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MAITLAND, FL-Parkway Properties Inc. of Jackson, MS and the Ohio Public Employees Retirement System of Columbus, OH have acquired two Maitland Center submarket office buildings for a total $28.41 million or $128.55 per sf. The properties are the first acquisitions for the partners’ new discretionary fund.

The Ohio group is a 75% investor and Parkway a 25% investor in all of the fund’s acquisitions, according to a statement by Parkway president and CEO Steven G. Rogers. The two acquisitions are the 128,000-sf Maitland 100 building and the 102,000-sf 555 Winderley Building. The first is 74.8%-leased, and the second is 80.4%-full.

Maitland 100 was purchased for $14.7 million or $114.84 per sf. The price for 555 Winderley was $14.71 million or $134.48 per sf. Both prices are below estimated existing hard construction costs of $175 per sf for comparable class A properties, area construction sources tell GlobeSt.com.

The purchase was made with a $17.16-million, seven-year first mortgage loan at a fixed rate of 4.92% from an undisclosed lender. The fund will pay only interest on the loan for the first five years. The loan may be extended for two one-year terms. Parkway’s initial equity contribution of $2.81 million will be provided by a portion of the proceeds from its Sept. 9 sale of The Park on Camelback in Phoenix, Rogers says.

On a stand-alone basis, the properties are expected to yield the fund a going-in capitalization rate of 6.7% in the first 12 months of operation and a leveraged internal rate of return of about 12.2%. Rogers says Parkway’s annual return will be comprised of 25% property income as well as market-based fees for asset and property management, leasing and construction supervision services. “Adding these fees increases the return to Parkway to an initial cap rate of 9.9% and a leveraged IRR of approximately 20.5%,” Rogers says.

“This initial investment will provide a concrete example of how the fee structure from services provided to the fund improve the return on Parkway’s investment,” Rogers says, “creating a higher return on equity. The cash flows from these fees are recurring in nature.”

Parkway Realty Service will provide management and renewal leasing services through its existing team in Orlando. New leasing services will be provided by Advantis Real Estate Services Co.

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