Thursday, April 19, 2018

Channelside Bay Plaza is latest real estate project for entrepreneurial pals

TAMPA — In 2006 the old downtown Mercantile Bank building sold for $9 million. The plan was to tear it down and build a 50-story condo tower. Oh, those were the days.

Then the downturn hit, and the real estate bubble collapsed. The building was in foreclosure when two investors stepped in last year and offered to pay cash at a severely discounted price — $2.2 million — and they wanted to close in just 10 days.

It was the first deal put together as partners for real estate investor Santosh Govindaraju and hotel developer Punit Shah. They plan to invest $14 million in the abandoned building and reopen it as a high-end boutique hotel, the Aloft Tampa Downtown, in 2014.

They have high hopes for their next joint venture: the two entrepreneurs want to buy and revive Channelside Bay Plaza, the decayed downtown entertainment retail complex.

"We're very proud to find solutions where others have not been able to see them," Govindaraju said.

Their plan for Channelside and for Aloft fits a pattern created by their previous deals: They pay cash for distressed properties so they don't have to deal with debt payments. Then they figure out what went wrong, fix up the properties and restore them to profitability.

Govindaraju, 39, is the money guy, the number-cruncher, the financier. A graduate of Tampa's Gaither High School, he went on to the Ivy League and then Wall Street. He's a father of three and the CEO and portfolio manager of Convergent Capital Partners LLC. He has overseen more than $600 million worth of investments.

Shah, 32, is the strategist, the architect, the builder. He dug ditches for the family hotel business at age 18. As a 22-year-old contractor he built his first home. He made his first million two years later. The president and COO of Liberty Group in Clearwater has managed and invested in more than $200 million in hotels and condos.

Raxit Shah, the 62-year-old founder and CEO of the Liberty Group and father of Punit Shah, thinks the partners have what it takes. Each complements the other.

"Santosh specializes in the financial more than Punit, while Punit is much more hands-on with construction matters," the father said. "It's a great combination of their talents.

"When you combine two smart people together, you get much brighter ideas."

• • •

Santosh Govindaraju was born in Bangalore, India, but raised in Carrollwood. His parents, Govindaraju Rudrapatna and Tara Govindaraju, moved here in 1980. Both are accountants for their firm Reliance Consulting LLC. Santosh ran track and cross country for Gaither.

Then he went to the Ivy League. Santosh was selected for the University of Pennsylvania's Jerome Fisher Program in Management and Technology, which only takes 50 students a year.

Santosh Govindaraju loved learning how to analyze and solve complex problems. That led him to a job as a fixed income derivatives trader at Lehman Brothers, where he put his skills to work using complex models to trade hundreds of millions of dollars in seconds.

But then he realized that he didn't fit in on Wall Street.

"I knew my views on life were very different because I was a Floridian," he said "You don't take life too seriously. You realize that not everything is the end of the world. I was too laid-back."

Govindaraju returned home to be closer to his family. Now he has one of his own. His wife, Ami, 35, is an occupational therapist with the Hillsborough County School District. They have three boys: Vinay, 9, Samay, 5, and Savin, 3.

He also found a new puzzle to solve back home: commercial real estate. He started Paragon Mortgage in 1999, which became Paragon Capital Partners and today is Convergent Capital Partners LLC. In just the past four years, his company has acquired and restructured more than $400 million worth of real estate holdings.

"I enjoy the intellectual rigor of solving complex problems," he said. "I may not have the opportunity to solve the world's problems. But the problems we take on in commercial real estate, we can solve and have an impact in a short period of time."

Govindaraju said part of his approach is overcoming the deep "biases" that can hold back more experienced hands in their respective industries. That approach served him well when he and two partners bought the Emerald Greens Golf Resort & Country Club in 2011.

They upgraded the clubhouse, the amenities and especially the greens — investments some other courses don't make, Govindaraju said. They also took a more hospitality-oriented approach, adding services. While other clubs lost membership, their club took on 200 new members in the past two years.

"Everyone kept saying this is the way it's always done, this is the way we have to do it," Govindaraju said. "We kept saying why? Why? Why? That doesn't make business sense to do it that way."

• • •

Raxit and Ketki Shah and their two sons Punit and Prem moved from Toronto to Liberty Township, Ohio, in the late 1970s.

They started the Liberty Group in 1981, naming it after their new home. Their first acquisition was a 200-room Comfort Inn. They would go on to buy 20 hotels in all.

