As the fourth-generation steward of Fidelity Trust Company, Matt McGauley has steered the Chattanooga venture his great-grandfather launched in 1912 toward commercial real estate development, with an emphasis on adaptive reuse of historic buildings and ground-up projects.
As the president and CEO of SVN | Second Story Real Estate Management and commercial developer Lamp Post Properties, Tiffanie Robinson has made it her professional mission to provide quality management and attractive returns for her partners.
Now the companies McGauley and Robinson spearhead have joined forces to offer enhanced management, deliver strong returns and help shape Chattanooga into a town they can proudly pass on to their children, the pair says.
“We’ve aligned our core values and love for Chattanooga,” a news release quotes McGauley as saying. “Our combined resources will allow us to make a greater impact on the city we love.”
The partnership has two distinct components. The first is a collaboration between Second Story and what McGauley has rebranded FTC Development, while the second brings the real estate portfolios of McGauley and Lamp Post Properties under a single company called Aslan Holdings.
The first component is akin to a firm handshake between business partners. While Second Story and FTC remain separate entities, the companies are working together, with the former handling the latter’s property management, maintenance, leasing and brokerage services.
This gives McGauley the breathing room he needs to focus on development.
“FTC has evolved differently under each generation of management. It’s always been a commercial real estate company but it’s also navigated the personal passions of its leadership,” McGauley explains as he takes a seat beside Robinson in Second Story’s space in Loveman’s on Market. “Under my father, [Mike McGauley], it was a brokerage company, but I love dealmaking and seeing buildings come out of the ground.”
McGauley discovered his passion for what he calls “the creative side of commercial real estate” after he purchased the historic Hamilton Hotel in 2007 and renovated it as a home for tenant River Street Architecture.
The project was one of the early efforts by a Chattanooga developer to focus on sustainability, McGauley claims, and he adds the River Street Architecture makeover became the first LEED-certified project in Hamilton County.
As McGauley purchased and overhauled more downtown properties, FTC continued to provide its legacy services. This burdened McGauley with running the company and managing its staff and took him away from the work he loved.
McGauley says turning FTC’s non-development tasks over to Second Story frees him to focus on historic rehabs and raising new buildings.
“Second Story can do what it does really well and I can concentrate on the projects I have in the works,” McGauley says before expelling a deep breath to emphasize his relief.
Like FTC, Lamp Post Properties concentrates on adaptive reuse. Established in 2016 as an extension of venture incubator Lamp Post Group, Lamp Post Properties has a portfolio that includes The Tomorrow Building, Loveman’s on Market, the SmartBank building and other Chattanooga renovations.
The second component of the merger gives Lamp Post Properties and FTC ownership of the companies’ combined property portfolios under Aslan. This in turn provides Second Story with nearly 2 million square feet of commercial, mixed use and multifamily properties to manage, according to the news release.
Aslan also opens the door to mutually developed projects, including an adaptive reuse in Chattanooga’s North Shore community that’s currently under construction for an unannounced tenant. As partners on the endeavor, McGauley and Robinson are aiming to combine their renovation of a 30,000 historical building with a ground-up component.
“The project will offer an interesting juxtaposition between refurbishing an historical structure and adding a new wing,” McGauley notes. “The two kinds of architecture are very different but work well together.”
Whatever the nature of an upcoming project, McGauley and Robinson say they want to be good stewards of their city.
“We want to help preserve the beautiful architecture that’s defined Chattanooga for over a century, but we also want to take advantage of the opportunity to building new things,” Robinson points out.
“Tiffanie and I are both from Chattanooga, and we have families and young children who are growing up here, so when I look at a project, I think about what Cherokee Boulevard, Cherry Street and Riverfront Parkway need to look like when my kids are older,” McGauley adds. “We’re not part of a big outside group that’s simply looking for a return on its investment, we see ourselves as stewards of this community.”
Robinson points to The Tomorrow Building as a project in which Lamp Post Properties has great pride. Located in Chattanooga’s city center, the rehab of the more than 130-year old building (which has been home to the Ross Hotel, Midtown Music Hall and the restaurant Yesterday’s) crossed the finish line first in the race to develop a co-living space in the southeast U.S.
Although packed with amenities, Lamp Post Properties set aside 20% of the space for affordable housing.
However, while Lamp Post Properties and FTC are now operating under the same umbrella, they do not exist in a bubble, so their efforts to be good stewards of Chattanooga is pitting them against the dire market forces that are shaking the foundations of developers nationwide.
Chief among these is the ability to locate land or an older structure and build something they can rent for a sustainable price. Development costs are making this difficult, Robinson says.
“No one wants to come out of the ground with the highest rents on the block because you’ll probably be the first one to fail. But with construction pricing being what it has been the last two years and financing becoming more expensive, rents that are even higher are probably going to hit the streets in 24 months.”
“Costs have gotten out of control,” McGauley grouses. “It’s really expensive to build and develop right now. And rent is a function of what you put into it and what you have to charge. It’s rarely arbitrary.”
Construction costs are not the only factor impacting development, McGauley continues. Increasing property taxes are also forcing rents upward.
“Look at what’s happened with property taxes in Chattanooga over the last decade and compare that to rents. Taxes have gone way up in this community. In fairness, they were lagging behind for a long time, and over the last few assessment cycles, the assessors have tried to catch them up to where they need to be.”
Insurance costs are rising, too, Robinson says. To combat the issue, Second Story is looking at ways it can mitigate costs through multifamily insurance rates and is researching insurance programs that would allow it to aggregate its properties.
“Any penny you can save on multifamily is huge because it’s so expensive,” Robinson adds, drawing out the word “so.”
There is good news for commercial landlords who have office space to lease: the pandemic did not end office, despite predictions that the mass exodus at the onset of the pandemic would be permanent.
Rather, office is alive and well, Robinson says, who in October 2020 told the Hamilton County Herald it wouldn’t disappear but would simply take a different form. (See “No off switch for Lamp Post CEO” published Oct. 2, 2020.)
“People around me were saying office would disappear, but that’s not what we’re seeing,” Robinson points out.
McGauley says many Chattanooga companies are returning to an office, but instead of seeking a fully open space – as had become fashionable – they’re looking for an environment that offers a balance of public gathering spots and private offices.
“People still want a great vibe when they go to work, but they realize maybe they went too far in that direction,” McGauley says. “They don’t want to be crammed in, either, so they’re not going back to the traditional office.”
McGauley is also pleased to say companies are generally leasing more – not less – space. Although he estimates most businesses are building to accommodate about 80% of their workforce on any given day, the post-pandemic awareness of the need for elbow room is actually prompting them to upsize.
“Even when the number of seats and capacity is lower, companies need more square feet per person so its employees aren’t as crammed in as they used to be.”
With investors from around the country eyeballing Chattanooga as a moneymaking opportunity, companies like FTC and Lamp Post Properties are beginning to feel crowded. But McGauley says that is only motivating him to double down on protecting the character of the city and work twice as hard to identify opportunities.
“People are worried about all of the out-of-town money that’s coming in and snapping up large chunks of real estate,” McGauley says. “But Tiffanie and I are both Chattanoogans and we love this city, so we’re pulling our resources together in an effort to protect its history and its character and its real estate.”