Current and former tenants adjust to Scott’s Addition boom times

The HandCraft building across the intersection of Leigh and Roseneath. (Jonathan Spiers)

Signage advertises space for lease at the HandCraft building and others at the intersection of Leigh and Roseneath. (Jonathan Spiers)

When Tom Hohman moved his business to Scott’s Addition three years ago, he thought he had secured a long-term home for his industrial design firm in the increasingly sought-after neighborhood.

Then the Scott’s Addition real estate boom got in the way – at least temporarily.

The building Hohman was renting was purchased last year by a local development team, who he said made him aware of a removal option in his lease, and that he would eventually have to vacate his space, to make way for a conversion to office space for higher-paying tenants.

Staying wasn’t an option, as he said the new rent after the conversion would be $17 per square foot – five times higher than what Hohman said he’d been paying.

He started looking for other locations around town, in Manchester and other former industrial districts, but his heart wasn’t in it.

“I really want to stay here,” Hohman said in early May. “There’s nothing else like it, I can think of, in Richmond.

“It kind of astounds me that this (hasn’t already) become what it’s about to be.”

Hohman’s situation is one of many playing out in the fast-transitioning neighborhood, bounded by West Broad Street to the south, Boulevard to the east, Interstate 195 to the west and railroad tracks to the north.

A surge in interest from developers and businesses continues to convert industrial warehouses into offices and apartments, making way for new tenants – both businesses and residents.

That’s forcing more seasoned tenants in the neighborhood to pay higher rent, move elsewhere or adjust to make way for new tenants and the prices that come with higher-quality commercial space.

Tom Hohman

Tom Hohman in his current, larger space on West Leigh Street. (Jonathan Spiers)

Hohman was given an opportunity to stay in the neighborhood by his new landlords, Charles Bice of KB Building Services and Birck Turnbull of Cushman & Wakefield | Thalhimer, who purchased the building at 1408 Roseneath Road with the development arm of UrbanCore Construction as part of a five-building deal totaling $3.46 million.

They offered to move his business, Hohman Design, into a smaller, unfinished space next door, at a lower rent than spaces they’re converting but still higher than he previously paid.

They recently negotiated a five-year lease with a five-year option for the 2,000-square-foot space at 3425-B W. Leigh St., next door to his current 6,000-square-foot space, where he said he has spent $20,000 upfitting and personalizing it.

“It’s one-third the space at three times the price. That’s the move I’m making,” Hohman said.

Turnbull said the arrangement was worth it to him and Bice, who he noted are giving up potential historic preservation tax credits by leaving Hohman’s new space unfinished.

“We want to keep the creative set within Scott’s Addition,” Turnbull said.

“There’s always a balance to serve the needs of the creative set and also offer them competitive terms. In this instance, we went off of our normal formula for office rehab and were able to provide him more of an open space with less tenant buildout, but at a much more competitive rate.”

Rents for office space have risen significantly in Scott’s Addition in recent years, according to local brokers. Thalhimer broker Jason Guillot, who handles leasing at Summit Suites on West Marshall Street with Turnbull, said they were signing triple net leases – the tenants pay ongoing expenses in the rent – this spring at $18.50 per square foot. He said nearby office space is going for as much as $22 or $23 per square foot.

“It’s hard to pin down a going rate,” Guillot said. “It’s been increasing over the past 18 months pretty fast.”

He said rent structures vary between triple net rates and full-service rates, the latter of which include expenses such as utilities built in and are typically several dollars higher to cover those costs.

Andrew Cook, research director for CBRE | Richmond, said the current asking rent for newer office space in Scott’s Addition is $25.41 per square foot, up from $16.50 per square foot a year prior. He said the total amount of office space in Scott’s Addition has almost tripled since late 2014.

Cook said average sales price for office buildings was $64 per square foot last year, up from $43 per square foot in 2015 and $31 per square foot in 2012.

Rents for office, industrial and flex space combined in Scott’s Addition have nearly doubled on average in three years. Cook said average rents for those spaces have grown to $8 per square foot after bottoming out in 2014 at $5.

Average sales price for office, industrial and flex space in Scott’s Addition has increased 8 percent in five years, from $57 per square foot in 2012 to $62 today, Cook said. He said that number could end up higher by the end of the year, noting that the average for the full 12 months of 2016 reached $81 per square foot – a 62 percent jump over 2010, when the average bottomed out at $50 per square foot following the recession.

Hohman isn’t the only business owner affected by the conversion of the buildings at 1408 Roseneath Road. Jim Storie had operated Red Line Leather, his wholesale motorcycle apparel company, out of a 5,000-square-foot warehouse space there since 2006 – his third location in Scott’s Addition.

Since the building’s sale last fall, the 67-year-old has decided to retire, albeit sooner than he was planning.

Roseleigh Partners paid $3.46 million in 2016 for three buildings at 1408 Roseneath Road.

Roseleigh Partners paid $3.46 million in 2016 for three buildings at 1408 Roseneath Road.

“It was going to come regardless, but that certainly might have forced my hand a little sooner,” he said.

While he’s no longer in the neighborhood, Storie said he does have concerns with the neighborhood’s transition.

“I feel like a lot of the development that’s going on is more apartment-oriented, and Scott’s Addition has been an incubator for a lot of small businesses for a lot of years,” he said. “I hate to see those opportunities go away.”

