RICHARDSON, TX-Champion Partners has kicked off an investment strategy that focuses on buying office assets that need to be re-capitalized, renovated, re-branded and re-tenanted. Working with its institutional partner, Fidelity Real Estate Group, the Dallas-based firm recently acquired two distressed properties in Galatyn Park that fit its investment criteria, as well as a defaulted bank loan on a Las Colinas building that has already been paid off.
“We’re looking to buy assets at a fraction of replacement cost, spend the capital required to renovate the properties to today’s class A standards, find tenants for them and then sell the buildings,” explains Steve Modory, a principal with Champion. “There are a significant number of buildings that were purchased by investors from 2004 to 2008, and those owners do not have the access to capital to re-tenant their buildings. We’re in an environment where the existing ownership and existing capitalization can’t put any more money in. Ultimately something has to happen with those assets to bring new capital and find tenants.”
Champion purchased the 2000-vintage buildings in separate transactions from the special servicers. The firm paid cash for both properties, but Modory declined to disclose the prices. Together, the assets total 516,000 square feet, and the firm will spend about $5 million to renovate and re-tenant both buildings, he tells GlobeSt.com.
“We think having large class A spaces in the better suburban submarkets will pay off over the next few years,” Modory says. “We believe there will be some larger corporate users coming into the market place or consolidating.”
The first property, located at 2370 Performance Dr., was formerly occupied by Nortel Networks. The seven-story, 282,000-square-foot office building sits just east of Central Expressway off of the Galatyn Parkway exit. Champion worked with the City of Richardson to re-address and re-brand the property, now known as 1011 Galatyn Parkway.
Champion is directly handling the marketing effort, with a focus on prospective tenants requiring at least 150,000 square feet of Class “A” office space. The firm already has started a significant renovation of the building’s lobby and common areas, with completion scheduled in early December.
The second Richardson property was acquired through a complex short-sale arrangement with the prior building owner and the special servicer for the lender. The nine-story, 234,000-square-foot building at 2600 N. Central Expressway, known as One Telecom, previously housed operations for Southwestern Bell and AT&T.
Renovations similar in scope to the 1011 Galatyn building are planned for 2600 N. Central Expressway, and Champion is also finalizing a re-branding and re-marketing effort. As part of this, Peloton Commercial Real Estate has been hired to act as leasing representative.
“At today’s level of rents, the investments make sense,” Modory asserts. “We feel good about the bets we’re making, and we’ll feel even better if we see rent growth and significant improvement in demand.”
Champion sourced all three transactions off-market. The company has several similar deals in process, with plans to make additional property and loan investments throughout the rest of 2010 and well into 2011 while prices remain at historically low levels.
“We are actively working on several additional discounted loan purchases and direct off-market investments in Texas, primarily within the office and industrial sectors,” says Jeff Swope, principal with Champion. “We believe the next few years represent another cycle of deeply discounted buying opportunities for quality assets, similar to what happened in the early 1990’s RTC (Resolution Trust Corp.) days after the failures of savings and loan institutions produced a glut of commercial real estate property being sold off at bargain prices.”
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