Crescent's Swan Song Has Bittersweet End

In the final days before its $6.5-billion hand-off, the Fort Worth-based Crescent has recorded the largest office building sale in the state in recent years--2.9 million sf of Dallas-area properties for $382 million. The class A portfolio buy not only is the largest in the San Diego-based Equastone's history, but it's the largest third-party office leasing and management assignment to come down the pike in 15 years or more in Dallas/Fort Worth.

"I can't recall when a third-party leasing and management contract has been awarded for a larger office portfolio assignment," says Jack Eimer, president of the central region for the 13 buildings' new gatekeeper, Transwestern.

The back-to-back sales of office space and REIT are bittersweet for Crescent's vice chairman and CEO John C. Goff. "This company started on my desk," he says after yesterday's shareholders' approval of the merger with Morgan Stanley. "It's an emotional decision to ultimately sell the company. Morgan Stanley is an excellent buyer. We picked a very fair buyer at a very fair price for the company."

As with many buyouts, Crescent didn't escape from the merger plan without litigation. Four shareholders filed lawsuits in Tarrant County district courts. Their attorneys didn't return telephone calls or couldn't be reached for comment after yesterday's vote at the Crescent in Dallas' Uptown, which is among the REIT's crown jewels being passed to Morgan Stanley. Goff, keeping true to corporate practice, isn't commenting on the pending litigation.

The final count, though, speaks volumes about Crescent's agreement with Morgan Stanley. More than 76.1 million shares were cast in favor of the sale, with 822,583 against and 145,621 abstentions. The approval garnered 98.7% of the votes cast and represented 73.9% of the eligible shares. Not one question came from the floor. With that over, buyer and seller have confirmed the deal is on track to close Friday.

"I had many, many, many positive phone calls from shareholders," Goff says. "I feel good. We felt this was a very strong alternative for shareholders when we presented it." For $6.5 billion, Morgan Stanley's lock, stock and barrel buy spans 52 office buildings, totaling 23 million sf in Dallas, Houston, Denver, Miami and Las Vegas plus investments in the resort residential market in Scottsdale, AZ, Vail Valley, CO and Lake Tahoe, CA and the wellness lifestyle flag of Canyon Ranch. Among its prized office possessions, bought in recent years, is Las Vegas' 1.1-million-sf Hughes Center, a 115-acre office park with nine buildings and room for more.

In reflecting on the REIT's run, Goff says shareholders have earned a 13% compounded annual return and a steady dividend flow. Since it went public in 1994, Goff says $2.3 billion has been paid in dividends. "We were always a very strong dividend payer," he stresses. "Not only did we pay a lot of return, but there was a substantial increase in the stock's value since we went public." Morgan Stanley is paying $22.80 per common share. At the NYSE closing yesterday, Crescent stock was $22.66 per share. Its 52-week high was $23.92; its low, $18.67.

Still to be decided is who stays and who goes after Morgan Stanley takes charge. There is speculation on the street that Goff and Crescent president and COO Dennis H. Alberts will remain. Morgan Stanley's executive team will be in Dallas Monday to meet with Crescent's upper management. Goff stresses that dealmakers have deliberately steered clear of employment discussions until the merger is inked.

Meanwhile, Transwestern has picked up 22 property management employees to build a 50-member team to oversee the Equastone's new portfolio. Eimer and Michael Ogden, managing senior vice president of property management for Transwestern, credit the win for the record-breaking assignment to the ability to provide a senior team of professionals. "We were able to present an all-senior leasing team that truly didn't have conflicts of interest in the submarkets," Eimer tells GlobeSt.com.

Transwestern had been at Equastone's side during the due-diligence period for a deal that went from contract to close in 50 days. "They made it very clear our relationship did not guarantee the assignment post closing," Ogden says, adding there was a competition before the final nod was given last week.

Transwestern's immediate challenge is the transition, particularly on the leasing front. "We have to step in and make that transition seamless," Eimer says. "These tenants shouldn't know a sale has taken place or the leasing teams have changed." The portfolio's top three tenants are Yum! Brands, which leases 289,436 sf of the 319,760-sf Aberdeen at 14841 N. Dallas Pkwy.; CompUSA, a 207,607-sf tenant at the 215,016-sf Addison at 14951 N. Dallas Pkwy.; and Blue Cross/Blue Shield, which occupies the entire 150,313-sf Greenway II at 2400 Lakeside Blvd. in Richardson.

Transwestern senior vice president Kim Brooks heads up the leasing team. She says the keys are turning with just 77,300 sf or 2.7% of the portfolio set to roll before year's end. Crescent's team is well-known in the marketplace for its ability to secure early renewals. "Since there isn't a lot of roll between now and the end of the year, our focus will be on the vacant space in the portfolio," she says.