GTx offices head to Toyota Center

Biotech firm moving from Midtown space

Memphis Business Journal
January 25, 2008
By Andy Ashby

GTx, Inc., has signed a 30,750-square-foot sublease at the Toyota Center Downtown, filling up space vacated by Storage USA in 2003, according to sources in the real estate industry.

The biopharmaceutical company will take up the entire seventh floor and half of the eighth, with both spaces linked by an internal staircase.

GTx, which is currently headquartered in the Medical District in Midtown, has been showing some growth recently.

In November, GTx announced a research in development partnership with New Jersey-based Merck and Co. GTx gets $40 million upfront, with $15 million in research reimbursements over the first three years.

Merck (NYSE: MRK) also invested $30 million in GTx common stock.

Finally, the deal means GTx will be eligible to receive up to $422 million in future milestone payments associated with the development and approval of a drug candidate.

Officials for GTx would not comment on its new sublease.

Storage USA, Inc., was sold to Extra Space Storage, Inc., for $2.3 billion in 2005 and vacated 78,000 square feet on Toyota Center's fourth, seventh and eighth floors, as well as part of the third floor in 2003.

"There is a positive that came out of Storage USA headquarters moving," Tracy Speake, managing partner of Paradigm Realty Advisors LLC, says. "You have other tenants backfilling that space, taking advantage of competitive rates and a higher finish of build-out."

In 2007, Spicer, Flynn & Rudstrom PLLC inked a sublease for 10,775 square feet on the eighth floor.

Speake represented the law firm when it went into Toyota Center.

"What they really liked about it is that it's a historic building with all the amenities of a new Class A office building," he says.

Parkway Properties, Inc. (NYSE: PKY), a Jackson, Miss.-based real estate investment trust, owns the 175,000-square-foot Toyota Center.

Built in 1913, the eight-story Class A office building at 175 Toyota Center has tenants such as Looney Ricks Kiss Architects.

Rehabilitated in 2000, Toyota Center has new HVAC, energy management systems and elevators. It also has an adjacent parking garage and the upper levels have views of the city and the inside of AutoZone Park.

"I think the great thing about Downtown is that there are still some very nice buildings with competitive rates, even when you factor in parking," Speake says.

There is 1.74 million square feet of Class A office space in Downtown Memphis, according to theCB Richard Ellis Memphis Office MarketView report for fourth quarter 2007.

The Downtown submarket's Class A space has a 21.5% vacancy rate with an average asking lease rate of $16.79 per square foot.

The GTx deal could impact Downtown's 27.2% Class A availability rate, which includes space that is vacant and up for sublease. There are other benefits as well.

"Anytime you can get a 30,000-square-foot tenant that's new to Downtown, that's a big win and it will definitely show the improving strength of the market," says Don Drinkard, CB Richard Ellis Memphis marketing specialist. "Even though it's a competing property for us, we're happy because it helps the overall health of the Downtown market."

The East Memphis submarket tightened in the fourth quarter, as the Class A vacancy rate is 1.8%. This could affect the Downtown submarket.

"I think you could say that because of the conditions of the East Memphis submarket, where the are very few large blocks of vacancy, if there is a company in Memphis or looking to move here that needs 25,000-30,000 square feet or more of contiguous space, it's going to be extremely hard to find that unless you look Downtown," Drinkard says.

Comparatively, there is quite a bit of space available Downtown, according to Mark Jenkins, senior vice president at Commercial Alliance Management LLC.

Also, Downtown's average asking lease rate for Class A space is lower than the East Memphis submarket, which is at $26.35 a square foot, according to CB Richard Ellis MarketView.

"Conceptually, at some point in time, there could be a big enough variance between the East Memphis submarket and Downtown where there would be some significant financial benefits for companies to refocus their attention Downtown," Jenkins says. "There are a lot of options for good, competitive Class A space that is not available out east."

Jenkins represents Extra Space Storage's subleasing interests in the Toyota Center.

Jenkins, who would not confirm the GTx deal, leased 42,000 square feet of space in Toyota Center last year, so he knows there is a market for users Downtown.

"In the near term, I don't see any downward trends," he says. "I think it has flattened out. We still have a significant amount of competitive space."

Downtown's office market has always had its strength from users in the legal community, the government, advertising companies and architecture firms, according to Drinkard, but it has other types of tenants as well.

"There is no one type of tenant that we're marketing Downtown for," he says. "You can name every industry in the book and there is at least one company in that industry that has an office Downtown, whether it is financial companies, professional sales companies or even Fortune 500 companies."

Last year, there was a renewed emphasis on drawing office tenants Downtown, as shown by Downtown Works, an awareness campaign sponsored by the Memphis Regional Chamber of Commerce, Center City Commission, Belz Enterprises, CB Richard Ellis and Parkway Properties.

"We kicked it off in 2007 and had a very good start to it," Drinkard says. "We hope to continue that in 2008 and hope to see the fruits of our labor then."

GTx, Inc.

Biopharmaceutical company
HQ: Memphis
CEO: Mitchell S. Steiner
NASDAQ: GTXI
Address: 3 N. Dunlap
Phone: (901) 523-9700
Web site: www.gtxinc.com

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