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October 3, 2003
By Greg Thomas
Real estate writer
Los Angeles real estate businessman Judah Hertz has closed on his $36
million purchase of the Dominion Tower, adding a second Poydras Street
office tower to his $700 million real estate empire.
Hertz said his shopping spree for the New Orleans skyline isn't over.
Energy Centre, owned by Shorenstein Co. of San Francisco, is on the market,
and Hertz said he is involved in talks to buy it. "Whether they want
to sell it for what I'm willing to pay for it remains to be seen,"
Hertz said Thursday.
If Hertz's company buys the third building, he would become the largest
single owner of commercial property in the Central Business District.
Earlier this year, the Hertz Investment Group bought the 453,250-square-foot
Poydras Center for $35 million.
On Wednesday, Hertz finished buying the 492,000-square-foot, 26-floor
Dominion building, formerly named CNG Tower, along with the 557,000-square-foot
three-level New Orleans Shopping Centre and 2,000-space parking garage
from Simon Property Group, which exits the New Orleans market. Precursor
firms to Simon built and opened the tower, mall and parking garage in
1989.
The main tenant in the office tower, Dominion Exploration and Production
Inc., remains.
The shopping mall portion of the complex has underperformed and is in
danger of losing its second-largest tenant, Lord & Taylor. May Department
Store Co. announced in July that it would divest itself of 32 stores in
15 states, including its store here. The other main anchor there is Macy's,
and there are smaller retailers including Gap, Ann Taylor, Zales and Foot
Locker.
Hertz said that May's lease for the Lord & Taylor store runs until
2009. He said he was willing to work with store executives to determine
the store's future. In July, a May spokeswoman said the store would operate
until its obligations to its landlord were satisfied. That could mean
a lease buyout, which could put money into Hertz's pocket.
Local observers said Hertz got a bargain. If the purchase price were applied
only to the office space, it would come to $73 per square foot, far less
than the $150 to $200 per square foot it would cost to build an office
tower today. And real estate investment trusts were paying prices of $90
to $100 per square foot just a few years ago anticipating rental increases
that never materialized. For example, Crescent Real Estate Equities of
Houston paid $99 per square foot for the Energy Centre in January 1998.
But if the sale price were applied only to the office portion, that would
make the mall and garage lagniappe.
"The price is easily one-fourth to one-fifth of replacement cost,"
said local office broker Mike Siegel of Corporate Realty. "But the
problem is, what do you do with it?"
The mall has never lived up to its potential as a downtown shopping hub.
It will be repositioned as a mixed-used retail and entertainment destination
center, Hertz said. He added that the mall should capitalize on Saints
and Hornets games, attempting to keep ticket-buyers downtown for postgame
entertainment.
Hertz said he has already called Hornets co-owner Ray Wooldridge about
possibly building the basketball team's $6.5 million training facility
in the mall. The facility's location is up in the air, though political
and business leaders have lobbied for it to be in eastern New Orleans
as a catalyst for redevelopment at the beleaguered Lake Forest Plaza Mall.
Hertz is becoming a big real estate figure locally. His local portfolio
of office space, not including the mall, now approaches 1 million square
feet. If he acquires the 761,500-square-foot Energy Centre, his portfolio
would exceed 1.7 million square feet, making him the largest single owner
of office space in the city's 9 million square foot Class A, or top-end,
office market.
However, if Metairie were included, Equity Office Properties of Chicago
is the largest owner of Class A office space. Its holdings include Texaco
Center and the Lakeway I, II and III towers.
Hertz Investment is closely held. Hertz began in real estate in New York
and ended up in Los Angeles via Miami. He has become one of the largest
office-building owners in Los Angeles.
Transwestern Commercial Services, led locally by Bryan Burns, will manage
Dominion Tower. Hertz Investment Group will manage the New Orleans Shopping
Centre.
Greg Thomas can be reached at gthomas@timespicayune.com or (504) 826-3399.
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