02/09/2023 | by Sarah Borchersen-Keto
Armada Hoffler’s Town Center of Virginia Beach development
Armada Hoffler’s Town Center of Virginia Beach development. Photo courtesy of Armada Hoffler.

Lou Haddad, president and CEO of Armada Hoffler Properties, Inc. (NYSE: AHH), said the REIT’s new BBB investment grade rating from DBRS Morningstar has been “many years in the making,” and reflects the company’s healthy assets, stable balance sheet, and dominant market position.

Based in Virginia Beach, Virginia, Armada Hoffler focuses on high-quality office, retail, and multifamily properties located primarily in the mid-Atlantic and Southeast. Armada Hoffler was founded over 40 years ago and went public in 2013.

Haddad said the credit rating will allow the REIT to access the private placement bond market, giving it the ability to sell longer dated paper, typically seven to 10 years. “That adds an awful lot to our stability versus the bank debt that we relied upon in the past,” he said.

Armada Hoffler has no immediate need of capital, and markets are “somewhat disheveled,” Haddad said. However, the company is “standing by ready to move when market conditions stabilize,” he added.

Turning to its office portfolio, Haddad noted that its buildings are full, “with our biggest problem being that we don’t have enough space to accommodate all the tenants that want to expand. In our locations, trophy office buildings are few and far between, and the ones that are here, we own—and they stay full.”

Haddad said the REIT takes a long term view, one which is shared by its tenants. “Our two biggest tenants expire in the middle of the next decade,” he added, while the majority of tenants are investment grade-rated companies.

“What we have found over the years is that trophy office buildings in mixed-use environments tend to stay full. That was the case in the 2008 recession, in the 2001 recession, and the 1993 recession, so we have a lot of history with these things being what they need to be,” Haddad said.

Tenants Looking to Increase Space

One of Armada Hoffler’s notable projects is The Town Center of Virginia Beach, a multi-phase development that started in 2000 as a public-private partnership between the City of Virginia Beach and Armada Hoffler. Haddad said the REIT is “actively working to shoehorn more tenants in.”

The company recently surveyed its 40 largest tenants at Town Center, hoping to find someone willing to give back space. “Instead we found half a dozen that wanted to expand,” Haddad said. Although the development is 98-99% full, “at the same time it’s not the right time to launch another phase of the development, as much as the city would like us to do so. We want to wait until construction prices stabilize and the market stabilizes somewhat,” he said.

Elsewhere, and also counter to macro market trends, Armada Hoffler is expanding a headquarters building for T. Rowe Price Group Inc. in Baltimore. The original plan was for 450,000 square feet, but T. Rowe Price increased the footprint to 530,000 square feet, Haddad said. T. Rowe Price expects to bring around 1,700 employees to the property, with delivery expected in summer 2024.

“We’re basically in a stay-the-course mode, buildings are all full. Construction is at an all-time high… we really just need to execute and watch the growth roll in,” Haddad said.