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April 8, 2013

KBS Strategic Opportunity REIT Ropes in 500 KSF Austin Portfolio

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.”