DOMINION TOWER

The Property
Dominion Tower is a 403,276 square foot, Class-A office building in downtown Norfolk, Virginia.  The property consists of 26 floors of office space with views along the waterfront.  It is considered one of the preeminent office towers in downtown Norfolk.  Harbor Group International (“HGI”) purchased the property in September 2004 for $53.3 million.  It was purchased in conjunction with an assumption of the existing debt on the property.  The complexities involved with a loan assumption process often reduces the competitive bids on a property and enables a lower purchase price.

The Play
When HGI”) acquired the property, it had an occupancy rate of 87.2%, which was average relative to the submarket.  It also had significant near term exposure due to high-profile tenant lease expirations.  HGI purchased the building knowing it would need to re-tenant three full floors.  The downtown office market had also just experienced the addition of the first large Class-A office tower to come on line in over fifteen years.  The new building had set the high water mark for rents in the market and continued to draw tenants while, at the same time, having limited amenities as compared with Dominion Tower.

The purchase of Dominion Tower was primarily a market play.  In 2001 and 2002, while most of the country was experiencing double-digit vacancy rates, Norfolk ranged between 5% and 8%.  Also, during the five years prior to the purchase of the property, Norfolk’s net office absorption was consistently high.  The total absorption for the five prior years was 2.5 million square feet, or an average of nearly 500,000 square feet per year.  With this absorption, came rising average rents for Class-A office space.  HGI felt that it could capitalize on the growing demand for high value space in the market.

The Conclusion
After purchasing Dominion Tower, HGI executed a re-tenanting strategy.  Most notably it secured a new lead bank, replacing Wachovia’s name at the top of the tower with the Bank of Hampton Roads, strengthening its ties and appeal with the local community and distinguishing it from other buildings in the market that also had signage for Wachovia.  Also, slight improvements were made in the amenity package, including leasing out a portion of the lobby to the very successful, high-end restaurant Vintage Kitchen which had attained numerous awards.  The building is currently 97% occupied following a jump from 85% to 92% in the first two years of ownership.

In 2006 HGI refinanced the property and returned over 80% of the initial equity.  HGI currently maintains its headquarters at Dominion Tower and continues to own and manage the property.