"My dad thought that name was prosperous," Punit Shah said. "So it stuck."

Prem chose medical school. Punit chose the family business.

"He would sit in the meetings with me," his father said. "He tried to write everything down. And on the way back he asked me all these questions about the financial and construction side."

Punit Shah would get his degree in hospitality management from Boston University, where he met his wife, Carla, now 29. While he was in college, the family was building a hotel. Punit Shah shadowed the builder, asked questions, even grabbed a shovel.

His father then brought Punit Shah into the management ranks just as Raxit Shah sold the family's hotels. Suddenly there was nothing for the son to manage.

"It was kind of a shock to me," Punit Shah said. "But it also made me go out and find my own way and come up with my own game plan."

His parents, now semi-retired, moved to Florida in 2004. They brought what was left of Liberty with them. Punit Shah followed a year later to build his own real estate fortune.

At age 22, he hired subcontractors and oversaw construction of the family's new home in Tierra Verde. At 24, he made his first million on a new St. Petersburg condo development. But his next project, another St. Petersburg condominium deal, cost the family millions as the real estate market crashed.

"I think it was the best thing that could have ever happened to me," Punit Shah said. "It happened so early in my career that now it allows me to weigh the risks and rewards of every investment we do. Now I understand the downside of things."

He also understood the downside of the hotel business. When his parents sold their northern holdings during the boom, Punit Shah knew that it was at an unsustainable price. The new owners would never survive.

When the crash came, Punit Shah knew there would be plenty of distressed hotels on the market in Florida — and his family would have the cash and know-how to turn them around.

"We couldn't understand how they were going to survive at the prices we were selling them to the new owners," he said. "We realized there would be opportunities to obtain new assets at discounted values.

"We waited patiently until the opportunity presented itself and we struck in early 2010 to execute our business model."

Like Convergent, Liberty also pays cash. No leverage means no pressure to make debt payments. The family's company became adept at taking distressed properties and rehabilitating them. They use their hospitality experience to better manage the properties, restoring short-term cash flow while positioning the assets to grow more valuable in the long-term.

Shah's role is to analyze the properties, oversee the redesign and reconstruction and put new management in place. He now manages more than 3,000 hotel rooms.

"We're not flippers, we're not looking for short-term gain," Shah said. "We're long-term investors. We try to find properties that we can reposition to create long-term value."

• • •

The two men had known each other socially for years, and Govindaraju became a mentor to Shah. They had even worked together from time to time. They were both in real estate, both shared the same business philosophies.

"Our philosophy is that we're both very conservative in the types of investments we make," Shah said. "We're both very ambitious, and I think we're very disciplined in the types of decisions we make. We're very detail-oriented in everything we do."

In choosing to remake Channelside Bay Plaza, the pair have taken on a challenge that St. Petersburg developer Bill Edwards and Tampa Bay Lightning owner and hedge fund manager Jeff Vinik could not make work on their own terms.

Over the years, the Channel District attraction has slowly lost restaurants, shops and even its only theater as the complex fell into foreclosure and neglect. But the financial and legal obstacles have finally been laid to rest. The window to fix Channelside is now.

Govindaraju and Shah went public last week with their new joint venture, Liberty Channelside LLC. They've signed a deal to buy the lease from the bank for an undisclosed sum of cash.

They want to make it a true "mixed-use lifestyle center" by adding work space, remaking the facade and bringing in the kinds of restaurants and shopping that will create a steady crowd day and night. They want to appeal to the young, discerning residents of Tampa's new urban core, and attract tourists and hockey fans. They also pledged to work closely with Vinik, who has become a major player in the Channel District. The new Channelside should be ready by 2015.

But they also want concessions from the Tampa Port Authority: Liberty Channelside wants to build a new hotel on a nearby parking lot, halve the usual rent, sign a 40-year lease and have the authority pay $1 million toward pedestrian bridges to the parking garage.

The authority owns the land beneath the complex and must approve the deal. Next month the port's governing board will vote on whether to approve Liberty Channelside's purchase of the lease, and their plans to turn around the failing property.

"This is our first foray into retail," Shah said. "But the fundamentals of distressed properties are always the same. We have to make sure, just like we do with our hotels and other ventures, we address capital improvements and the rebranding strategy.

"It's really no different than any other real estate investment that we've made. It's something that's very doable."

Times researcher John Martin contributed to this report. Jamal Thalji can be reached at [email protected] or (813) 226-3404.

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