Houston-based Midway and Orlando-based Parkway Property Investments have entered into a deal to create a new real estate firm, with the aim of capitalizing on investment opportunities across the southern United States.
The deal is expected to close in the third quarter of 2023. The new company, which will operate under the name Parkway, will bring together complementary capabilities to invest in, operate and manage commercial properties, the companies said.
“What we have here are two companies with a combined 100 years of experience in real estate ownership and related activities coming together, taking the best parts of each company and creating something truly special,” Midway CEO Brad Freels said in an interview.
Jayson Lipsey, CEO of Parkway added, “We believe the rapid and ongoing evolution in how people choose to live, work and seek entertainment presents amazing opportunities for our combined resources. Midway’s extraordinary development and placemaking capabilities together with Parkway’s broad capital market expertise will provide the scale, efficiency and financial strength to engage and respond proactively to these trends and drive enhanced stakeholder value through market cycles.”
The idea to form a new company grew out of conversations between Midway and the legacy Parkway company about two years ago, Freels said. Parkway reached out to Midway to discuss ways to add mixed-use elements to existing properties in its portfolio. But soon the two companies saw the opportunities that could be created by combining Midway’s development experience with Parkway’s experience in raising capital and finding properties across the country worth investing in, Freels said.
“It all just made so much sense,” he said. “Parkway brings the capital and the relationships with the investment side. Midway brings the investment and the development side, mixed-use in particular." That said, the two companies stressed that the new company is not the result of a merger. "This is more of a combination," Freels said. "To do a merger, we would have had to value all of our assets and get all of the partners to sign off on the sale of the assets.
No assets are trading hands. This is really taking the strengths of each company and putting them together in a new company." When it goes live later this year, the new Parkway company, which will be based in Houston, will have a combined 45 million square feet of assets under management and 300 employees.
The new company will see Freels and Parkway Property Investments Chairman Jim Heistand team up as co-executive chairmen, while Lipsey and Midway President and COO Jamie Bryant will serve as co-CEOs.
The new company will offer a range of services, including acquisitions and dispositions, asset management, investment and development, accounting services, property operations and management, construction management, REIT compliance and governance, mergers and acquisitions, marketing and communications, strategic leasing, and portfolio repositioning, Lipsey said.
The Midway brand will continue to exist, Freels said, and will serve as the exclusive developer for the new company. Bryant said the two companies decided to name the new entity Parkway to capitalize on Parkway’s national brand recognition. While Midway’s business has primarily focused on the Texas market, especially here in Houston, Parkway Property Investments has investments in 15 markets, stretching from Virginia to Arizona.
“We thought it made sense to capitalize on that national name recognition,” Bryant said. Going forward, Lipsey said the new Parkway will target investments across the Sunbelt.
“The Sunbelt has had extraordinary momentum over the past 20 years, and we only see those continuing to accelerate,” he said. “The kinds of places we’re targeting are the Raleighs, Nashvilles, Atlantas, Miamis, Austins and certainly Houston.” Freels added that being able to build on Parkway Property Investments’ experience outside of Texas is an advantage for Midway.
“If we wanted to take advantage of some of the market disruption you’re seeing in the Sunbelt, it would take us 10 years to build what Parkway has already built in terms of scale and infrastructure,” Freels said. “Conversely, for Parkway to take advantage of the development opportunities, they’d have to build out the expertise we have built in developing mixed-use assets. It accelerates the growth potential on both sides.”
The two legacy companies will continue to own and operate the properties in their respective portfolios, including Midway’s CityCentre and East River projects and Parkway’s Greenway Plaza properties. However, any investments undertaken after the new company goes live will allow for participation from partners at the two legacy companies.
“Brad and I have been very consistent,” Heistand said. “We like to have people in the organization participate in the success of the projects. You want people on the ground to know they’ve got a vested interest in the success of those projects. We both feel the same way.”
So, why launch a new company in an uncertain market, knowing that both Midway and Parkway Property Investments have found success independently for decades? Freels said the uncertainty facing the commercial real estate market was exactly the reason the two companies decided to come together right now. Rising construction costs and tight capital markets are likely to slow development. However, rising interest rates may forces more property owners to sell off, rather than carry excessive debt on their balance sheets, Freels said.
“The displacement in the market is going to result in a lot of opportunities to make strategic acquisitions,” Freels said. “Cycles come and go. There will be a different set of circumstances three years from now and even more five years from now. What this does is give us the flexibility to take advantage of whatever the market gives us.”
Houston Business Journal