EastGroup Triples San Antonio Portfolio

SAN ANTONIO-EastGroup Properties more than tripled its local portfolio this month with the $40-million acquisition of Arion Business Park, a master-planned business park with 524,000 sf in 14 buildings. The purchase price included the assumption of a $20.5-million, interest only non-recourse mortgage that has a fixed rate of 5.99% and matures in December 2006. The remainder was paid for with the company’s line of credit, EastGroup chief executive David Hoster tells GlobeSt.com. Arion is located one block north of San Antonio International Airport with easy access to both US Highway 281 and Interstate Loop 410. The buildings were constructed between 1988 and 2000 and are currently 91.2% leased to 25 tenants. At 95% occupancy, Hoster tells GlobeSt.com that the investment will generate an 8.3% un-leveraged cash return. EastGroup has been focusing on acquiring assets with a value-add component, in part because it’s an area that hasn’t attracted a lot of the institutions and syndicators. The main value-add play with Arion is the additional land available for development. Hoster says the additional space will be split among four buildings.Last spring, EastGroup entered the metro market with the acquisition of Alamo Downs Distribution Center. The company paid $8.4 million for the 253,000-sf, two-building business park located in a different submarket from Arion. Alamo Downs was less than 50% leased when it traded hands and now is close to 60% leased, says Hoster. The main value-add play for this property is the lease up of the empty space. When stabilized, Hoster says the property will produce an un-leveraged cash yield of about 10.6%. “We think the San Antonio market is going to improve ahead of the general US economy,” says Hoster. “A lot of good things are happening there, including the Toyota truck plant’s that’s been announced.” EastGroup’s portfolio currently includes 20.2 million sf with an additional 561,000 sf of properties under development. In addition to Texas–the company also has holdings in Houston, Dallas and El Paso–Hoster says EastGroup is focused on properties in California, Arizona and Florida.