Keys Turn to 342,448-SF Beal Bank Center

Granite plans to stage in a $5-million renovation to the 67%-leased, class B complex, now being flagged as Tollway Tower I and II. "We are going to spend a significant amount of money over time to create a class B-plus building in a class A location," says Gregory Fuller, Granite's managing director in Dallas.

The strategy builds in breathing room for last week's purchase, the 91%-leased Madison, a 289,000-sf office building at 15851 Dallas Parkway that sits opposite across the tollway from the 167,625-sf, 13-story tower at 15660 Dallas Parkway and 154,443-sf, 12-story sister at 15770 Dallas Parkway. The towers' deal includes a 20,390-sf building at 15441 Knoll Trail.

"There's absolutely synergy with the buildings in having more space and different types of space and quality levels of space," Fuller tells GlobeSt.com. "As leases roll, probably more tenants will decide to go back to $20 per sf rates versus $25 per sf for new construction." Tollway Towers' pre-renovation sticker is $17.50 per sf plus electric. With the steady rent gains evident in the submarket, Fuller says Tollway Towers' rate could bump "10% to 15% over the next couple of years." Beal Bank will continue to operate a branch in the complex and hold sign rights despite the property's name change.

Granite bought the class A Madison in an off-market transaction that went full circle in 27 days. Beal Bank put its complex on the market in February. The submarket, making gains in pricing as well as rent, is averaging roughly $75 per sf for office buildings of the towers' caliber, which factors out to nearly $25.7 million to take the deed. The Madison, assessed at roughly $30 million, undoubtedly crossed the closing table for a bit more although Fuller's not discussing the price of either property. "It was a very quick transaction that allowed us to come in and deploy significant capital very quickly," he says. Both assets will be leased and managed in house.

John Alvarado, senior vice president for Dallas-based Trammell Crow Co., says the Beal Bank listing drew offers from a dozen or more national and local investors. "Due to the complexity of the deal structuring, it took a little longer to 'close' it than a normal transaction," he explains, citing the "seller-driven restrictions" that will delay the deed swap until March 2007.

The obvious and immediate upside is the 33% vacancy, created in June with Cingular Wireless' exit of about 60,000 sf. "It's such a compelling opportunity because the property has such a high-profile location and repositioning opportunity," Alvarado explains. "With Granite's operational savvy, I think they're going to turn this property into a homerun." Now, the largest tenant is Lone Star Steel Co. with 26,844 sf.

Granite has built a large footprint up and down the tollway. In the coming days, it will open doors on the 443,000-sf Granite Park III at the Texas 121 junction. The impact, Fuller points out, means the locally based investment group will have added nearly 1.1 million sf of office space to its portfolio just in the past month.