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TAMPA, FL-Sterling American Property Inc. caught the local commercial real estate market by surprise when it purchased Park Tower, the city’s oldest skyscraper, for $50 million in January 2006. The idea was to return the aging structure to the same class A status it enjoyed upon its opening 35 years ago.

Now that the New York-based investment fund management firm has met its objectives with the 36-story building, it’s looking to sell it at a possible 30% profit. Yet it isn’t looking to pull out of Tampa Bay for good, partnering in an apartment complex near the University of South Florida campus with a collegiate housing developer.

Sterling American announced July 21 that it purchased the 540-unit St. Croix Apartments in a joint venture with Gainesville-based Collier Cos. The deal is valued at just under $38.4 million, with Sterling American committing nearly $3 million to capital improvements geared toward enhancing the property’s market value.

Jeffrey Smith, senior vice president of acquisitions for Sterling American, says practically every aspect of the St. Croix complex is subject to renovation, from new appliances in units to setting up a Web site for the complex. He views the acquisition as a solid bet, given its proximity to USF and its growing medical research segment.

“Although we’re seeing softness throughout the multifamily market in Tampa Bay, I believe there is a barrier to recession in the USF submarket,” Smith tells GlobeSt.com. “My double-down is that this submarket will be one of the first to recover.”

The area surrounding USF’s main campus in northeast Tampa is one of several submarkets where new apartments are being built, according to multifamily market observers. More than 10,000 units are in the pipeline over the next three years in Tampa’s suburban markets, according to a mid-year report by NAI Tampa Bay.

“As these units come online, vacancy could increase in certain submarkets,” T. Sean Lance, the firm’s managing director in Tampa, stated in the report. “However, historical job growth and population growth trends favor a relative short-term recovery for the Tampa Bay region.”

Besides the NAI report’s assertion that local apartment occupancy remains in the low 90% range, with average monthly rents just above $800, Smith believes St. Croix’s strong location makes it a better bet. He notes that the complex has at least 700 sf fronting Bruce B. Downs Boulevard near Bearss Avenue.

Another strong vote of confidence in the apartments, which were previously owned by Sentinel Real Estate Corp., is that Sterling American and Collier were able to obtain Federal Home Loan Mortgage Corp. financing through Wachovia Bank. Smith says his firm and Collier, which owns thousands of apartments near the University of Florida, had to work to get Freddie Mac’s attention during these tough credit times.

“Most likely, your only hope of getting a good debt relationship anymore is through the agencies,” Smith says. “It reiterates their belief in Tampa as a market that is in need of multifamily housing and good affordable housing. They also believe in our underwriting that this market will rebound.”

Sterling American has invested in more than $3 billion worth of assets in 43 states since 1991, with an asset mix of 55% multifamily and 45% in all other commercial types. The company has bought and sold several apartment complexes in Florida, including the Palms at Livingston near Tampa, Hidden Harbour in Tamarac, Georgian Bay in Fort Myers and Cameron Lakes in Clearwater.

The company decided to go a little off its own beaten path when it purchased the now for-sale Park Tower, which Smith says he watched being built while growing up in Largo. He recalls its status as the largest office building between Miami and Atlanta upon its 1973 opening. Significant upgrades have been made to the 472,462-sf structure over the last two years, including replacement of power transformers and wiring, as well as improvements to the building’s lobby and common areas. Tenants in Park Tower range from various federal government agencies to a Tampa Bay Rays baseball team store at street level.

Currently at 85% occupancy, Park Tower is expected to attract a price in the $60-million range, or between $130 and $140 per sf, according to local office brokers. Smith says Sterling American is currently weighing bids and will make a decision in the next few weeks, which could include keeping the building.

“We really like this property,” he says. “If we don’t get our expectations of value because of the debt markets, we’re going to hold it and continue to manage it.”

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