Fenley - News

Fenley buys out partners,

reshapes real estate firm

(Louisville, KY) The dust is finally starting to settle at the offices of Louisville's Fenley Real Estate after a frenzied five-month period that saw its principal, David Fenley, buy out most of his partners, complete the financial restructuring of the company, start several new business ventures and open a new hotel.

He described 2008 as "a whopper of a year."

"I've pushed all my chips in," said the 40-year-old president and CEO of the commercial real estate firm.

For Fenley, who has held the top post at the company for the past 15 years, the stakes certainly have gotten higher.

Backed for years by family members and some of the community's most prominent business leaders, he finds himself today in control of one of the state's largest portfolios of Class A office space.

Fenley had owned a 20 percent stake in the company and its holdings. He reached an agreement at the beginning of the year to raise that stake to 60 percent by buying his partners out of the portfolio and the Fenley firm's operating companies for real estate and asset management, leasing, construction and development.

Twin brother Stephen Fenley, who directs special projects for the real estate firm, maintained a 40 percent ownership stake.

The partners who sold their interests included older siblings Joe Fenley and Jennie Gomez.

Business leaders Nolen Allen, chairman emeritus and co-founder of Cotton & Allen PSC accounting firm; Clyde Ensor, co-owner of Hesco Parts Corp.; Mike Ehrler, retired co-founder of Ehrler's Dairy Inc.; and Joan Day, president of The Cralle Foundation Inc., also were bought out in what Fenley called a "mutual decision."

The former partners could not be reached for comment this week.

The total buyout cost was not disclosed, but Fenley secured a $109.5 million mortgage financing package from Norwalk, Conn.-based GE Real Estate, a business unit of GE Commercial Finance, to cover the acquisition of the remaining stake in the Fenley company's 13-building Louisville Class A office portfolio. The acquisition and financing package closed May 1.

Deal secured in 'volatile' market conditions

To say that structuring the deal was difficult would be an understatement.

"The market, for all practical purposes, as of Jan. 1 became so volatile that (no one could)... hold deals together," Fenley said. "The market was constantly changing."

Jeremy Chism, who helped arrange the financing on behalf of Fenley, told him in February that the deal wouldn't get done, according to the Louisville developer.

Chism, vice president of the Memphis, Tenn., office of the CB Richard Ellis capital markets debt and equity finance group, declined to say he was skeptical at the time but admitted that the financing climate was far from ideal.

"It was definitely a tough environment," Chism said. "The market has gotten even worse since we've done the deal."

Officials with GE Real Estate also could not be reached to comment.

11 buildings in suburbs, two downtown

Fenley's 13 office buildings, all located in Louisville, total more than 923,000 square feet. They are better than 90 percent leased to more than 100 tenants, including Semonin Realtors, Doe Anderson Inc., the Kentucky Medical Association and Greater Louisville Inc., the metro chamber of commerce.

Specifically, the Fenley holdings include: five buildings totaling 368,000 square feet at Hurstbourne Green's Corporate Campus; three buildings totaling 153,000 square feet at Fenley Office Park, which is on the northwest corner of U.S. 42 and Lime Kiln Lane; and two downtown buildings totaling 142,000 square feet — the Doe Anderson Building at 620 W. Main St. and the 614 Building at 614 W. Main St.

The other properties in the portfolio are: 119,000-square-foot One Olympia Park Plaza in northeastern Jefferson County; 104,000-square-foot One Triton Office Park at Eastpoint Business Center; and Browenton Place, a 38,000-square-foot building located at 2000 Warrington Way.

Kroger bought Fenley building in January

Over the years, Fenley has explored several options for the office holdings, including selling some or all of them.

Only two buildings were ever sold.

One was the Kentucky headquarters of Anthem Blue Cross and Blue Shield, located in Eastpoint. That building was purchased by a group of Illinois investors in 2005 for $40.2 million.

The other was a vacant, 85,000-square-foot building in Hurstbourne Green that The Kroger Co. bought in January to house its Louisville-based Mid-South division office. The purchase price was $8.95 million.

Since closing the recapitalization deal in May, Fenley said, he has worked to assure employees and tenants who had been nervous about the future that additional sales are not part of his business plan.

"I live here," Fenley explained. "I've grown up here. My family's here. This is where I'm rooted. I have no real ambitions to liquidate everything I have here."

Strengthening his position

Prior to his recent moves, Fenley's name already was among the most well-known in local commercial real estate circles.

His company owns more multi-tenant Class A office space than any other locally based private developer. Its local office portfolio trails only that of Dallas-based Behringer Harvard REIT I Inc. in total size.

Behringer Harvard's Louisville holdings total 1.3 million square feet.

By buying out his partners, Fenley cements his reputation as "one of the big players in town," according to George Chapman, managing director for the Kentucky/Southern Indiana office of Integra Realty Resources Inc., a firm that tracks the local real estate market.

"He certainly has a prominent position in the (real estate) community," Chapman said of Fenley. "He knows virtually everybody" who is looking for commercial space.

Chapman added that, with sole control of the company, Fenley has "much greater flexibility" to do what he wants in terms of investment and growth.

Displaying confidence

While the advantages outweigh the disadvantages in an arrangement such as Fenley now has, Chapman warned that there can be some significant downsides.

"When the market goes south, he's got a larger exposure," Chapman said. "If you are not well capitalized... lenders do come knocking."

Chapman stressed that he has no knowledge of Fenley's financial strength.

Fenley admitted that being out on his own is "a scary proposition" but said just as quickly that he is confident in his abilities and financial status.

He said he never has overbuilt during boom times and has managed company assets conservatively during down times.

Still, he's a bit surprised at where he is, Fenley said, especially since talk of buying out his partners didn't even begin until last fall.

"This time last year, I hadn't even contemplated it," he said. "I didn't even know it was achievable. I hadn't thought that big."

As reported in BUSINESS FIRST Online, October 17, 2008