The glory days of million-square-foot office leases may not be back yet, but you would never know it by the latest news from Houston’s Energy Center office campus. Trammell Crow Co. and Principal Real Estate Investors have landed ConocoPhillips to take a total of 850,000 square feet at two trophy towers. 

The energy company will be the sole tenant of Energy Center Three, a 550,000-square-foot tower now under construction. ConocoPhillips will also take half the space at Energy Center Four, a 600,000-square-foot building scheduled to get under construction during the fourth quarter.

Located in the heart of the city’s bustling Energy Corridor, Energy Center Three and Four will bring ConocoPhillips’ Lower 48 Business Unit together at a single address. The new buildings will be within easy reach of the company’s corporate headquarters campus.

Balfour Beatty Construction, the general contractor for Energy Center Three, kicked off construction in January and is on track to complete the project by the second quarter of 2015. Trammell Crow and Principal have a helping hand from Wells Fargo Bank and U.S. Bank, which are providing construction financing.

Signing on in advance for a new development has become one of the best bets for securing large Class A office accommodations in Houston’s central business district. Big blocks of premier space are at a premium, as Jones Lang LaSalle Inc. notes in a recent report. Only three blocks larger than 200,000 square feet were available in the submarket during the first quarter. “Until new developments slated for delivery in 2014 and 2015 come to market, availability within sought-after submarkets such as The Woodlands, Energy Corridor, and CBD will continue to tighten,” the report predicts.

At the 2013 Mortgage Bankers Association CREF/Multifamily Housing Conference, Marisha Clinton, director of research, Capital Markets, at Jones Lang LaSalle, names markets and industries that are on the “to watch” list for real estate investors.

Jack Cuneo

By Gail Kalinoski, Contributing Editor

Less than a month after telling shareholders it was exploring ways to provide a “liquidity event,” Chambers Street Properties, a self-managed Maryland REIT, made it official Tuesday, announcing it intends to list its common shares on the New York Stock Exchange. The REIT said it expected to be trading on the NYSE under the ticker CSG on or by May 21.

The REIT, which has its headquarters in Princeton, N.J., also said it was planning a modified “Dutch Auction” tender offer to purchase as much as $125 million of its common shares. Chambers Street would select the lowest price within a range of $10.10 and $10.60. The tender offer will be paid for with funds from its unsecured revolving credit facility.

In an April 2 letter to stockholders, Chambers Street president & CEO Jack Cuneo said the firm had hired Wells Fargo Securities L.L.C. and Citigroup Global Markets Inc. as its financial advisors. He noted listing its shares on a national exchange was a possible outcome as it positioned itself for a “future liquidity event.”

The firm’s board of trustees deemed listing on the NYSE to be “in the best interest of the company and its shareholders,” according to a news release from Chambers Street Tuesday.

“Chambers Street believes that a listing will enable it to continue to execute its asset management, portfolio growth, and capital strategies designed to maximize shareholder value,” the release stated. “Publicly traded real estate companies have enjoyed strong returns in recent years, and companies that own net lease properties, similar to Chambers Street, are trading at attractive valuations. In addition, Chambers Street believes that a listing on the NYSE will provide access to additional potential investors as well as to a broader range of potential sources of capital.”

Because of the pending listing, Chambers Street officials could not comment beyond the firm’s news release.

The plan for public listing comes as the REIT has had a particularly active year since changing its name from CB Richard Ellis Realty Trust last June and moving to self-management. The REIT has about $3.2 billion in real estate holdings in the United States and abroad. It currently owns or has majority interests in 129 properties, mostly industrial and office assets, in 22 U.S. states, Germany and the United Kingdom. As of Dec. 31, 2012, the portfolio was 98 percent leased to 272 tenants, with diversity in locations, industries and lease expirations.

Two weeks ago, Chambers Street said Big O Development Inc., a major tenant at its Summit Distribution Center property in Salt Lake City, had signed a five-year lease renewal. An automotive tire distributor, Big O leases more than 100,000 feet of the 275,000-square-foot center, acquired in 2010 as part of a seven-property industrial portfolio.

Celebration Office Center, Orlando

Chambers Street has made four big acquisitions so far this year, including acquiring the remaining interests in 17 properties it owned in joint venture with Duke Realty Corp. The portfolio, which sold for a reported $98.6 million, comprised 16 office properties and one industrial asset, an 820,000-square-foot warehouse/distribution facility in Phoenix. The office properties included three buildings with a total of 542,000 square feet in Cincinnati and two buildings with a total of 451,000 square feet in Columbus. Other properties were located in Dallas; Fort Lauderdale; Houston; Minneapolis; Raleigh, N.C.; and two in Orlando  – Celebration Office Center and Northpoint III, with a total of 209,000 square feet.

