GlobeSt.com EXCLUSIVE: Class A Sales Stacking Up in Dallas

As negotiating paces pick up for the properties, more class A assets have hit the streets as sellers look to mine sales from an increasing number of institutional investors shopping Dallas and its suburbs. "I don't necessarily think it will continue all year," Charles Bissell, managing director in Dallas for the New York City-headquartered Integra Realty Resources Inc., tells GlobeSt.com, "but I think we'll continue to see a pretty heavy sales volume for awhile. Relative to most other markets, Dallas looks like a place you can get pretty good rates of return." Most deals under contract or pushing toward a signing are being locked down at below replacement costs, he says.

"Clearly the main driver is the thought that the economy is improving," says M. Jason Mattox, SVP for the Dallas-based Behringer Harvard, a composite of funds for opportunistic acquisitions. "Dallas has posted historically high job growth numbers compared to other Sunbelt cities and it's poised to do that again."

Mattox says Dallas has gotten particularly competitive these days despite the flood of properties. Foreign investors, with higher exchange ratios, and TICs are pushing up prices for opportunistic sales and making it tough for hometown investors to win more pieces of the city.

The surge in listings and investors' interest are sure signs of the market's recovery. "They are buying now in a market in the low 80% with the expectation that it's going to trend up for the next four or five years or even 10 years," Bissell says.

The Chicago-based EOP reportedly is deep into talks with four institutional investors for all that it owns in Texas: a 4.2-million-sf, 14-building portfolio in Dallas and 2.7-million-sf, seven-structure package in Houston. Word on the street is prices primarily are upward of $90 per sf for the Dallas space.

"We do not comment on specific transactions we may or may not be considering," says Matt Gworek, Equity's SVP of investments. "While Houston and Dallas are not identified as long-term growth markets for EOP, that does not mean asset sales in these markets are imminent." EOP last year ID'd 17 million sf in 10 "non-growth" markets: San Jose, CA's R&D; Cleveland and Columbus, OH; Dallas and Houston; New Orleans; Indianapolis; Minneapolis; Orlando; and Philadelphia.

Despite EOP's official stance, industry sources expect most of the Dallas and Houston sales will close toward the end of April. The biggest hurdle, sources say, could be Los Angeles-based Colony Capital LLC's bid to pick up the balance of Dallas and the entire Houston portfolio. Well-informed sources claim the other buyers are CB Richard Ellis Investors, which is negotiating for the REIT's two Las Colinas buildings; CarrAmerica Inc. and JPMorgan Stanley, bargaining for Colonnade I and II; and Bentley Forbes Group, which has Preston Center assets in its sights. None of the institutional investment groups will confirm if they are in final purchase talks with Equity.

With most eyes watching the EOP transactions, another Los Angeles player has set its sights on 1700 Pacific, a 1.3-million-sf, value-add that represents CSFB's last asset in Dallas. Berkeley Investments--not affiliated with the Boston-based group by the same name--reportedly is making a play for the CBD high rise, which was on the market last year and then pulled. A Berkeley executive declined comment on an offer that sources say is hovering $75 per sf.

Despite the region's active rumor mill, Argent has managed to keep a tight lid on the buyer's identity for its 187,000-sf build-to-suit for Mary Kay Inc. The transaction was poised to close several weeks ago, but has yet to do so.

With the investors now panting to get a piece of Dallas, Allianz Group of Munich has hired Transwestern Commercial Services to sell its office assets in the Greater Dallas area. The net-leased, class A office buildings are the 101,120-sf Rapp-Collins Worldwide Building at 1660 Westridge Circle in Irving and the 159,000-sf Tollway Office Center II at 3905 Dallas Parkway in Plano, leased for the next decade to Capital One Services Inc. In Fort Worth, a Holliday Fenoglio Fowler LP team is courting buyers for three medical office buildings, totaling 99,978 sf, owned by Hunt Healthcare Properties LLC of Dallas.

"It's an interesting time," Mattox says. "All across the country, this is the year to sell class A to cash in on a demand that's only going up."