The Seattle-based seller has June 3 penciled as the call for offers for the 61%-leased portfolio, situated in the City of Richardson and Northgate Business Park in northeast Dallas. Jack Fraker, vice chairman for CB Richard Ellis in Dallas, says the class A package, with break-up flexibility, represents "the largest opportunity to acquire space in these submarkets." The largest concentration is 529,764 sf in 15 buildings in Northgate.
"The multi-tenant portfolio with 100 plus tenants provides investors with the greatest opportunity to roll rents to market," says Fraker, who's partnering with CBRE first vice president Josh McArtor and associate Conor Feeney on the sales campaign. Fraker tells GlobeSt.com that the buyer would be in a position to achieve stabilized cap rates in the 8.25% range due to current in-place rents at below-market rates.
The average in-place rent for the 70,842-sf office building at 1010 Arapaho Rd. is $15 per sf to $17 per sf full service. The 23-year-old building is 54% leased. The team says industrial tenants currently are paying $3.75 per sf to $4.25 per sf.
With the marketing blitz underway, the Fraker team is pitching the package as a core-plus buying opportunity in terms of quality, location and value add. "It's a plus because it offers investors the opportunity to achieve superior returns over time through lease-up," Fraker explains. According to the marketing package, the current NOI is $2.5 million, but it's projected to climb to $6.5 million over the next decade due to lease bumps and market rent increases.
[IMGCAP(2)]Most tenants in the Northgate buildings occupy 3,000 sf to 10,000 sf, of which three are part of the original roster from 1980. But as McArtor points out, smaller tenants tend to stay in place. "Because it's expensive to move, smaller tenants usually renew," he says. "They usually just renew as a result of the great relationship with the landlord." In most cases, he says it translates into minimal tenant improvements and lower re-tenanting costs for the owner.
The caveat to the large number of tenants is "you're going to have to have on-the-ground leasing agents," Fraker cautions. But, he adds, that many buyers today are marriages between institutional investors and local partners so he doesn't foresee the on-the-ground requirement as being problematic.
According to the team's research, about 70% of deals done last year in the two submarkets were 10,000 sf or less. In terms of the portfolio's vacancy, the openings are 10,000 sf or more, setting up a scenario to divvy the spaces into make-ready suites, according to the offering.
McArtor says the game plan calls for a third-quarter closing, whether it's one buyer or several. The assets are separately platted because Kennedy assembled the portfolio over a 15-year period. In fact, McArtor says the market trend has been to divvy portfolios, with Kennedy taking individual and portfolio offers.
"I think their expectations are in line with the current marketplace based on real-time feedback about what the market would bear," McArtor says. "It's time to recycle new capital back into other properties and to harvest their gains."
In addition to the office building, the Richardson package includes the three-building Arapaho Place at 850 E. Arapaho Rd. and 851 and 901 International Pkwy., totaling 151,728 sf. It also contains the three-building Counterpoint Business Center at 700, 730 and 750 International Pkwy., an industrial mix with 125,795 sf. Occupancies range from 4% to 58%.
Northgate Business Park's 15 buildings range from 11,200 sf to 79,257 sf. Three buildings are located in the 9600 block of Wendell Road and three more in the 9700 block of Skillman Street. There are five structures stretching from 11330 to 11534 Pagemill Rd. Three buildings are located at 9602-30 Chartwell Dr., 9858 Chartwell, which is an empty 15,004-sf asset, and 9876-9900 Chartwell. The package includes 11401-11431 Plano Rd. The buildings go from 48% to 100% occupancies.
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