Who could really blame Carl Wise and other Sarasota-based commercial realtors for being skeptical?
On paper, Meridian Development Group’s desire to acquire a 948,000-square-foot former Winn-Dixie distribution warehouse seemed ludicrous. It was destined to be the biggest white elephant in the county, likely to sit empty for years to come.
Wise, the co-owner of Preferred Commercial Inc., put the deal in stark perspective: “I wouldn’t have done it if they said, ‘Carl, we’ll give it to you. Here’s the deed; you assume the liability for maintenance and taxes.’ That’s how skeptical I was.”
That was his attitude in January 2006, when the Clearwater-based Meridian Group acquired the mammoth property near Clark and McIntosh roads for $30 million during W-D’s bankruptcy proceedings. Sarasota commercial real estate pros such as Wise saw no hope of leasing the facility in the near or long-term. They were openly skeptical of Meridian’s intentions and opportunities.
Eighteen months later, the renamed Meridian Business Center is roughly 75 percent occupied, with three leases totaling 680,000 square feet. It has been appraised at $55 million—nearly doubling its value to Meridian in less than two years. And Meridian has announced plans to begin building an adjacent, 140,000-square-foot Class A office complex this year.
“We knew this was a great property from the moment we stepped onto it,” says Steve Kossoff, managing director of the Meridian Development Group. “When we looked at the property and the opportunities it presented, we did not look at the micro-market of Sarasota: ‘Will Sarasota tenants rent it?’ We saw this as a great location for the state of Florida. The huge population growth across Florida in major cities suggested to us that someone would be interested in this for a statewide location. We did a logistics study to see how much of Florida could be serviced on a one-day drive from the site.”
The answer may surprise you: 87 percent. Even more surprising: From Orlando and the I-4 corridor “you can only hit 67 percent of the state within a day,” according to Kossoff. The variable is Sarasota’s easy access to Miami and North Florida.
“We made a play for the building while Winn-Dixie was still a tenant; the bankruptcy prevented that from happening,” Kossoff says. “We were talking to Winn-Dixie about them paying us to get out of the lease if we bought the property from the then-current owner.”
Meridian stayed involved while the foreclosure on the warehouse went through the courts and even got a discount for its patience, paying slightly below market for the property. Plus, the legal process eliminated Winn-Dixie from the equation, which was fine with Meridian because it didn’t find the ailing grocery to be a desirable tenant anyway.
“Our one-day travel theory was proven true when United Natural Foods approached us,” Kossoff says. “We handed them the study. We said, ‘You can serve 87 percent of Florida from Sarasota and the warehouse is already set up for food distribution.’ We landed the contract once we proved the site’s value.”
Connecticut-based United, which is the largest publicly traded wholesale distributor to the natural and organic food industry, according to its Web site, signed up for 400,000 square feet, including the development of 20,000 square feet of office space for a regional headquarters. United added 300 new jobs to the Sarasota economy.
Bealls Inc., parent of the Bradenton-based discount department store chain, didn’t need a hard sell on the location; it just needed the warehouse space. They took another 200,000 square feet.
Rilon Management Group, which provides third-party grocery warehousing, took 80,000 square feet of freezer space.
That brought the once-“hopeless” warehouse to 75 percent occupancy. And as this is written, Meridian’s Tampa-based leasing agent, Lane Witherspoon & Carswell, is negotiating with two prospective tenants for the 230,000 square feet that remains.
No wonder Wise is willing to eat crow.
He thinks Kossoff could—and should—teach locals a thing or three.
“He would be one of my nominees if there was an Academy Award for greater thought process than those of us at the local level possess,” Wise says. “If you look at Sarasota and Manatee counties in combination, big deals are something in the 100,000-square-foot range. We don’t talk 600,000 square feet! Kossoff should have every opportunity to be congratulated for seeing the opportunity and seizing the opportunity. That was a ballsy move. I just didn’t have the vision. I thought it was one of these deals where they were spending somebody else’s money and it wouldn’t flourish. But it did flourish. He deserves as much recognition as he can get.”
Much as Floridians hate to hear about the way newcomers “did it up north,” Wise is willing to listen. “You had to be from out of town to see it,” he says. “I mean, isn’t that where all the experts are? They’re from out of town.”
So who is Steve Kossoff? And how did he get so smart?
The answer lies in frigid Buffalo, were Kossoff started in the real estate business in 1991. He worked his way up from construction and property management through commercial brokerage.
“I used brokerage as a stepping stone to learn the skill sets” before launching Meridian in 2000, he says.
His first project established Kossoff’s deft touch. He had a prospective tenant who wanted to lease a building, but the bank that owned the building would only sell it. So Kossoff bought the building from the bank and rented it. The tenant said, “You did a great deal for me; will you go to Rochester and build me another just like it?”
His equity partners were equally enamored. “Go do some more,” they said.
Meridian then bought a 425,000-square-foot warehouse in Buffalo. It was 50 percent vacant upon acquisition, and Kossoff swiftly and completely leased it up. Three years later he sold it for double what he paid.
It’s a good start to the story, but if real estate is truly location, location, location, then where Kossoff began was not where he needed to finish. Buffalo’s population—1.1 million in 1991—was shrinking precipitously. When Kossoff finally left the city in 2005, he was 38, a married father of three, and he followed 175,000 residents before him in search of a better life.
“I did not move because of the weather,” he says. “I moved because for a guy like me there was no more opportunity there. We built a 700,000-square-foot portfolio. We became concerned for our ability to keep the properties rented. At six o’clock on any given night you can fire a cannon on Main Street in downtown Buffalo and not hit anybody.”
It wasn’t easy to leave; both his and his wife’s families are still there.
Kossoff came to Tampa first, eventually relocating to Clearwater. The Meridian portfolio in Florida to date also includes 200,000 square feet in Lakeland and 400,000 square feet in Pinellas County.
“Our criterion for acquisitions is anywhere up and down the eastern seaboard,” Kossoff says. Meridian’s most recent purchase was just outside Research Triangle, North Carolina.
All eyes in Sarasota will refocus on Meridian in the coming months as it transforms 17 acres of vacant land adjacent to its warehouse into 145,000 square feet of Class A office condominiums. The $30 million project, planned in three stages, is being financed by SunTrust.
But don’t expect Kossoff to defy conventional wisdom a second time by seeking a single user.
“We understand that the office condominium market is designed for users between 800 square feet and 10,000 square feet. Our units are designed for those users,” Kossoff says.
He sees the Tampa Bay area as a buy-and-hold market, and he and his partners see no reason to sell their growing portfolio here. In fact, he is actively looking for more distressed properties.
“The difference in Sarasota is that, in Buffalo, we sold the building because we were concerned about our ability to continuously rent it,” Kossoff says. “We don’t have that concern in Sarasota.”