Cresa Connection: Tollway Corridor - June 2021
Please find June's edition of my monthly update on the North Dallas/Plano/Frisco office market detailing lease transactions recently signed, tenants searching for office space in the market and the latest office building news.
If you have an office decision to make this year please contact me for help with your real estate needs.
The Sun Belt once again benefitted from strong population growth trends in 2020, according to the latest U.S. Census Bureau estimates. Large Sun Belt states such as Texas, Florida, Arizona, North Carolina and Georgia led the way in population growth last year. The DFW metroplex topped the list with an impressive 120,000 residents gained in 2020, bringing the region’s total population growth to 1.3 million since 2010. DFW has now led the nation in nominal population growth for five straight years as the region remains a magnet for domestic and international migration. Not surprising, Houston and Austin came in third and fourth on the list, adding 91,000 and 67,000 new residents, respectively. The three largest metropolitan areas in the country all saw the most severe population losses. New York City recorded a 98,000 resident drop in 2020, followed by Los Angeles (73,000 residents lost) and Chicago (48,000 residents lost). All of these cities typically rely on net migration from international residents, which was massively impacted by the COVID-19 international travel shutdowns.
Apple, the world’s largest tech company, has signed Silicon Valley’s largest COVID-era office lease and one of the nation’s largest deals by square footage since the pandemic’s onset, a sign big companies are committing to physical space as their influence increases over the commercial real estate market. The Cupertino-based tech giant signed a 700,000 square foot lease across six buildings in the South Bay suburb of Sunnyvale. Apple is among a handful of the world’s largest tech companies that are investing billions of dollars into bulking up their real estate portfolios as the uncertainty of the pandemic shows signs of subsiding.
Among the 13 office leases nationally spanning more than 500,000 square feet and signed since January 2020, retail conglomerate Amazon has accounted for five of them.
Vanguard, the Pennsylvania-based global investment management giant, has announced it will establish its fifth U.S. office in the Dallas area. The office will focus on its advice businesses, including its Personal Adviser Services division, which manages $231 billion in customer assets. The office will open in 2022 and the company is still exploring real estate options. Vanguard has 15,500 U.S. employees, manages $7.5 trillion in global assets and offers 438 funds to its 30 million investors worldwide. Vanguard, known for its practice of lowering fees, is the second-largest manager of exchange-traded funds and the third largest in mutual fund assets. Vanguard doubled its assets from 2009 to March 2021, going from $480 billion to just under $1 trillion. Vanguard’s entry into Texas means it will be encroaching on the territory of two of its biggest competitors – Fidelity and Charles Schwab. Fidelity, which has six local offices and 6,000 North Texas employees, most of which at its Westlake campus, is slightly ahead of Vanguard with 37 million individual investors and $10.4 trillion in total customer assets. Vanguard is likely to pass Fidelity to become the second-largest active mutual fund company because it has the highest growth rate among its competitors. Charles Schwab, which has $7 trillion in client assets, up 94% from April 2020, has a similar number of clients to Vanguard and Fidelity with 32 million active brokerage accounts. DFW has become a key financial center in the U.S. and has been steadily adding finance jobs over the last decade. Employees in financial activities have grown 39% to 329,000 since 2011. The highest concentration of financial services jobs are located in downtown Dallas, Addison and West Plano.
U.K.-based financial technology company Revolut has selected Dallas as its third U.S. office after New York City and San Francisco. The $5.5 billion fintech company started in 2015 and has amassed 15 million global customers. After raising close to $1 billion in investment, it broke even in 2020 and is now focused on reaching sustainable profitability. While being a household name in Europe, it didn’t come to the U.S. until March 2020 and has just 50 U.S.-based employees, despite an impressive 200,000 U.S. customers. The 2,500-employee company is embarking on a hiring spree this year and expects to add 300 salespeople to its Dallas office. Revolut is still exploring real estate options for its local office location, with downtown Dallas, Addison and West Plano as likely candidates, and currently has a flexible work-from-home policy, allowing employees to work from anywhere in the world for two months of the year. Revolut stands out because it is a digital, cloud-based company with no branches and also prides itself on eliminating the high fees that legacy banks charges individuals and businesses. Revolut wants to be the go-to app for consumers to manage all aspects of their financial lives. Users can send and accept money from other users, hold and exchange more than 28 different currencies and receive their salary payments two days early.
