Stacey Corso is the editor of Real Estate New York

NEW YORK CITY-Since Timothy Callahan took over the reins at Trizec Properties about two years ago, a number of changes have been implemented within the Chicago-based office REIT. Today, Callahan detailed the direction in which his company will be heading.

"We have gone through lots of changes in the past 1.5 years," he told a crowd assembled a breakfast meeting sponsored by the Real Estate Lenders Association in Manhattan. "We have a portfolio of about 43 million sf and some $5 billion in assets. Currently, 80% of our holdings are located in Atlanta, New York City and Washington, DC."

This shift in strategy came on the heels of Trizec's $201-million disposition of the Hollywood & Highland retail/entertainment center in Los Angeles. The sale includes the Renaissance Hollywood Hotel and the Kodak Theatre. CIM Group acquired the property through its CIM Urban Real Estate Fund.

"We are going to be reallocating our portfolio," Callahan shared, "and concentrating on our seven core markets," although Trizec plans on being very selective within those cities. The markets are: Atlanta, Chicago, Dallas, Houston, Los Angeles, New York and Washington, DC. However, we "still have to moderate where [acquisition] opportunities are. We will be buying assets where we can improve their quality."

For instance, it's "very hard to buy [office properties] in New York City right now," he confided, adding that while Trizec has bid on several office buildings in Manhattan over the past two years, it has often come out of those competitive processes as the low bidder.

But he added that the firm plans to dispose of "lots of our properties" and pursue joint-venture opportunities whenever the deal makes sense. At the moment, Trizec's portfolio is trading at a 9% cap rate.

Moving forward, Callahan said Trizec will pay close attention to investing in a few cities where office market fundamentals have deteriorated since March 1999, such as Seattle, Denver, Houston and San Francisco. In those markets, Callahan foresees "little or no new construction going on," but a healthy amount of office leasing taking place. In Dallas, Trizec completed nearly 60% of its planned leasing activity for the year and it's only March.

In terms of national office market conditions, he projects that overall vacancy rates will average 15% by March 2005, based on Torto Wheaton research. From a capital markets perspective, investors still value REIT stocks and should continue to have faith in them, he contended. Pension funds are starting to allocate, in some cases, 10% of their portfolios to real estate stocks.

But there are still some wildcards that could affect the office market, even though employment levels are starting to stabilize, Callahan noted. "When will economic growth equate to employment growth?" he pondered. "And when will there be productivity gains instead of no hiring?"

He also said global offshoring effects have begun to impact corporate America. In 2004, the office sector will improve, he said, but the real tangible recovery will come in 2005. "It will be a very uneven recovery based on where construction deliveries are."

Instant Insights /

Trizec Shifts Focus to Core Markets

Related Stories

Recommended For You