IRVING, TX-Equastone, stepping up its Texas buying campaign, has taken the deed to a 225,000-sf, empty class B building that was foreclosed upon last year in the Las Colinas Office Center. Based on deal dynamics and comps, the off-market trade most likely brought $60 per sf to $70 per sf for the seller.

With the deal put to bed, the San Diego-based buyer is ramping up a seven-digit renovation to convert the 25-year-old single-tenant building to multi-tenant use, Clint Harrington, executive vice president in the Houston office, tells Equastone’s goal is to reposition the 10-story building at 5615 High Point Dr. with $18 per sf rent goal for a three-year lease and $19.50 per sf for a five-year deal, he says.

“The bulk of the buildings in the area are solid class B buildings,” says veteran Phil Baker, owner of Magellan Commercial Real Estate, “and they’ve seen a recent resurgence in leasing so it’s probably a timely acquisition for them.” But, he adds, the market rate for class B stock is $14 per sf so Equastone could be facing a tough battle to reach its rate goals.

Harrington says there are three 100,000-sf prospects already eyeing the lead tenant’s spot to claim building naming rights to the Atrium at Highpoint. The renovation is expected to get under way within five weeks and take nearly nine months to complete, but the planned work won’t stand in the way of re-tenanting the building, he says. “Space is available immediately,” he stresses.

Staffelbach Designs & Associates Inc. is the project architect. A general contractor has yet to be picked. The building’s been empty at least one year, but the major challenge will be to improve the HVAC system to lower utility costs, which is a recurring design problem left over from 1980s-era buildings with large central atriums. The building, vacated by three Verizon Communications Inc. divisions, was a build-to-suit for Docutel Olivetti as a one-time headquarters for the southern region.

Harrington says Equastone, with more Texas buys in its sights, has underwritten the Atrium purchase as a three-year hold. It’s the first buy in North Texas from the Equastone Value Fund I, a $75-million pool of equity that has bought 1.2 million sf in eight properties in the state since October 2005. Holds to date have averaged nine months. “It all depends on the market,” he adds. “We’re value-added investors and we underwrite aggressively. We will not sell till we think the market or the financial performance of the building achieves what we want.” In most cases, that translates to an 18% to 19% IRR.

Las Colinas was hit as hard as the Dallas CBD in the last downturn, but the leasing momentum’s been steadily building since the beginning of this year. “Investors are looking at Las Colinas with a renewed interest,” says Jack Crews, principal for Dallas-based Trammell Crow Co. “They sense the submarket’s strengthening fundamentals and want to take advantage of those dynamics. Vacancy is now yielding value for sellers.”

Harrington says the Atrium was bought for less than replacement cost from CW Capital Asset Management in a deal brokered by Houston-based PM Realty Group’s Brandon Beeson and Stephannie Mower. Dallas County, assessing the eight-acre asset at $8.6 million, shows the last owner as Allied Capital of Washington, DC, which took over the holding in May 2005 from Skyrise Properties LLC of Dallas.

“Given our low cost basis and since the building is completely vacant, we have tremendous opportunity to add significant value through strategic capital improvements and aggressive leasing,” Equastone’s chief investment officer Jeff Schindler says in a press release. PM Realty’s Kurt Cherry and Bernard Deaton are running the lease-up campaign.

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