LOS ANGELES-Thomas Properties Group has yet to feel any effect on its office leasing results from the changing economy and capital markets although the climate for acquisitions is a different story. The impact has been felt in the company’s ability to acquire value-add core-plus assets.
In the company’s recent earnings call, president and CEO Jim Thomas outlined a scenario in which leasing remains strong and long-term fundamentals look sound in markets like Los Angeles and Austin, but he reported that buying and selling buildings has become problematic in the new capital markets landscape. “The fundamentals of our business continue to be good,” Thomas said in his opening remarks. “Our occupancies and rental rates are strong, and while the economy may be slowing down, we are not yet feeling the effect on our occupancy and rental rates.” Thomas pointed out that most of its leases are long-term so the amount of roll-over in the next couple of years is minimal.
The major impact on the company’s business from the credit markets turmoil has been in the acquisition segment of its business, according to Thomas. “We are feeling the credit crunch,” the Thomas Properties’ chief said. “Our ability to execute our strategy of acquiring value-add core-plus assets has been seriously hampered by the unavailability of large financing.”
Although a fair number of properties are on the market and available to buy, sellers have “little inclination to reduce prices,” Thomas explained, particularly owners of class A buildings. And on lower-quality assets, he said the difference between the bid and ask is substantial. “Given the state of the credit markets, only low-leverage deals with good credit can get done so we are focusing on lower-leverage deals and properties with assumable debt,” Thomas said.
Thomas Properties’ strategy includes considerable development and redevelopment, as its doing at the 2.6-million-sf City National Plaza office and retail complex at 555 S. Flower St. in Downtown Los Angeles. The improvements include turning an underground retail venue into 500 additional parking spaces in a city where parking is precious. The added parking will bless City National Plaza with “the best parking situation of any Downtown office building and will add to our competitive advantage” at the City National complex, Thomas said.
The company’s other office developments include a 250,000-sf LEED-certified office project in El Segundo, CA for which it is completing drawings and about to bring in a general contractor; 900,000 sf of office and media production space that’s in the planning stage for the NBC Universal site in Universal City, CA; a 500,000-sf office building at the Universal City site; and two 100,000-sf buildings that are under way at its Four Points Centre in Austin, where it has entitlements for approximately two million sf of mixed-use developments.
At the 250,000-sf El Segundo project, the goal is to be 50% preleased before construction starts. Regarding the Austin project, Thomas observed that it’s “typically been a market where tenants have not planned too far in advance and we’re hoping that activity will pick up as we near completion.” The Austin market “has been a little soft in the suburbs,” he said. The company’s project is in the northwest part of Austin, which has tallied the highest absorption in the past couple years.
In the earnings call, the company reported a loss of $1.5 million and seven cents a share for fourth quarter 2007, down from nearly $1.6 million and 11 cents per share for the comparable period last year. The full year’s tally showed a $903,000 loss and four cents per share in comparison to more than $2 million and 14 cents per share for 2006.