SAN ANTONIO-EastGroup Properties Inc., a Jackson, MS-based REIT that entered the San Antonio industrial real estate market in 2004, has grown its local portfolio to over 1.1 million sf with the ground-breaking of a 64,000-sf, $4.22 million distribution warehouse for Dallas-based Dal-Tile Corp. The building is expected to be ready for occupancy in first quarter 2007.

The structure is within EastGroup's 14-building Arion Business Park, acquired in February 2005 for $40 million or $76.33 per sf. Arion, at that time, totaled 524,000 sf. "This development [Dal-Tile's building] will increase our ownership at Arion to 694,000 sf and to over 1.1 million sf in San Antonio, a market we entered two years ago," says David H. Hoster II, EastGroup's president and CEO.

That's the total development size Hoster envisioned when he bought the 15.5-acre property. "Arion is an excellent strategic fit [containing] highly functional and flexible distribution buildings clustered near major transportation features in an infill location," Hoster had said at the time of purchase. The Dal-Tile project is being built for about $65.93 per sf.

EastGroup entered the San Antonio market with the $8.4-million purchase of Alamo Downs, a two-building, 253,000-sf distribution complex constructed in 1986 and 2002. The property was 59% leased to seven tenants when EastGroup acquired it for $33.20 per sf. At the time, Hoster projected the two buildings would generate an unleveraged stabilized yield on lease-up of about 10.6%.

EastGroup's strategy in strengthening its San Antonio market presence is a move to complement its operations in Houston, Dallas and El Paso, according to Hoster. In the company's second-quarter performance results, filed with the SEC, Hoster told shareholders "EastGroup's balance sheet continues to be strong and flexible with debt-to-total market capitalization of 30.9%." For the quarter, the company had an interest coverage ratio of 3.5x and a fixed charge ratio of 3.2x. Total debt at June 30 was $477.9 million. Floating rate bank debt comprised $135.5 million of that total.