Dallas-based Stillwater Capital, landowner of the PGA Frisco development, has won approval from the Frisco City Council for a mixed-use development adjacent to the PGA headquarters site. Called The Link, the 240-acre project will be located at the intersection of PGA Parkway and Legacy Drive and will surround the PGA headquarters, Omni PGA Frisco Resort, two 18-hole championship golf courses and a short course. The Link, with an estimated 10-year build-out period, will comprise office, retail, luxury residential, entertainment, a boutique hotel and sports wellness uses. Stillwater Capital got approval from Frisco just as work is starting on the Omni PGA Frisco Resort. The first phase of The Link will start construction in the 4th Quarter of 2021 and expects to deliver in concert with the opening of the Omni resort hotel in summer 2023. Stillwater Capital, which was involved in recruiting the PGA to relocate to Frisco from West Palm Beach, acquired just under 1,000 acres for the PGA site and were left with 240 acres at the end of the PGA site planning process, which is being developed into The Link after this rezoning process, which took two years from start to finish. At full build-out, The Link is expected to have 2-2.5 million square feet of office space, 300,000-400,000 square feet of retail, restaurant and entertainment space, 2,700 apartments, condominiums and townhouses, and two hotels, with one earmarked for a high-end boutique hotel and one for a limited-service hotel.
Frisco is also expected to be home to adjacent plans from another developer (Fehmi Karahan) for a much larger $10 billion mixed-use project comprising 2,000 acres called Fields, which received approval earlier this year from the Frisco City Council to move forward with a $100 million infrastructure project being developed in partnership with the city of Frisco. The Fields development is expected to include 10 million square feet of commercial real estate uses and more than 10,000 residential homes. Frisco expects to be the next major destination for large corporate relocations, with Karahan fielding calls from corporations in California, New York, Washington state and Illinois. Karahan’s development group for the Fields project includes KDC, Hunt Realty, Republic Property Group, Chief Partners and CrossTie Capital.
Plano-based Allied BioScience will relocate to an adjacent building from 7800 Dallas Parkway (Headquarters I) to 7500 Dallas Parkway (One Legacy Circle), doubling its current footprint as the company experiences growth from its creation of SurfaceWise2, an antiviral surface coating that protects against COVID-19. The coating was authorized for use by the EPA in August 2020. Allied has worked in the biotech field, with a special interest in fighting infectious diseases, for over a decade.
Emerald Plaza (14900 Landmark Blvd) has been sold to Oregon-based Lithia Real Estate, who plans to owner-occupy the remaining 8,141 square feet of 1st floor vacancy and hold off leasing all remaining vacant space in the building, which includes 7,328 square feet on the 3rd floor and 3,419 square feet on the 5th floor. The 6-story, 74,182 square foot building was constructed in 1985 and has been under the ownership of Massachusetts-based Grander Capital Partners since 2016.
Construction crews at the former NTT Data Plano Parkway campus, which represents one of DFW’s largest data center campuses, are demolishing part of the complex. The former NTT Data campus, which includes over 1 million square feet, was acquired by NTT Data in 2016 when they purchased the former Perot Systems IT services operation from Austin-based Dell. In 2019, the campus was sold to San Francisco-based real estate investor GI Partners in a sale-leaseback transaction whereby NTT Data leased back a portion of the property on a long-term basis. The campus comprises two data center facilities leased back to NTT Data, office space and an on-site power substation. GI Partners has been silent on its future plans for the project.
Dallas-based Dogwood Commercial has closed on its acquisition of Addison Tower, a 9-story, 149,247 square foot office tower on Addison Road near the Addison Airport. The 1985-built asset is currently 80% leased with quoted rental rates of $22.50 per square foot plus electricity. The seller, Quadrant Mezzanine Partners, had acquired the property for $10 million ($67/SF) in September 2020 in a foreclosure auction sale.
Plano-based department store retailer J.C. Penney, which exited Chapter 11 bankruptcy with new owners after spending nearly seven months in bankruptcy proceedings, has decided to eliminate about 650 positions, or roughly 1.5% of its total employee base of more than 50,000 workers, including corporate roles in the Plano area. The move by the 119-year-old retailer comes after it closed more than 160 U.S. stores and has been without a corporate headquarters since December. Of the jobs eliminated, J.C. Penney cut 100 of its roughly 3,500 corporate jobs in the DFW area, where the retailer is still searching for a new headquarters after terminating its long-term, 1.2 million square foot lease at its former Legacy West campus.
