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CHICAGO-Having exited nine of 19 office markets since 2003, Trizec Properties Inc. is poised to scratch one more city off its list, and shed a somewhat historic core-market property from its portfolio. Having sold the one-million-sf Metropolitan Square for $165.8 million in late July to exit the St. Louis market, the REIT is talking to potential buyers for the 813,000-sf Northstar Center in Minneapolis and 261,000-sf Watergate office building in Washington, DC.
"We believe with the benefit of a very strong investment market, we'll achieve very favorable pricing on these non-core assets," said president and chief executive officer Tim Callahan during his company's earnings conference call Thursday. However, while vacancy is just 2.3% at Watergate, Northstar Center is just 64.7% occupied. Callahan suggested the REIT may attempt to fill vacancy at Northstar Center before pulling the trigger on a sale.
"Just because we put it out there, there has to be a market for it," Callahan added. "We want to make sure we get full value."
Earlier this year, Trizec Properties paid $190 million for the fully occupied 1200 K St. in Washington, DC, its second-largest market with 19% of the portfolio. The company also paid $356.7 million for the one-million-sf, 52-story Figueroa at Wilshire in Los Angeles. "We've literally looked at billions of dollars in potential acquisitions," Callahan said. "But in many cases, we haven't been able to reconcile the price with the risk-adjusted returns."
In addition to its seven core markets of Atlanta, Chicago, Dallas, Houston, Los Angeles, New York and Washington, Trizec Properties has added Boston, San Francisco and Seattle to its radar screen, Callahan said.
Locally, occupancy in Trizec Properties' 2.4-million-sf Downtown portfolio dipped to 88.3%. The laggard is the 685,000-sf 120 S. Riverside Plaza, where occupancy is 79.4% following with the departure of Allstate Insurance Co.'s Encompass division from 110,000 sf. And while the REIT has 39,000 sf worth of leases expiring the rest of the year in its four West Loop and Central Loop buildings, it is faced with a 2006 rollover of 260,000 sf, or 10.7% of the local portfolio.
Callahan notes Trizec Properties has shed $1.9 billion in non-core office assets as well as non-office holdings since the beginning of 2003. Remaining non-core markets for the REIT are Charlotte, NC and Tulsa, OK.
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