GlobeSt.com UPDATE: $249M Deal Will Fuel Market Center Expansion

DALLAS-The 4.8-million-sf Dallas Market Center's executive team is gaming out a growth plan for the soon-to-arrive $71-million capital infusion by CNL Income Properties Inc., a one-year-old REIT marking its first acquisition in the metroplex and second for the fund.

"We are looking at a couple things," says Bill Winsor, president and CEO of Dallas Market Center. He tells GlobeSt.com that growth could come via the acquisition or development of additional trade shows or possibly a new building on the 50-plus acre tract, which has room to build with 9,000 surface parking spaces and two 1, 000-spot garages primed for vertical construction. Or, it could be that both ideas will become reality as a result of the Orlando, FL-based CNL's buy-in. For previous story, click here.

The transaction will close in phases, with the first leg to be done by the quarter's end. Crow Holdings will collect $38 million of CNL's $71-million equity stake and the balance will come before June 30. In all, the partnership is seeded with an $89-million equity pledge, of which the remaining $18 million represents the 20% ownership interest of Dallas Market Center Co. Ltd., a Crow Holdings affiliate. According to the SEC filing, CNL has put $3 million of refundable earnest money into an escrow account that will be credited toward the purchase of its 80% equity interest in the partnership.

R. Byron Carlock, CNL Income Properties' president, admits the REIT has a bit more cash to raise to make the deal happen, but doesn't foresee any roadblocks for a fund focused on acquiring diverse properties that "are reflecting demographic changes in America." With money to spend from a near $100-million capital-raising campaign, Carlock put an offer before Crow Holdings for a property with the right criteria and return. Dallas Market Center annually is the staging ground for $7.5 billion in wholesale transactions.

"It was an easy phone call to make," says Carlock, who ran Crow Holdings' capital markets group until 1997 when he moved to CNL. "I think the world of that organization."

Carlock says Crow's first reaction was "no," but its leaders warmed up to the idea by midsummer. "They saw other people trusting their business growth to CNL," he says of deals, primarily hospitality and retirement properties, by the group's many affiliates. "They began to know that CNL would hold it long term and help them grow it long term. And, I think that probably helped." He says the decision was further influenced by the synergy among Harlan Crow and Anne Raymond, the seller's CFO and managing director, and James Seneff, CNL chairman, and Thomas Hutchinson, its CEO.

"We really believe this is going to be a seamless transition," says Gina Norris, managing director of Crow Holdings. "That was very important to us."

Winsor says it's possible to develop "a show within a show" like teens and "tweens" or Quinceanera trunk shows. Texas, he points out, has five of the largest Hispanic-populated cities in the nation. "It's a niche market that would continue to fuel our product mix," he explains, adding last year's development of FashionCenterDallas clearly "demonstrated to us and our customers what reinvestment can do."

The 95%-occupied Market Center showcases 29 industries' new designs for the wholesale retail world. The annual circuit has 50 trade shows laced with a cross-merchandising strategy that's most likely going to expand due to the CNL buy-in, says Cindy Morris, COO for Dallas Market Center. And beginning in January 2006, Crow Holdings' 45-year-old Market Center Management Co. will replace the seven-year operator of the temporary shows.

"We're constantly looking at opportunities," Winsor says. "We do this as a normal course of business. Nothing is committed, but we are looking. It's the best of both worlds for us to convert some of our real estate to cash and have a strong partner."

In mid-December, CNL spent its first cash from the pool, setting up a similar partnership with Intrawest Corp., a leading destination resort and adventure travel company based in Vancouver, BC. And like Dallas Market Center, the crux of the strategy is to invest in companies poised for high yields due to retiring Baby Boomers.

The Dallas Market Center acquisition is the first in two years in the region for a CNL entity. In December 2002, CNL Hotels & Resorts bought the Doubletree Hotel at Lincoln Centre and re-christened it to the Hilton Dallas. The CNL group has bought more than $15 billion in assets, manages another $2.5 billion for third-party investors and has interests in more than 5,100 properties in North America. CNL Income Properties invests in real estate focused solely on recreation and lifestyle segments.