A publicly traded owner of Sun Belt office buildings has agreed to be taken private in a $1.1B merger with a subsidiary of hedge fund Elliott Investment Management.

MCME Carell reached a deal to acquire the outstanding shares of City Office REIT for $7 per share, a 26% premium to the stock’s last close, in an all-cash deal, the firms announced. The merger agreement is set to close by the end of 2025, according to a release.

“After conducting an extensive process to explore potential strategic alternatives, we are pleased to have reached an agreement with MCME Carell,” City Office CEO James Farrar said. “In light of a challenging environment for the office sector, this transaction delivers immediate and significant value to our shareholders.”

City Office is based in Vancouver, Canada, but primarily owns and operates offices in Sun Belt markets, with more than 5M SF of assets in markets like Tampa and Orlando, Florida, Dallas, Denver and Phoenix.

The company will pay its announced second-quarter dividend but stop future quarterly payments until the expected close of the transaction at the end of the year. The agreement also includes the sale of the company’s Phoenix portfolio.

Its share price increased to its highest point since March 2023, rising 24% in morning trading to $6.88 per share as of Thursday afternoon. It is up 26% since the start of the year.

South Florida-based Morning Calm Management, another affiliate of MCME Carell, said the deal reflects a continued belief in the recovery of the office sector. Elliott has backed recent deals with Morning Calm, including the $443M purchase last year of a Miami office tower.

The national office market has struggled to fall back in step since the pandemic. Record-high vacancy rates have continued to plague the market, reaching nearly 21%, according to a Q2 Moody’s report. Troubled CMBS loans are putting added pressure on the market.

Since 2019, office vacancies have climbed nearly 4 percentage points, while the proportion of delinquent CMBS loans tied to office buildings rose to an all-time high of 14.3% in June, according to Moody's.