Turnbull said the first tenant for the largest of his group’s three buildings – environmental company RES – will move in as early as this week. Advertising firm Barber Martin Agency and packaging company Stephen Gould Corp. will fill the rest of the 25,000-square-foot building in October.

Hohman is moving into one of the two smaller buildings along Leigh Street, where Turnbull said he is seeking a tenant for an adjacent space. The other 10,000-square-foot building remains occupied by wholesale supplier Old Dominion Paper Co., which Turnbull said will stay for the remainder of its lease while the other spaces are converted to office use.

Meanwhile, a longtime Scott’s Addition tenant recently vacated to make way for another ad agency’s move into the neighborhood.

Auto parts supplier Auto Plus was told early this year it could not renew its lease at 2912 W. Leigh St., which property owner Brian Pearson is converting to office space. The 23,800-square foot building, which also houses X-Team Fitness, is slated to house the new headquarters for ad agency ndp.

Auto Plus ended up at 1101 Athens Ave., filling half of a 27,235-square-foot building off Brook Road in Henrico County. But needing to move out of Scott’s Addition was an improvement, store manager Ron Jackson said.

“This place is head and shoulders above what we had,” Jackson said, though he acknowledged the space is more expensive than the $4.60 per square foot they were paying in Scott’s Addition. CBRE’s Marc Allocca said the triple net lease for Auto Plus’s new space is $5.75 per square foot.

“It was a good move for us,” Jackson said. “Since I’ve redone my inventory, sales have taken off.”

Other businesses have closed due to rising rent and property sales. On West Broad Street, Chinese restaurant Joy Garden cited increasing rent for its decision to close after 60 years in business.

Along Boulevard, the recent sale of the Woody’s Auto Service building at 929 Myers St. displaced several businesses that shared a space at the front of the building.

While Woody’s Auto closed to make way for a AAA service center, four hair stylists who made up the Smoke & Mirrors salon that filled the bulk of that space have gone their separate ways, joining other salons around town. The space also housed eyelash extension salon Be Lashed and appliance repair shop RVA Repairs.

RVA Repairs moved to a larger space at 4621 W. Broad St., and Be Lashed’s Brittany Cox moved to Pivot Studio on West Cary Street near the Fan.

The sale sent Smoke & Mirrors’ stylists in different directions: Chastity Hise to Lakeside, Beth Luginbill to Carytown, and Rayna Kimmal to Henrico’s West Broad Village. Sara Pecora remained in the neighborhood at Scott’s Addition’s The Hive Salon.

smoke and mirrors

From left: Smoke & Mirrors’ Chastity Hise, Sara Pecora, Rayna Kimmal, Be Lashed’s Brittany Cox, and Beth Luginbill. (Jonathan Spiers)

Hise, who cut hair at the Woody’s Auto location for eight years, said she was sorry to part ways with her colleagues after three years together as Smoke & Mirrors.

“We were given such a short amount of time to find a new setup,” she said. “It’s hard to leave coworkers.”

“To have to move or relocate your business, when you’re forced to do that, is never going to be a good time,” Luginbill added. “We’ve been happy in our space. It’s sad to see it come to an end.”

Mike Cline, president of the Scott’s Addition Boulevard Association, said he hasn’t heard members describe the changes to the area negatively. A business development executive at Cort Furniture, which moved onto Boulevard in 2015, Cline described himself as among the newcomers reshaping the area’s makeup.

“The changes are really market-driven, supply-and-demand kinds of things,” Cline said. “There’s not much we can do as an association to manipulate the rules of supply and demand.”

He said the influx of development and new businesses has allowed Scott’s Addition to become a residential neighborhood, adding to a diversity of uses beyond its largely industrial past.

Referring to the association’s membership, Cline said: “I don’t think that they’re unhappy with what’s going on. Our residents have come to the neighborhood because there have been opportunities created by the developers for housing.”

Hise said she is happy to see the changes to the neighborhood, even if she has to leave it.

“I have loved seeing Scott’s Addition move forward over the years. It’s exciting and a good thing,” she said.

Hohman said he’s happy to see upward momentum in Scott’s Addition and his move next door has been a learning experience, while also representative of the market driving change in Scott’s Addition.

“This is good for Richmond; it’s good for the city’s tax base. This kind of gentrification, it’s just what happens,” he said.

“I thought I was part of this positive new change I saw in places like Lamplighter and Ardent… and I’m rapidly pressed out after just three years. That highlights how fast this is happening and how white-hot it is.

“As these things happen, there are natural winners and losers,” he said. “I’m trying to stay in the game.”

Correction: The lease for Auto Plus’s new space in Henrico County has been corrected to $5.75 per square foot triple net. The original story listed a higher number that was incorrect.

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3 Comments on "Current and former tenants adjust to Scott’s Addition boom times"

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Bruce Milam
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So, to refer to the BizSense story last week about Yogi Singh’s new office building, the rise in office rents ABOVE the asking price downtown and above Innsbrook, is really the story behind the story! This is remarkable.

Michael Dodson
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Overall improvements to buildings and higher assessments are good for the tax base and provide housing options but the lose of good paying, middle class jobs that locate to new properties outside the City limits (auto parts, Coca-cola factory, cookie factory etc) over the last several years is NOT good for the tax base or helpful in reducing poverty rates in the City.

Bruce Milam
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The city tax base has increased significantly with the replacement of those obsolete industrial facilities and the net increase of population has bolstered the city’s economic base tremendously. It’s not even a close comparison. These new jobs pay more and produce more revenue.

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