In February, Chambers Street made its first acquisitions in the Philadelphia area, closing on two office buildings totaling 300,000 square feet in Malvern, Pa. The two buildings were developed by Chambers Street, then still known as CB Richard Ellis Realty Trust, and Trammell Crow, a CBRE Group subsidiary, in joint venture and leased to Endo Health Solutions.

L to R: Jeanette Rice (moderator), principal, Rice Consulting. Mike Gately, managing director, research group, Cornerstone Real Estate Advisers. Jack Kern, CIRO, Continental Realty Advisors. Mike Sobolik, regional director of research, North America, INVESCO Real Estate.

Industry leaders gathered yesterday in Dallas for NMHC’s 2013 Apartment Strategies/Finance Conference. The program provided valuable insight into the financial and demographic drivers behind multi-family’s continued dominance in commercial real estate. The conference kicked off with a panel discussion on exactly what institutional capital is looking for when it comes to apartments.

Low long-term vacancy rates, strong rent growth over the last 10 years and a heightened demographic demand are three of the main drivers behind institutional hunger for apartments, said Michael Gately, managing director, research group, Cornerstone Real Estate Advisers.

“Apartments have recovered faster than other sectors. We continue to attract capital, and that reflects in current pricing, where core assets in major markets are bidding up more than they were pre-recession,” Gately added. “In some secondary markets we are seeing prices higher than replacement costs, which is a little bit concerning, though good news for sellers.”

Gately points out that the demand for apartments will only increase due to the unprecedented pullback in construction activity that occurred as a result of the recession. The supply constraint is only bolstered when you factor in the age of the national apartment stock, with 78 percent of units built prior to 1990, and two thirds built before 1980. New trends in urban living favor state-of-the-art assets, and chronically under-housed cities like New York, Boston and San Francisco (where 50 to 70 percent of the population rents) will have an easy time landing money for the newest Class A urban core products.

“There is always a premium for the newest and the best,” Gately said. “The obsolescence factor is something you can’t underestimate when you are on the leading wave.”

Although the market fundamentals remain more than solid for apartments, Gately added that there are near- term speed bumps in some markets that institutional capital is keeping an eye on. One example is the fact that the first wave of high-end high-rise development is already seeing some reluctance as rent growth slows down.

Mike Sobolik, regional director of research, North America at INVESCO Real Estate, added that institutional investors are looking for—and are willing to pay for—a long-term trophy hold. Long-term demographic drivers certainly suggest that multi-family will be firing on all cylinders for some time.

“Institutional capital is looking at the industry on the long term, and they want the high-quality core located assets,” Sobolik said. “But if you want the high-quality core located asset, you are going to pay up for it. That is what is driving the cap rates so low for the urban Class A assets.”

Sobolik pointed out that there are several factors contributing to demand over the next 10 years. New household growth is expected to increase by 15 million over the next decade, with 35 percent of that figure electing to rent. That’s 5.25 million new households in the rental market over the next 10 years. When it comes to young renters, in the pre-GSE period 27 percent of those between 20 and 34 years of age lived with their families. In 2011 that number was at 31 percent, a difference of 3 million people. As the job market continues to improve, some of these younger workers will move out into the apartment market, bringing up the demand closer to 6 million people over the next 10 years.

“But I believe this is a front-loaded demand story,” Sobolik adds. “Pent up demand is not going to take 10 years to see fruition. It is going to happen in the next three to five years.”

Jack Kern, chief investment research officer at Continental Realty Advisors, provided some insight into the locations and asset classes that institutional funds are looking for.

“To me there are three areas: downtown urban, inter-urban in the seven- to 10-mile range from CBDs and suburban. There is just such a shortage of high-quality urban core assets. On the inter-urban side, assets positioned near transportation and shopping hubs will continue to do relatively well. Unfortunately I have seen ultra-luxury buildings in suburban areas that just aren’t justified, as the people who would live in that sort of property want to be closer to the action.”

Kern proposes that owners and investors get familiar with real time mapping analytics to see how patterns vary from market to market, with changes in occupancy being the biggest indication for where opportunity exists. He adds that investors should look past the gateway markets for value, as pricing can be a bit more favorable.

