GlobeSt.com EXCLUSIVE: REIT Airs Plan for 125,874-SF Value Add

As the deal pushed to the closing table, seller CMD Realty Investors got one of its lead tenants, Compass Insurance Co., to add 9,691 sf to an 11,645-sf office, setting up long-term leases with co-terminus ends. The expansion lease mirrors the strategy that the new owner plans to employ at 9101 LBJ Freeway, John Crossin, chief investment officer for the Houston-based Hartman Management, tells GlobeSt.com. "We're not looking to put out any fires," he says. "We're looking to expand the tenants we have." At sale time, there were 12 tenants, with Air Liquide America LP as the lead, and no near-term roll in the lineup.

Crossin says the REIT, which plans to launch an IPO at year's end, will invest another $1 million into upgrading the lobby and all common areas in the 10-story building. The recognized value-add buyer has spent $125 million in three years, primarily in Texas. Last year, Hartman bought its first properties in Dallas: the 198,374-sf North Central Plaza and 128,000-sf Park Central I. Crossin say the trio sets ups a leasing scenario to open negotiations at $12.50 per sf, $14.50 per sf and $16.50 per sf. "When you buy it cheaply, you can lease it cheaply," he says.

The just-bought building is 20-year-old construction, class B-plus space with a six-acre, front-row seat along the freeway--attributes that make it the most expensive in Hartman's Dallas lineup. "My guess is we'll discount it considerably to fill the building," Crossin says. "Our objective is to fill it quickly." And then, he'll wait. "The real upside is five years out when you roll the rents," he says.

Also in Hartman's favor is construction is nearly done on the High Five interchange. "I think that whole area, Park Central and LBJ Freeway, are poised for a big recovery because the High Five is almost complete," says the deal's broker, John Alvarado, senior vice president for Dallas-based Trammell Crow Co. "Rents have been depressed for several years. There's a lot of optimism for the corridor. It's a place where a lot of value will be added over the next few years."

Pushing to exit Dallas, the Chicago-headquartered CMD had 9101 LBJ Freeway on the market separate from its portfolio offering, which just had a call for offers. Hartman was one of the top three bidders out of a dozen offers of mostly Texas investors, according to Alvarado. According to the SEC filing, the REIT tapped $7.6 million from a line of credit with a financial consortium led by KeyBank National Association to close the $7.98-million deal.

Crossin says he looks at 10 to 15 packets per month of Dallas-area properties plus has window-shopped as far west as Phoenix and as far east as Florida. The sweet spot is $5 million to $20 million. "We allocate to the best properties we might find wherever it is," he says, citing prices and statistics have kept the spotlight on Dallas, Houston and San Antonio. Hartman, which manages and leases the portfolio, is waiting to hear if it's made the "best and final" cut for a six-building asset in Houston plus it's just placed a bid on two more office buildings in Dallas--but not along LBJ Freeway. "That's enough product there," he says.