Former Service Merchandise HQ Sold Again

The former headquarters building for Service Merchandise has changed hands twice in recent weeks.

The Cool Springs Commons building, located at 7100 Commerce Way in Brentwood, was sold by Kirkland Properties LLC in April for $40.3 million to Principle Equity Management, a privately owned real estate investment company based in Houston.

This month, the building was sold again as PEM completed a tenant-in-common, or TIC, transaction in which it was transferred to 35 investors. The new sale price was $46.4 million.

In a TIC sale, investors with limited funds can buy shares in a single large property, rather than buying a less-expensive property outright. The mechanism is useful in transactions known as 1031 exchanges, in which investors sell a property and can defer capital gains taxes by purchasing a replacement property - such as shares in the Cool Springs building.

Principle Equity, the Houston company, specializes in sponsoring such transactions, by identifying suitable investment properties and arranging for financing and property management. Brendan Hooie, a financial analyst for the company, says they buy investment properties then sell them to TIC investors "all the time."

With rentable space of 301,697 square feet, the building is 97 percent occupied and tenants include Pulte Homes, Community Health Systems and Nationwide Mutual Insurance. By contrast, in the months after Kirkland bought the building in 2003 - for $9.6 million - it was only about 20 percent occupied.

Steve Kenagy, regional director for California-based TIC specialist SCI, said his company's research found that across the country, commercial properties worth $8 billion to $10 billion were sold using the TIC structure last year. Kenagy said that figured is expected to double this year.

The three-story Cool Springs Commons was built in 1983, and was renovated in 2004-2005. When it was sold in April, Colliers Turley Martin Tucker brokers Rob Lowe and Whit McCrary represented the seller. Lowe said the property is very well-located and has a strong technical infrastructure.