Preston Center Neighbors Yield Nearly $100M at Closing Tables

The 129-unit Shelton at 5909 Luther Lane, holding the distinction as Preston Center's only high-rise residential product in the prestigious Highland Park Independent School District, has been scooped up by Dunhill Partners Inc. of Dallas for about $35 million. Down the street, the 286,426-sf Sherry Lane Place at 5956 Sherry Lane, a 20-story office asset topped off by the prestigious Park City Club, has gone to joint venture partners CarrAmerica Realty Corp. of Washington, DC and JPMorgan Asset Management of New York City. Market sources say the prize brought in the neighborhood of $230 per sf, factoring out to $65.9 million.

"Preston Center is the best pocket in Dallas," William Hutchinson, Dunhill's president, says, telling GlobeSt.com that he was unaware that the nearby Sherry Lane Place was under negotiation at the same time he was talking to the Shelton's Japanese owner, Miyama Inc. Hutchinson made his close with a $46-million loan from Fremont Investment & Loan of Tustin, CA, with Randy Fleisher from CBRE Melody in Dallas arranging the financing.

Hutchinson says he's set aside about $12 million to convert the 24-story Shelton's 129 units into condos. The skin stays intact, but interior common areas will be overhauled and an average $65,000 spent on upgrades for each unit, he says. "It will be the finest wood, granite, marble, furniture and fixtures on the market," he says. SLS Johnson Contractors of Dallas will begin construction in 30 days. Dunhill's Ames Pinhiero is the project manager.

Hutchinson, who's planning to take down a unit himself, estimates 20% of the Shelton's tenants will opt to buy. The units, ranging from 1,000 sf to 3,500 sf, were 95% leased at the closing. Dunhill marketing agent Ken Whitten will first court existing tenants and then take the remaining condos to the open market in September. Mary Ann Triosi, a long-time Dunhill property manager, has been brought in to oversee the holding. If Hutchinson's early call is correct, the Shelton will be sold out in 18 months. The condos will be tagged at $350 per sf to $450 per sf.

Hutchinson was one of 20 prospects quietly introduced to Miyama, a 15-year owner. "I was the first meeting Monday morning and the last meeting Friday night," Hutchinson says. "We had a very good connection. We shared the same vision for the Shelton. We cut a deal in one week."

Down the street, the story's not as forthcoming--except that it's been confirmed it was an off-market trade. The long-time local owner, Cottonwood Partners, is retaining a minority interest and remaining on the grounds to lease and manage the 85%-filled Sherry Lane Place. CarrAmerica is a 20% stakeholder in the JV. Andrew Levy with Holliday Fenoglio Fowler LP in Dallas brokered the transaction.

Sherry Lane Place is the second Dallas purchase by the CarrAmerica-JPMorgan JV since it was formed last year. A year ago, the partners spent $153.5 million to acquire the 984,000-sf Colonnade I, II and III in Addison.

The Preston Center prize is assessed at $43.78 million by Dallas County. The new owners' plan, for now, is to make some cosmetic improvements and upgrade elevators in the 23-year-old trophy.

The 20-story landmark has no significant lease roll this year, Jeff Pace, CarrAmerica's managing director in Dallas, tells GlobeSt.com. "The building and the market are very stable," he says. The tenant roster includes the Bank of Texas, Abby Office Centers and Morgan Keegan.

The building's quality and the constrained state of available class A space in the submarket were key decisionmakers for the JV, Pace indicates in a press release. According to Cushman & Wakefield of Texas Inc.'s latest market report, the prestigious pocket of office space is generating the highest average rent in the region, $26.35 per sf, and bears one of the lowest vacancies, 9.9%. The closest competitor, Turtle Creek/Uptown, is lagging by $4.26 per sf and a full two points higher on vacancy.