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Local developer Keystone buys north-side office park

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An affiliate of local developer Keystone Realty Group has purchased a four-building office park along the highly desirable North Meridian Street corridor with hopes of having it leased up within a year.

Keystone closed Jan. 31 on the acquisition of Waterplace Office Park, which is on the east side of the thoroughfare and just south of East 91st Street.

Keystone CEO Ersal Ozdemir declined to divulge how much he paid but said he expects to invest $9 million when including the sale price and renovation costs. Office brokers familiar with the office park say the firm likely paid between $6 million and $6.5 million to buy the office park out of receivership.

REW waterplace office mapWaterplace has struggled in recent years to attract tenants and has occupancy of about 72 percent. The relatively low occupancy, though, gives Keystone an opportunity to capitalize on its investment, said Darrin Boyd, an office broker at Cassidy Turley.

“Keystone diversifies its holdings with this suburban acquisition and is the ideal entrepreneurial, hands-on owner to take Waterplace Park to the next level,” he said.

Boyd is quite familiar with the property. He sold the 114,000-square-foot park in 1998 to locally based Equicor Cos. LLC. Nearly 15 years later, he and Cassidy Turley colleague Dave Moore represented the brokerage as court-appointed receiver on behalf of lender AIG, which took the property back from Equicor.

The purchase of Waterplace is Keystone's second major purchase in three months. In November, a Keystone affiliate bought downtown's Illinois Building from an affiliate of locally based HDG Mansur for $5.5 million. Keystone is considering converting the 145,000-square-foot, vacant building into a boutique hotel, or office and retail space.

In the meantime, Waterplace caught the eye of Keystone CEO Ersal Ozdemir.

“I live close to there and I drive by every day,” he said. “It’s a great location.”

The property's proximity to Interstate 465, visibility along the highly traveled North Meridian corridor and the quality of the buildings piqued his interest in the roughly 12-acre property, he said.

Locally based Jackson Cos. developed the office park in the early 1980s. The buildings, which are bounded by a small lake, have seen some upgrades through the years. For instance, the lobbies have been renovated.

By investing in interior and exterior improvements, Ozdemir thinks he can have it leased and stabilized within a year.

“Because of the circumstances [with the receivership], vacancy has gone up,” Ozdemir said. “We have the ability to spend some money to attract tenants.”

Working in his favor is the dwindling space available along the corridor, which saw occupancy improve to 84 percent at the end of the year from roughly 80 percent in 2012.

“The location’s obviously very good, being on Meridian Street, and comparable space in that area has sold,” said Joseph DiSalvo, an office broker at the local office of Marcus & Millichap. “I think it’s a good deal for Ersal.”

Interest in Waterplace was strong and attracted attention from at least three other investors, brokers said.

The only downside, Ozdemir said, is a lack of retail in the area except for the strip center north of the office park.

Major tenants in the park include Indiana Mentor, Decatur Vein Clinic, American Legion, Nursefinder, Pyramid Life Insurance and Indiana Nephrology.
 

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  1. The $104K to CRC would go toward debts service on $486M of existing debt they already have from other things outside this project. Keystone buys the bonds for 3.8M from CRC, and CRC in turn pays for the parking and site work, and some time later CRC buys them back (with interest) from the projected annual property tax revenue from the entire TIF district (est. $415K / yr. from just this property, plus more from all the other property in the TIF district), which in theory would be about a 10-year term, give-or-take. CRC is basically betting on the future, that property values will increase, driving up the tax revenue to the limit of the annual increase cap on commercial property (I think that's 3%). It should be noted that Keystone can't print money (unlike the Federal Treasury) so commercial property tax can only come from consumers, in this case the apartment renters and consumers of the goods and services offered by the ground floor retailers, and employees in the form of lower non-mandatory compensation items, such as bonuses, benefits, 401K match, etc.

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