Office Buyers Top $4B in Record-Setting Run

"There are a lot of investors following in our footsteps from New York, L.A. England, Germany and Japan," says Younan, chairman and CEO of the Los Angeles-based investment firm. As head of a firm of "economists by nature," Younan says "the signs we're seeing right now might surprise a lot of people, but not us."

According to CB Richard Ellis, $1.4 billion was spent on Dallas/Fort Worth office deeds in the fourth quarter. The year's sales were roughly $900 million more than 2005. And, the ride's far from over.

"I predict we will see a lot more investment activity, significantly higher than 2006," Younan tells GlobeSt.com, predicting the pace will continue into 2008. In February, he will get his first deed this year--the 1.4-million-sf Thanksgiving Tower at 1601 Elm St. in the CBD.

Younan has been and will continue to be focused on Downtown assets, building a portfolio that's made him the city's largest class A owner and possibly the second largest in the state. Despite last year's fast-paced exchanges, there are carryovers from last year waiting to be made and more office owners now willing to trade. The sellers, now in the market, include Brandywine Realty Trust of Radnor, PA and BentleyForbes of Los Angeles. Those eyeing from the sidelines include Fort Worth-based Crescent Real Estate Equities Co., owner of the mixed-use Crescent in Uptown, and Hall Financial Group, a far north Dallas stakeholder with a developing three-million-sf office park that's once before tested the market.

"As far as we can see into the future, right now it looks like it's going to be another good year," says Gary Carr, CBRE's executive vice president. "Liquidity is what drives the investment sales market in Dallas. Right now, there's a nice window."

Citing New York City-based Real Capital Analytics Inc. data, Carr says last year's sales averaged $134 per sf for class A and B buildings. The national average is $212 per sf. "Dallas represents some of the best value in the country," he says.

For roughly 18 months, value-add deals for three- to five-year holds have been underwriting the sales velocity. At some point, Carr says "core-style capital" will have to return to Dallas to keep the deal flow moving so value-add players can pass and profit from their stabilized properties.

"If the capital is there, the transactions will follow," says John Alvarado, a Trammell Crow Co. senior vice president who's now part of the CBRE investment sales team. "If cap rates continue to maintain pressure on pricing, we will have another active year." Real Capital Analytics pegs the average D/FW cap rate at 7.5% or 1.5% higher than the national average.

Alvarado says this year isn't likely to set another record, but it's also not going to be slow. "It would be tough to replicate last year," he says. "But, we will have opportunities because the equity market is so great."

The D/FW office market has marked its ninth consecutive quarter of positive absorption. As a result, rents have pushed the average to $18.28 per sf for a 19-cent increase in Q4 2006, according to CBRE's yearend report.

In Dallas, class A rates hit $21.38 per sf, climbing eight cents per sf in Q4. Class B hit $16.24 per sf, up 11 cents per sf for the quarter. In Fort Worth's CBD, rents averaged $16.60 per sf for a 45-cent-per-sf jump in Q4 due in large part to a 1.3% vacancy in its class A inventory. Meanwhile in Las Colinas, rents rose 47 cents per sf to $19.82 per sf; Preston Center climbed 50 cents per sf to $25.61 per sf; and Uptown/Turtle Creek jumped 36 cents per sf to hit $24.62 per sf on average.

"It's still very inherent in a market that's recovering that there is a tremendous amount of investment activity," Younan points out, citing the dynamics of increased rents and occupancies in the region. "I believe there is a turnaround in the Dallas market. And we will see more outside capital in 2007 than 2006. A lot of people are confident there's a continuing recovery."