total of $10 million.
Northwestern had a 50 percent interest in the 448,000 square feet of office space, and an 80 percent interest in the 130,000 square feet of retail space, while the new group will have a 100 percent interest in both.
About half the buying group were partners in the Northwestern-led group, Ritchie said. But Riverside Health System, the accounting firm PBMares and former Newport News City Manager Robert Williams, a developer whose business now focuses mainly in south Hampton Roads, opted out as well.
The buyers also have arranged a line of credit — basically a kind of credit card — to help pay for any improvements tenants may need, whether the additional plumbing needed to convert one of the center's 15 empty storefronts to a restaurant, or the improvements needed for a new office tenant, said Towne Bank Peninsula/Williamsburg President Brian Skinner.
He said the loan is probably one of the five biggest for his bank, though well below the cap regulators set on loans to a single borrower. The line of credit is pegged to lease payments, he said.
Ritchie said the group is close to signing a lease with a tenant for two entire floors of one of the office buildings, a move that would boost the occupancy rate for office space from 88 percent to 96 percent. The overall occupancy rate for Hampton Roads last year was 89 percent, according to Old Dominion University's annual real estate market review.
The group is also aiming to boost the current count of restaurants in City Center from eight to 12, Ritchie said.
The shift from shopping to eating makes more sense for an office-heavy area that's not directly on one of the city's main shopping corridors, said Bourey, the city manager. The vacancy rate for retail stores at City Center now is about 40 percent.
Ritchie said Northwestern had focused more on trying to attract national retailers, but the new group sees opportunity with local firms.
"It'll be good to have a local contact," said Brad Hart, president and co-owner of Hauser's Jewelers, a fifth-generation Peninsula jeweler that has operated on City Center's retail street for more than a decade.
He said he's already been in touch with the new investors — some of whom he already knew — and they've reassured him that retail stores will remain an important component going forward.
And if many storefronts are empty these days, Chip Tiffany, owner of d.alan's Color Splash on Town Center Drive, said his business is booming.
He'd operated in a nearby business park site before, and in addition to the customers who followed him to his new place, he's picked up enough walk-by business to boost revenue last year.
But it was a challenge dealing with out-of-towners.
"Maybe it was a write-off — that's why they let it get run down," he said. "I wanted to move here in July (three years ago) but it wasn't until that December that I got my keys."
Some retailers who left in recent years have complained about high rents, and Ritchie said the new investors are also looking hard at what they'll charge. A recent review of what one restaurant was paying suggested its rent was too high for the revenue it was taking in, he said.
The city is reworking the leases for the three parking garages it built and agreed to continue to allow free parking in them for the next 15 years, Bourey said.
In addition, the city would continue leasing the 80,473-square-foot, five story Fountain Plaza II building, he added.
The city is retaining land and development rights on the undeveloped quadrant of land north of the fountain, as well as land along Canon Boulevard, both areas where Bourey is hoping to attract other businesses.
City tax records show the properties together are currently assessed at $91.9 million. The office buildings' assessed values have risen in the past several years until the current tax year, when their value was unchanged. But the retail properties' assessed value has dropped 38 percent since the recession to just under $12 million, despite an uptick this year in value driven largely by an increased valuation for the land.
The sale does not involve any of the apartment buildings, the Marriott hotel and conference center, the Paragon cinema, Travinia restaurant or the Langley Federal Credit Union building.
Ress can be reached by telephone at 757-247-4535.
Here are the investors who are buying the heart of City Center at Oyster Point:
Former Newport News Mayor Joseph C. Ritchie Sr.
Hampton lawyer Robert E. Long
Ritchie-Curbow Construction President Joseph C. Ritchie Jr.
Hamner Development Co. Chairman and Chief Executive William Hamner Sr.
Hamner Development Co. President William Hamner Jr.
Harvey Lindsay Commercial Real Estate President William King
Harvey Lindsay Commercial Real Estate Chairman Harvey Linsday
Harvey Lindsay Commercial Real Estate Executive Vice President Bobby King
Newport News lawyer Donald Patten
Alcove Corp. President Brad Patten
Newport News attorney Conway Sheild
Dr. John Howard, of Hampton Roads ENT
Dr. Michael Jacobson, of Hampton Roads ENT
Valianos Grading & Clearing President Jerry Valianos
SiTech Corp. President Leroy Nopper
Fremont Die Co. President Jim Hotze