“We want something that will work long term for the renter, which has been a good strategy for us, even in those Class B spaces in Orlando, Houston and Louisville.”

Gately agreed, and believes that capital is more readily flowing to secondary markets as institutional investors become more comfortable with the asset class and the demographics driving its strength.

“It is getting challenging to place core capital in the top tier, gateway markets,” Gately concluded. “Many of our clients are listening and relaxing with us. Sure they sign on for a strategy and they want some control. But before they give us parameters, I find more and more clients are relaxing and looking at the core-plus, value-add opportunities.”

While working on what will soon become one of the largest corporate campuses in the world, ExxonMobil is apparently trying to minimize its office footprint throughout the country.

Just last week, the company hired Cassidy Turley to market its 117-acre corporate campus in Fairfax, Va., consisting of five buildings with 1.3 million square feet of Class A office space; underground parking structures totaling approximately 1 million square feet; and approximately 92 acres of undeveloped land. Since the company  first announced the development of the new corporate campus in Houston, there were clear mentions of the fact that its goal is that of accommodating additional employees from the immediate area and from the company locations in Fairfax, VA and Akron, OH.

Now, Exxon Mobil is also listing the ExxonMobil Chemical Company Headquarters campus in Houston’s Energy Corridor. The property, which serves as headquarters for the company’s chemical division, will be marketed by Holliday Fenoglio Fowler. A sales team has already been set in place, with HFF’s senior managing director Robert Williamson and managing director Davis Adams leading it; the debt team will be led by senior managing director Wally Reid and director Colby Mueck.

In addition to 352,170 rentable square feet of improvements consisting of an office building and conference center, the ExxonMobil Chemical Co. campus—located at 13501 Katy Freeway—features 1,000 feet of frontage on Interstate 10 and 800 feet of frontage on Memorial Drive. The property is situated on approximately 35 acres in the heart of Houston’s Energy Corridor, adjacent to the BP America Headquarters, across Interstate 10 from both ConocoPhillips and Shell Oil’s North American Exploration and Productions headquarters, and within a mile of Mustang Engineering and Dow Chemical.

ExxonMobil will be grouping more of its divisions on the campus it started building in 2011 in The Woodlands, one hour from Houston; located on a 385-acre wooded site on company-owned land near the intersection of I-45 and the Hardy Toll Road, the ExxonMobil Houston Campus will accommodate approximately 10,000 employees and is being constructed to high standards of energy efficiency and environmental stewardship. Employees will move in phases as the buildings are constructed, beginning in early 2014. Full occupancy for Houston-based employees is expected by 2015.

Image courtesy of ExxonMobil website

Mark Alfieri, of Behringer Harvard

Behringer Harvard is keen on a bevy of cities these days and Austin, Texas is one of them. Acting through the Behringer Harvard Multifamily REIT I Inc., the real estate investment company is ponying up funds as a co-investor in the development of Seven RIO, a 220-unit luxury apartment community in downtown Austin. 

With CWS Capital Partners L.L.C. as the project developer, Behringer Harvard will help bring Seven RIO to life as an equity partner with a 90 percent stake in the asset, which will cost an estimate $60.7 million to complete, according to an SEC document. The project marks Behringer Harvard’s entrée into the City of Austin. 

The 24-story residential tower, which will provide all of the upscale amenities that today’s renters covet, will sit within close proximity of Austin’s bustling central business district. The partners predict that location will play a key role in Seven RIO’s success. 

“We expect Seven RIO to benefit from a strategic location in downtown Austin with convenient access to employers in the central business district as well as many shopping, dining and entertainment venues that contribute to Austin’s exciting nightlife,” Mark Alfieri, COO of Behringer Harvard Multifamily REIT I, said in a prepared statement. 

In general, Austin’s apartment market is seeing some of its best days. The vacancy rate in the city had dropped to just 3.9 percent by the close of 2012, which means it kicked off 2013 at its lowest level in more than 10 years, according to a report by Marcus & Millichap Real Estate Investment Services. While development activity will surge this year, high demand–prompted by the city’s booming high-tech sector and growing health care industry–is expected to keep vacancy rates down to enviable lows.

Construction of Seven Rio is on track to commence this month.

San Francisco-based Shorenstein Properties L.L.C. has chosen Transwestern to serve as the exclusive leasing agent for 800 Bell—the 1.2 million-square-foot office tower in Houston’s Central Business District that the company acquired back in January.

