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DALLAS-Equastone has worked out an off-market deal for the three-building Merit Centre. The 295,440 sf of freeway-fronting office space, failing to hook a contract in a previous marketing, has been handed off at a deep discount to replacement cost and its $27.6-million assessment.

Equastone executive vice president Clint Harrington and chief investment officer Jeffrey Schindler won’t discuss how much they paid, but did confirm that it was “substantially below” the Dallas County assessment for the class B trio at 5710, 5720 and 5728 LBJ Freeway in North Dallas. The off-market deal went full circle in less than 60 days, including a loan assumption.

“It came about real quickly. We had it tied up in a couple days,” Schindler says. “The reason we assumed the loan is because it had a significant prepayment penalty.” They say the reality is the deeds passed at well below half of the replacement cost.

The Equastone executives tell GlobeSt.com that they’ve mapped out a two-year hold, with significant upgrades underwriting the push for stabilization. Bernard Deaton, managing partner of locally based Bradford Cos., who had been hired in January by the seller, has been retained by the San Diego-based buyer.

The 60%-leased buildings contain 51 tenants, the largest of which is LeTourneau University with 15,672 sf and several more in the 10,000-sf range. About 20% of the leases, averaging five-year terms across the board, roll annually, according to Schindler.

The new owner has just reset the complex’s quotes to $17.50 per sf to $18.50 per sf plus electric. Harrington says upside will come not only from the vacancy, but the submarket’s steady gain in rents and absorption. Equastone’s incentives include top of building signs and quick-turning lease commissions. “Equastone tries to set itself apart from other owners by paying not only the first half, but the second half as well, within 48 hours of a lease execution,” he says.

Staffelbach Design Associates Inc. of Dallas is starting preliminary work on the upgrade plan. Schindler estimates construction will start in 45 to 60 days. Completion will take four to five months.

Merit Texas LP of Dallas acquired the trio in June 1999. They had been marketed a couple years ago in a 639,786-sf portfolio. “We thought the price we paid was an unbelievable discount to replacement value and an incredible discount to competing nearby transactions,” Schindler says. The trio, positioned on 12.3 acres, is made up of a 128,247-sf, six-story building at 5720 LBJ Frwy.; 97,185-sf, four-story structure at 5710 LBJ Frwy.; and 70,008-sf, four-story design at 5728 LBJ Frwy.

Equastone has spent $200 million of the $1 billion it wants to deploy this year. The allocation isn’t written in stone, but the plan is to spend at least $250 million in Texas. “There’s a deal under contract in each major market in Texas right now,” Harrington says. The Merit Centre pickup was made through the recently closed Equastone Value Fund II, a $172.5-million fully discretionary equity pool.

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