Dynegy Cuts Poised to Strike Its Real Estate

HOUSTON-Dynegy Inc., in an ongoing massive downsizing and housecleaning, has axed energy trading and marketing from its lineup as president and COO Steve Bergstrom takes his walking papers and withdraws his name from the CEO candidate’s list. Dynegy’s fiscal struggle has pushed 75,000 sf of its 700,000 sf of office space on the market.

For the last 10 weeks, a Cushman & Wakefield of Texas team has been quietly searching for sublease tenants for three of Dynegy’s 28 floors in the 1.7-million-sf Wells Fargo Building at 1000 Louisiana, owned by Metropolitan Life Insurance Co. and managed by Dallas-based Lincoln Property Co.’s Houston office. Robert Kramp, regional client services manager in Texas for Grubb & Ellis Co., tells GlobeSt.com that the corporation’s lease runs through 2007.

How much more space will come to market is undetermined, but Dynegy spokeswoman Claudia Morlan did say that a significant workforce reduction, as previously announced, would be occurring in the near future. Published reports put the number to be axed at 800 to 1,000 jobs worldwide. Dynegy employs 5,500 people globally, 1,600 of which are in Houston. In June, 340 workers were laid off. Bergstrom’s exodus is being attributed to the dissolution of the trading and marketing unit because of his close association with the business line.

Kramp says the short-term forecast for Houston’s CBD is “not encouraging, but the fundamentals are in place for long-term viability.” Street improvements, downtown entertainment venues and the availability of prime retail space are driving his long-term optimism.

According to Grubb & Ellis, Houston’s CBD is about 14% vacant, including the space in the 1.2-million-sf Enron Center South. Kramp is quick to point out the losses are far greater in many other cities. To date this year, the Houston CBD has had a negative absorption of 518,773 sf.