California company buying up $1.15 billion in office buildings
Author: Skia
Category: Commercial Real Estate
A Los Angeles real estate firm is buying a group of Austin office properties for $1.15 billion, in what is believed to be the biggest commercial real estate deal ever in Texas.Thomas Properties Group Inc. has put under contract Austin office buildings including the Frost Bank Tower, 300 West Sixth Street, three other downtown properties and five suburban complexes.
Once the sale closes, Thomas will be Austin’s biggest office landlord, with more than 3.4 million square feet of space.
“One deal at a billion dollars — I would be hard-pressed to come up with anything bigger,” said Tim Hendricks senior vice president in the Austin office of Cousins Properties Inc., which built and manages the 33-story Frost Tower.
As word circulated in recent days that a deal was imminent, local office brokers speculated about who the ultimate buyer would be and the impact on the local office market.
Whoever the buyer is “is making an enormous investment in Austin because they think the economy and the office market are going to continue to be very strong,” said Sam Houston, the office division project partner at HPI Real Estate Services and Investments Inc., formerly Hill Partners.
Thomas Properties has one other Austin holding, an office complex it is developing at Four Points Centre, a 333-acre development in Northwest Austin that eventually could hold up to 1.2 million square feet of office space.
It also owns and manages properties in Los Angeles and other California cities, Houston and the Philadelphia area. The company has been increasing its Texas holdings since mid-2005.
The seller of the Austin properties was the Blackstone Group, a private equity firm that last year bought Equity Office Properties Trust, a national real estate company, for $39.2 billion in cash and debt.
The deal included top office portfolios around the country. But since buying Equity, Blackstone has been flipping its holdings in Boston, Seattle, San Diego and other cities, often for premium prices. In some cases, the new owners turned around and put the buildings back on the market, seeking to capitalize on a strong national demand for commercial properties.
On Monday, Blackstone sold its downtown Denver properties to a Chicago firm for $770 million in that city’s biggest commercial deal ever.
Blackstone recently hired Holliday Fenoglio Fowler to market the Austin properties, drawing interest from several companies.
Thomas Properties was founded in 1996 and went public in 2004. Its biggest Texas acquisition before this one was in 2006, when it bought 1.5 million square feet of office space and 24 acres of adjacent land in Houston from BMC Software.
While residential markets around the country are cooling, the commercial markets are hot, with sellers paying top dollar for high-profile properties. Last September, Equity paid $188 million for the Frost Bank Tower, or $354 a square foot — a state record.
Austin is a particularly strong office market, with rising occupancy rates and rents, pushed up by companies expanding or moving into Austin and hiring more employees.
Local real estate experts say Thomas Properties is in a position to command top rents for its Austin properties, given its control of a substantial percentage of the market.
Austin office rents have been lower than many other major cities, but that is changing, Hendricks said.
“Going forward, we’ll be closing the rental-rate gap between Austin and areas like California and the East Coast,” Hendricks said. Even with anticipated increases, “Austin is still a great value,” he said.
And he said many downtown tenants will be protected from anticipated increases because their leases don’t expire until between 2009 and 2014.
Jerry Frey, managing director of CB Richard Ellis Group Inc.’s operations in Austin and San Antonio, said the chief factors behind rising rents are strong job growth and the relationship between supply and demand, “not just the fact that there’s a new ownership group.”
Another big deal is coming: Crescent Real Estate Equities Co. has put its Austin holdings on the market. The Fort Worth-based company has already sold one element, the Omni Austin Hotel, which was sold as part of a package deal with six other properties for $550 million.
Source:
investment property
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