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DEERFIELD, IL-With Dallas-base Prentiss Properties Trust expected to divest itself of its Chicago portfolio by the end of the year, another REIT is poised to put nearly one million sf of suburban office assets on the market in 2006. Washington, DC-based CarrAmerica Realty Corp. plans to sell four of its wholly owned properties here, as well as bowing out of Denver.
The suburban Chicago assets include the 316,258-sf Bannockburn Lake Office Plaza IV in Bannockburn, the 289,599-sf Crossings I at 1520 Kensington Rd. in Oak Brook and the 365,698-sf building at 377 Butterfield Rd. in Lombard. The only property CarrAmerica Realty Corp. plans to keep is the 251,018-sf Parkway North I in the one-million-sf Parkway office complex in Deerfield.
"This is part of a process that has been on-going for several years," said chairman and chief executive officer Thomas A. Carr during his company's recent earnings conference call. Company officials said they will reinvest proceeds from the sales in markets where they expect higher returns, with Carr noting the REIT already has acquired sites in its home market and Seattle. "We expect to begin marketing these properties in early 2006," added chief investment officer Karen B. Dorigan, balking at a suggestion the Chicago portfolio could command $150 million. "We haven't come up with purchase prices yet."
Occupancy in the seven-building Chicago portfolio is an anemic 63.5%, 24 points lower than CarrAmerica Realty's overall level, according to the company's most recent financial report. However, that figure will rise with United Stationers Inc.'s 11-year lease for 205,000 sf at Parkway North I, but the deal came at a price. CarrAmerica Realty agreed to $7 million in tenant improvements. "We're pleased with that deal, but obviously our upfront costs were significant," said president and chief operating officer Philip L. Hawkins.
Meanwhile, occupancy is 95.6% at the remaining six buildings in the Parkway office complex here, where CarrAmerica Realty Corp. holds a 35% stake, with New York State Teachers Retirement System owning the remainder.
While CarrAmerica Realty's Chicago portfolio represents 6.54% of the company's entire portfolio, it generates only 2.5% of its operating income, according to the third-quarter financial report. "The suburbs have improved modestly, but Downtown has continued to suffer from negative to flat demand and increasing supply," Dorigan said. She added the company does not plan on making deals involving master leases. "The market is getting much more receptive to leasing risk."
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