An article in Wednesday’s Wall Street Journal focused on California investor Judah Hertz, whose company recently bought most of Parkway Properties’ buildings in Jackson. The article opens:

After a four-year hiatus on the sidelines, California investor Judah Hertz is buying office buildings in small cities with some of the highest vacancies and lowest demand in the country. That probably means more torment for other landlords in these markets.

Parkway was apparently desperate to get out of the Jackson market:

Mr. Hertz is buying for such a low price that he says he is going to be able to undercut the competition, charging lower rents and offering more incentives to tenants.

And lost money:

For Parkway, the sale to Mr. Hertz closes the chapter on a painful investment for a company whose market capitalization is about $200 million. Parkway says it will recognize a $58 million to $60 million fourth-quarter loss related to the sale of the portfolio as well as two remaining buildings it is still trying to sell in Memphis and Jackson.

The buildings that Hertz bought have huge vacancy rates:

The portfolio’s 24% vacancy rate is even higher than those of the overall markets. Third-quarter vacancy rates were 16.1% in Richmond, 22.1% in Memphis and 17.5% in Jackson, according to Reis Inc.

My Take:

I don’t know about you, but I’m asking my landlord to cut my rent in half before Hertz recruits me to move into the Deposit Guaranty AmSouth Regions University Club big tall empty building downtown.

This is not surprising. Parkway was probably wise to take what it could get and exit the Jackson market before it erodes further.

Hertz may feel like he can make money on the deal by simply maintaining current occupancy rates. Hertz could be disappointed if he is planning to fill the buildings by being more competitive on rent. The big banks aren’t coming back to Jackson. Butler Snow is locked into a long-term lease. I guess Baker Donelson’s lease could be coming up for renewal in the next few years. But it would take a sweet deal to get them out of perhaps the best office location in the Jackson area at the Meadowbrook Office Park. It will be interesting to see what Hertz does with that space.

For those looking for the connection to Mississippi litigation, see my prior post here.