Triple Net Grabs Park's 431,430-SF Balance

The smaller flex office acquisition--MetCenter 1 and 2--was able to roll to an immediate tenants-in-common play because it's 100% occupied. The larger piece, though, is only 72% leased so it didn't make the cut for a TIC pass-through, Jeff Hanson, head of Triple Net Properties Realty Inc., explains about the Southeast Austin foothold. The Santa Ana, CA-based Triple Net now has a stake in all but two MetCenter buildings, 3 and 11, both owned by San Francisco-based Digital Realty Trust Inc., and two pad sites that the seller, Zydeco Development, intends to build out.

Hanson is hushed about the prices to acquire the 11.6-acre MetCenter 1 and 2 and 44.84-acre MetCenter 4 through 9, all single-story buildings ranging from 25,000 sf to 100,000 sf and built between 1999 and 2001. In April 2005, Triple Net paid $129.86 per sf or $44.88 million for the 345,600-sf, five-year-old MetCenter 10. The deal closed at an 8.5% cap rate. Just two months ago, Triple Net returned for the 257,600-sf MetCenter 15. Bets are going down by brokers in town that Triple Net once again has matched the comps, putting up roughly $130 per sf for the class A flex space at the crossroads of US Highway 183 and Texas 71.

Developer Howard Yancy's leasing affiliate, Atlantis Properties, will continue to oversee MetCenter while his development arm forges ahead on plans for an adjoining 350 acres, bought in late 2005 and entitled for another three million sf. David Sheldon, principal in Zydeco Development, tells GlobeSt.com that ground will break in 2007 on the second-phase land--some spec from the developer and a 210,000-sf build-to-suit by a publicly traded company that bought 14 acres earlier this year.

In closing the deals with Triple Net, Yancy held onto three acres in the first phase. Sheldon says a small shopping center will go up on one pad and another office building on the other.

Triple Net's TIC play was made possible by a 56,875-sf, full-building lease by PPD Inc., a long-time MetCenter tenant that needed to expand. The long-term deal pushed occupancy to 100% at 7901 E. Riverside Dr. The second building, 37,976 sf, is shared by RSI Inc. and Advantage Sales & Marketing, which are in place through November 2007 and 2012, respectively. Hanson says RSI's chief "decisionmaker" already has said it will renew.

The TIC plan is "most likely a five-year holding period," says Robert Giusti, Triple Net's real estate analyst. "There is a significant amount of rental bumps so you're going to see some NOI growth." Plus, it's no secret that the Austin market has been recovering and will continue to do so.

Giusti says the JV purchase is eyed as a three- to five-year hold for the 8201 E. Riverside Dr. and 7401 E. Ben White Blvd. buildings, with upside in nudging rents to the market rate of $10 per sf, triple net. He says 20% to 30% of the nine tenants are paying below-market rates, several of whom will have leases expiring in the coming two years. The two largest tenants--General Motors Corp. in 30% of the space and Pentagon Technologies in 15%--are in place through 2009. Hanson says there's no plan to roll the JV's six buildings to TICs as they fill. "Theoretically, a TIC could be a buyer as an exit," he says, "but that's not our exit plan."

The El Segundo, CA-based Pacific Coast tapped a commingled institutional invest fund with 20 institutions, including CalSTRS and CalPERS, for the purchase. Chris Dornin with Buchanan Street Partners in Los Angeles brokered the agreement between Triple Net and Pacific Coast. Eric Tupler with CBRE Melody's Denver office arranged financing through Nomura Credit & Capital Inc. of New York City. The TIC acquisition was financed by Pittsburgh-based PNC National Bank in a package arranged by Joseph Buyers of Commercial Realty Capital. Dan Macke with the Macke Co. in Austin represented Zydeco.

MetCenter is touted as one of the nation's leading telecommunications hubs, boasting two on-site substations, and the region's largest pocket of fiber optic-supported flex product. The buildings house a mix of call centers, light assembly, high-tech manufacturing and data centers. The development also includes six hotels, two round-the-clock restaurants and a service station-convenience store combo.