The 45-story 800 Bell St. building, known as the ExxonMobil Tower, was built in 1962 as the headquarters of Humble Oil & Refining Co., a predecessor to ExxonMobil; at that time, it was the tallest building west of the Mississippi River, at 606 feet. The property includes a seven-story parking garage covering two city blocks on the corner of Travis and Bell streets.

Current tenant ExxonMobil will vacate the building in 2015, when the development of its campus will be completed, giving Shorenstein the opportunity to deliver significant improvements to the property through an extensive redevelopment. The details of the redevelopment project have not yet been released.

For leasing, 800 Bell relies on its unique corporate identity on the Houston skyline and on the fact that it remains one of the largest blocks of contiguous space offered in Houston in more than 30 years.

“We are very excited about this unique opportunity,” said Transwestern’s Eric Anderson, executive vice president. “It is not very often that we can be a part of something as significant as enhancing the downtown Houston skyline. Shorenstein has a reputation for delivering successful signature redevelopment projects, such as Market Square in San Francisco, which includes the headquarters of Twitter, Yammer and One Kings Lane. We are excited to see what Shorenstein has in store for 800 Bell and downtown Houston.” Anderson, executive vice president David Baker and vice president Paul Wittorf will be in charge of marketing and leasing the property.

Image courtesy of Obskura via Flickr

]]> http://www.cpexecutive.com/regions/southwest/shorenstein-hires-transwestern-to-lease-1-2-msf-exxon-mobil-tower/feed/ 0 http://www.cpexecutive.com/regions/southwest/kbs-strategic-opportunity-reit-ropes-in-500-ksf-austin-portfolio/ http://www.cpexecutive.com/regions/southwest/kbs-strategic-opportunity-reit-ropes-in-500-ksf-austin-portfolio/#comments Mon, 08 Apr 2013 15:32:21 +0000 annas http://www.cpexecutive.com/?p=1004070053 By Barbra Murray, Contributing Editor 

KBS Strategic Opportunity REIT has increased its office holdings in Austin to approximately 1.5 million square feet with the acquisition of the Austin Suburban Portfolio, a group of three office properties totaling 518,000 square feet. The REIT purchased the Class A and B assets from TPG/CalSTRS Austin L.L.C., a joint venture involving Thomas Properties Group Inc. and pension fund CalSTRS, for $76 million. 

The change in ownership of Park Centre, Westech 360 and Great Hills Plaza comes just more than six months after TPG/CalSTRS came into possession of the three assets with the $859 million purchase of an eight-property, three million-square-foot office portfolio from a venture consisting of Lehman Brothers Holdings Inc., an offshore sovereign wealth fund and TPG/CalSTRS L.L.C., another joint venture between TPG and CalSTRS. 

KBS financed the acquisition of the unencumbered Austin Suburban Portfolio with proceeds from its initial public offering, which commenced in 2010.

The largest of the assets, Park Centre, is also the newest. Consisting of three buildings, the 203,200-square-foot complex was developed in 2000. Built in 1986, Westech 360 features four structures totaling 175,500 square feet, while the three-story Great Hills Plaza opened its doors in 1985 with 139,300 square feet. 

The portfolio is presently 75 percent leased, which does not reflect the current status of the office market in Austin, where the consistently decreasing vacancy rate dropped to 15 percent at year’s end, according to a report by commercial real estate services firm NAI REOC Austin. However, the properties are positioned to benefit from their location in the city’s improving suburban submarket.

“What’s driving the demand is some of the major relocations that have been announced coming into the area, and the high-tech sector is booming and other industries that utilize office space have really started to take hold,” Bob Rein, associate vice president with NAI REOC Austin, told Commercial Property Executive. “So what’s happening in the CBD is while there are still properties, they’re usually big blocks of office space so smaller users are having a tougher time in the CBD, and that’s forcing them to go north, south, and west to find quality office space.” 

For the Austin Suburban Portfolio, time will tell. The average remaining lease term for the tenants is approximately three years and the current weighted-average annual rental rate for the remaining lease term is $14.01 compared to–according to the NAI report–the $26.53 per square-foot asking rate citywide. “When you have decreasing vacancies, you have rising rents,” Rein said. “Rates haven’t gone up that much but some of the freebies are tightening up a little bit.”

A busy city has to eat, right? In yet another sign that Houston is surging upward again, Fidelis Realty Partners, of that city, has purchased Willowchase Shopping Center, a 273,200-square-foot property anchored by a 92,800-square-foot Fiesta Market supermarket, it was announced Wednesday. 

