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Market News and Trends
Musical Chairs
We anticipate many changes in ownership of office buildings in the coming months. Special mortgage servicers are taking control of distressed properties and more foreclosures and eventual building sales are forthcoming. Cash constraints have caused some portfolio managers to sell select assets to shore up the remaining portfolio’s performance. With the return of investment capital to the market, owners of stabilized properties now see a window of opportunity to sell at improved cap rates. Often they are motivated by looming loan maturities and the shortage of cash for leasing expenses.
Office Market Observations from the Front Lines
Many brokers have recently reported that they believe Dallas is at or near the bottom of this real estate cycle. While it appears we are close, we do not foresee a quick recovery. The Dallas office market suffered 525,000 SF of negative absorption in the 2nd quarter. Year-to-date, there has been over 980,000 SF of negative absorption and there is continued downward pressure on rental rates in most submarkets. As a result, tenant expectations for competitive lease terms are high and landlords are aggressively competing for transactions.
Currently, market activity has slowed due to the traditional “summer slowdown” as decision makers are on vacation. We anticipate activity to pick up in late August as we are beginning to see an increase in volume of tenants evaluating the market to take advantage of leasing opportunities. Generally, there is a flight to quality and we are working with clients to best position their assets in order to outperform the highly competitive market.
FASB Accounting Rule Changes
Major changes proposed by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) that will impact lease accounting rules are expected in 2011. So far, these proposed new accounting rules have not been a significant topic in current lease negotiations. The primary FASB change being discussed is that real estate leases may be treated as capital leases. This could cause shorter lease terms to be a more common occurrence as a result of this FASB rule, but only time will tell if this is to occur. However, impactful changes to both tenants’ and landlords’ balance sheets would be the result. Owners and agents are quickly getting up to speed on this issue.
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Leases
• KR Wind, represented by Swearingen, signed a renewal and expansion for 11,718 SF at Coit Central Tower in the LBJ Freeway Submarket. The 84-month deal was $16.95 +E with $20.00 in TI and 3 months free rent.
• Pinnacle Technical Resources signed a 12,263 SF lease at The Crossings in the LBJ Freeway Submarket. The effective rate for the 132-month deal was approximately $13.50 +E with $20.00 in TI.
• Reach Local, represented by Studley, signed an expansion for 10,820 SF at 6504 International in Far North Dallas. The 38-month deal was for $17.53 +E with $7.00 in TI and 2 months free rent.
• Grand Bank signed a 9,201 SF renewal at Bent Tree Plaza. The economics of the 120-month deal were $16.41 F/S, “as-is” and no free rent given.
• An Undisclosed Energy Trading Firm, represented by Magellan, signed a 6,114 SF new lease at MacArthur Ridge in Las Colinas. The economics of the 64-month deal were $20.50 +E with $9.00 in TI and 4 months free rent.
• Clear Results, represented by Grubb & Ellis, signed a 6,074 SF new lease at Premier Center in Las Colinas. The economics of the 63-month deal were $13.57 +E, turnkey and 3 months free rent.
• Barbknecht Firm signed a 6,000 SF renewal at Atrium at Collin Ridge in the Richardson / Plano Submarket. The 84-month deal was $17.20 F/S, paint and carpet and 5 months free rent.
• ADSC, represented by Jones Lang LaSalle, signed a 4,793 SF new lease at Parkway Tower in Las Colinas. The 64-month deal was $15.00 +E with $22.00 in TI and 4 months free rent.
• Cigniti, represented by Bradford Commercial, signed a 3,500 SF new lease at Waterway Tower in Las Colinas. The economics of the 36-month deal were $15.80 +E, spec suite with 5 months free rent.
• Azhar & Azhar signed a 2,082 SF new lease at One Graystone Center in the LBJ Submarket. The 65-month lease was $13.50 F/S, $8.00 in TI and 5 months free.
• David Crowley Foundation signed a 2,134 SF new lease at Northpark Central in the North Central Expressway Submarket. The 105-month lease was $20.34 +E with $30.00 in TI and 9 months free rent.
| Deals in Play
• Project Casa ("Motorola"), represented by US Equities out of Chicago and Stream, is in the market for 500,000 SF of office space. This prospect is currently considering Dallas, Chicago, California and Florida.
• Jim Travers with Travers Realty is representing an Undisclosed Los Angeles Firm in the market for 180,000 SF of office space. This prospect is currently considering all Dallas Submarkets.
• Project Volcano, represented by John McNeil and Scott Collier with Jones Lang LaSalle, is in the market for 150,000 SF of office space in Las Colinas.
• Med Synergies, represented by David Creiner with Jackson Cooksey, is in the market for 80,000 SF of office space in the Las Colinas Submarket and they are down to 2 options: 500 EJC and MacArthur Ridge.
• Steve Thelan and Bo Bond with Jones Lang LaSalle are representing an Undisclosed Firm in the market for 100,000 SF in either the Far North Dallas, LBJ Freeway or Richardson/Plano Submarket.
• Key Bank, represented by Jim Vanderslice with Grubb & Ellis, is in the market for 75,000 SF of office space in the Central Business District.
• Bombardier, represented by Will Sale and Jim Vanderslice with Grubb & Ellis, is in the market for 70,000 SF of office space in Richardson.
• Hua Wei, represented by John Schaunfield with Newmark Knight Frank, is in the market for 35-50,000 SF of office space in the Legacy area of Far North Dallas.
• CH2M Hill, represented by Beryl George and Mike Quint with Jackson Cooksey, is in the market for 20,000 SF of office space in either the North Central Expressway or LBJ Freeway Submarket.
Investment Activity
CB Richard Ellis Investors has purchased Preston Commons and Sterling Plaza totaling 726,801 SF of office space for $185 per SF.
500 East John Carpenter, a 202,879 SF office building, sold to Spire Realty for $52 per SF, completely empty.
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