Hagerty Buildings Sold, Netting Fuel For Growth

The largest employer in downtown Traverse City has sold the buildings that house its headquarters and most of its employees.

Hagerty Insurance, as part of its long-term capital plan, has sold Buildings 7 and 8 (pictured above) as well as a data center located off Hammond Road in Garfield Township in what is known as a sale-leaseback transaction to Chicago-based Capri EGM.

Growing in popularity in recent years, a sale-leaseback allows a company to reduce its investment in non-core business assets – specifically, land and buildings – and frees up the capital to invest in its core business.

The sale of the properties will not affect Hagerty’s ownership, Hagerty leadership reassures, with the company continuing as a privately-held business. As part of the sale, Hagerty has a 20-year lease to continue to occupy the buildings with renewal options.

“It’s a long-term arrangement,” says Barbara Matthews, general counsel for Hagerty. The company also has a 12-year lease for the building at the corner of Union and State streets (former home of The Bank of Northern Michigan). It moved its information technology and security functions, some 70 employees, into that space in January.

The real estate transaction with Capri EGM closed last week. No financial details were disclosed.

“We continue to operate the buildings, continue to be responsible for the maintenance, the taxes,” explains Matthews. “There is no change for employees.” Real estate investment manager Capri EGM is a “huge player” in sale-leaseback transactions, according to Matthews.

The sale allows Hagerty to invest the capital infusion in jobs and infrastructure, says Coco Champagne, senior vice president of human resources. She says the company launched an effort in November 2015 to hire 120 new employees by the end of 2016. Of those, approximately 90 will be based in Traverse City. Those hires include senior-level executives, including an addition to the legal team and a vice president of content, data analysts, marketing professionals as well as entry-level positions.

“We are committed to the economic development of a vibrant downtown and a regional gateway to business growth in northern Michigan,” says CEO McKeel Hagerty, of the reinvestment of capital.

Sale-leaseback transactions can have a multitude of benefits, including setting one’s own lease terms, control of real estate, tax savings and even greater value to the real estate.

By the end of the year, Hagerty will have close to 650 employees based in Traverse City and 800 in total – including a call center in Denver, offices in the United Kingdom and Toronto and sales professionals around the country.

When the company moved into Traverse City's Midtown neighborhood in 1999, it had a staff of 75 and occupied roughly 21,000 square-feet in the River’s Edge condo tower. In the mid-2000s, the company constructed the three-story, 28,800 square-foot building on the northwest corner of Cass and Lake streets that now serves as its main building. Today, the company occupies some 110,000 square feet in the River’s Edge commercial and residential development.

And though Matthews says that downtown’s skyrocketing property values are a factor, companies like Capri EGM apply their own financial models.

“Our main reason for the sale-leaseback is to invest in talent and smart infrastructure for active growth of the business,” says Champagne. In addition to the workforce investment, the company needs to invest in systems such as telephony, IT and more.

“The timing [of the transaction] is more about the right time to invest in our business to maximize growth,” she adds.