A little more than a year ago, Highwoods Properties did not own a single property in Pittsburgh. Now it's the owner of two of Downtown's larger skyscrapers.
About 15 months after acquiring PPG Place, one of the city's most distinctive properties, for $179.4 million, the Raleigh, N.C., firm announced Tuesday that it had locked up the 32-story EQT Plaza on Liberty Avenue in a $99.2 million business transaction that includes $8 million in capital improvements.
"We think it's one of the top five office buildings in Downtown Pittsburgh," Highwoods CEO and president Ed Fritsch said.
But the latest deal didn't come without controversy.
Highwoods acquired not the property itself but Liberty Avenue Mezzanine LLC, a Delaware-based entity that owned the skyscraper through a holding company. Because of that, the transaction does not involve a deed transfer and is not subject to the 4 percent deed transfer tax, costing the city, the Pittsburgh school district and the state nearly $4 million.
Mr. Fritsch said Highwoods had no choice but to buy Liberty Avenue Mezzanine rather than the property itself after approaching the owners about selling. He said Liberty Avenue Mezzanine was created in January 2005.
"The ownership of this was structured long before we stepped foot in Pittsburgh," he said. "Our only option was to buy the entity."
But city Controller Michael Lamb, who has campaigned against loopholes in state law that have allowed real estate buyers to skirt the deed transfer tax, said he would ask the state to look into the acquisition and to assess the tax.
"That's a transfer," he said of the EQT acquisition. "They can call it what they want, but that is a transfer."
Mr. Lamb maintained that many limited liability companies like Liberty Avenue Mezzanine are created "for the sole purpose of ducking" the levy and that the state must do something to prevent that from happening.
Ira Weiss, city school solicitor, also called for a state review.
"We've seen this sort of thing before. These are all structured to avoid paying taxes. That's what it's all about," he said.
It is not the first time a buyer of EQT Plaza has avoided the tax. An investor group that acquired the building, then known as CNG Tower, in 2000 didn't pay $2.7 million in transfer tax in an $82 million transaction when it bought the partnership that owned the building rather than the property.
Highwoods, a real estate investment trust, said its latest acquisition is not a so-called "89-11" transaction. Such transactions have been used to avoid the tax in the past and will be banned at the end of the year.
In such cases, a buyer, instead of purchasing the property, will acquire 89 percent of the interest in the company owning it. After three years, the buyer will purchase the other 11 percent.
Highwoods did pay $3.6 million in deed transfer tax to the city and $1.8 million each to the school district and the state in the buy of PPG Place last year.
Mr. Fritsch said the firm was excited about expanding its footprint in Pittsburgh. With the latest acquisition, Pittsburgh will become Highwoods' fifth-largest office market in the country. Mr. Fritsch said the company is interested in doing more, both as a buyer and a developer.
"We're very enamored with Pittsburgh. We're definitely looking to see what else we might be able to acquire that would be of the quality that we want to own," he said.
Since acquiring the glass castlelike, six-building PPG complex last year, Highwoods has been able to boost the occupancy from 81.2 percent to over 88 percent and hopes to be above 90 percent before 2014.
The occupancy at EQT Plaza is 92.2 percent but is expected to jump to 95.9 percent by the third quarter of next year. The building's major tenant is EQT Corp. Other tenants include the Cohen & Grigsby law firm, the Heinz Endowments, and Morton's The Steakhouse.
As part of $8 million in capital improvements at EQT Plaza, Highwoods plans to upgrade the elevators, common areas, restrooms and lighting.mobilehome - businessnews
Mark Belko: email@example.com or 412-263-1262.