Cohen Real Estate, of New York, led by President Helen Putterman and senior managing director Vera Thomas, arranged the sale for seller Wheeler Interests, of Virginia Beach, Va. The sale price was not disclosed, and Fidelis declined to speak with Commercial Property Executive. 

The property, on Willow Chase Drive near State Highway 249 and FM 1960, also includes Jo-Ann Fabrics, Family Dollar and Dots among its major tenants and is 85 percent occupied. 

The center is across FM 1960 from the Commons at Willowbrook, a 444,000-square-foot power center developed by Fidelis and featuring such tenants as Bed Bath & Beyond, Sam’s Club, Ross and ULTA Beauty. And it’s across Highway 249 from Willowbrook Mall, a 1.8-million-square-foot super regional center anchored by Macy’s, Dillard’s and JCPenney. 

“Crucial to the deal’s success was the assumption of the existing 30-year loan,” Putterman said in a release. “Getting this done required the sustained commitment and collaboration of both parties, as well as maintaining a close working relationship with the servicer.”

Grocery-anchored centers are hot nationwide, but Willowchase in particular attracted many potential buyers, Putterman told CPE. She cited the store’s large size and noted that Fiesta is a financially strong regional grocery chain.

From the purchase of suburban office buildings and substantial RevPAR growth in the hospitality market, to the opening of a 2,100-acre Boy Scout camp for commercial and residential development, Houston is a steamy market these days. 

One of three shopping centers in a portfolio just bought by Phillips Edison-ARC Shopping Center REIT Inc. is the 149,000-square-foot Kleinwood Center in the suburb of Spring, the company’s first-ever purchase in Texas. The center is anchored by an H-E-B grocery store under a long-term lease.

Courtyard by Marriott, Dallas

Sage Hospitality and Whitman Peterson have kicked off their new investment relationship with the acquisition of six Courtyard by Marriott lodging properties from Clarion Partners L.L.C. The 852-room group of hotels is located in metropolitan Atlanta, Dallas and the Detroit area.

Sage and Whitman were hardly alone in their desire to acquire the assets. Jones Lang LaSalle’s Hotels & Hospitality Group orchestrated the transaction on the seller’s behalf and, as Al Calhoun, a managing director with the firm, told Commercial Property Executive, “The investor interest level on this portfolio was very strong, mainly from owner/operators partnering with private equity who looked to create value on the formerly brand managed properties through their management expertise and their private equity partner’s access to capital.” 

That’s the Sage and Whitman’s plan. Their partnership strategy calls for the creation of a portfolio of select service hotels sited in business-driven markets and positioned to benefit from capital, operational and/or brand improvements. The six newly acquired properties dovetail perfectly with the team’s objectives. 

“The majority of these properties’ demand is driven by corporate business,” Calhoun added. “These properties also benefit from their strategic location adjacent to or nearby major interstates. Dallas and Atlanta are currently the second and fourth respective fastest growing metropolitan areas in the U.S.” 

Three of the hotels are in metropolitan Atlanta, including the 146-room Courtyard by Marriott 75 North in Marietta, in addition to the 127-room Courtyard by Marriott Atlanta Windy Hill and the 131-room Courtyard by Marriott Atlanta Norcross Peachtree Corners, both of which are in Atlanta.  The 145-room Courtyard by Marriott Dallas Addison Midway and the 146-room Courtyard by Marriott LBJ at Josey Lane call Dallas home, and the Courtyard by Marriott Detroit Southfield in Southfield, Mich., rounds out the group.

“This was an outstanding opportunity for the buyer to acquire this critical mass of Courtyards, which are currently brand managed, and each come with 20-year Courtyard relicense agreements,” Mark Fair, a managing director with JLL’s hotel group, told CPE. “This buyer’s hands-on management coupled with the highly desirable Courtyard by Marriott brand and the change-of-ownership PIP will make for an excellent opportunity to substantially increase RevPAR and NOI in the coming years.” 

Sage and Whitman will have no shortage of competition as they move forward with their goal of acquiring a sizable portfolio of select service hotels. “We are currently seeing investors, mainly private equity partnering with seasoned owner/operators, extremely eager to invest in this market given its strong fundamentals and lack of new supply,” Fair said. “The current debt markets are also allowing many owners the ability to lock in low interest rates on their acquisitions, freeing up capital to fund additional acquisitions or capital improvements to their current portfolio. We definitely expect the select service investment market to remain resilient through 2013 and into 2014.”