Dallas-based VanTrust Real Estate has reached completion of its third office building in the Frisco Station development, which wraps around The Star. The Offices Three at Frisco Station, a 6-story, 210,065 square foot Class “AA” office building, is currently 8% leased after signing its first lease last month and got underway as a speculative project one month prior to the pandemic. VanTrust is not in panic mode though, as its first two buildings at Frisco Station reached completion with very little to no leases in place – The Offices One was 0% leased and The Offices Two was 20% leased upon completion – whereas today The Offices One and Two are both 96% leased to a host of investment-grade and Fortune 1000 tenants, including Fiserv, Equinix, Keurig Dr. Pepper, Magellan Health, Stifel, Raymond James, Insperity and Brierley+Partners. Frisco Station boasts 5G connectivity and one of the world’s first vertiports for flying taxis. VanTrust, which developed the office buildings in partnership with Hillwood and The Rudman Family, has plans to add another 5 million square feet of office space to Frisco Station, including some build-to-suit options. Upon full build-out, the developer expects there will be 15,000 employees working at Frisco Station.
California-based Interior Logic Group, a national provider of interior design and finish solutions, signed a 17,681 square foot lease at The Offices Three at Frisco Station in May. The office will include an innovation center and design studio for more than 50 employees. The company has more than 200 locations and 100 design studios and boasts a client roster ranging from homebuilders to apartment and industrial warehouse developers. The high-tech design firm has a virtual home shopping, design and analytics platform.
Frost Bank will nearly triple its branch network in Dallas and Collin counties over the next several years as the bank looks to replicate its early success from a similar push into the Houston market. The San Antonio-based company disclosed in a conference call its plans, beginning in January 2022, to open 25 new locations over a 30-month period. The new sites will be a combination of newly built and leased locations. As many banks scale back and close physical branches, Frost noted that physical locations remain important to their business customers. Through March 2021, Frost reported a $113.9 million profit, more than twice the $47.2 million it banked in the same period last year.
Oregon-based investor Menashe Properties has acquired the two-building Heritage One & Two, which sits near the northwest corner of the Dallas North Tollway and LBJ Freeway. Built in the 1970s and 1980s, the 370,000 square foot office complex recently underwent a $17 million upgrade. The 10- and 11-story office towers are 74% and 80% leased and the acquisition includes a site for future office development. This is Menashe’s first purchase in the Dallas market.
Developers have broken ground on District 121, a $250 million mixed-use project in McKinney’s Craig Ranch, a 2,200-acre community that started out as primarily a residential development and has amassed 4,500 single-family homes. Development has now shifted to the 121/Alma Road area of Craig Ranch at the northeast corner of that intersection, where multiple commercial buildings are in the works on an 18-acre site. The new District 121 development plans call for 520,000 square feet of office space and 40,000 square feet of retail and restaurant space, with the potential for a hotel. David Craig, CEO of Craig International and founder of Craig Ranch, is working on the District 121 project with partner Miles Prestemon and the property owner, Dr. Baber Younas. District 121 will be anchored by a 200,000 square foot office building to be constructed by Kaizen Partners, who recently developed the successful Bethany at Watters Creek office project in Allen. A 1-acre green space called The Commons and an 800-space parking garage will serve the development, which will be marketed to corporate office users. District 121 received a $2 million grant last year from the McKinney Community Development Corporation for The Commons park, which will include an event stage and outdoor patio spaces.
Sections of Craig Ranch along State Highway 121 are seeing a development boom. McKinney recently rezoned 60 acres along Henneman Way and Weiskopf Avenue to accommodate a $366 million mixed-use project in the McKinney Corporate Center at Craig Ranch that will include office, retail and apartments. An affiliate of Beverly Hills-based KOAR Institutional Advisors is developing the project. In the same area, McKinney-based Independent Financial has begun construction to double the size of its headquarters campus on the north side of Highway 121. RPM X Construction, with offices in Dallas and Plano, announced they will be relocating into a new 90,000 square foot at Craig Ranch. Craig Ranch is currently valued at $2 billion.
Lease Transaction Comps
1. Haskell Company
Building: 2591 Dallas Parkway / Hall Park
Size: 4,939 SF
Term: 30 months
Free Rent: 0 months
Start Rate: $22.00/NNN
2. RTC2 Partners
Building: 17950 Preston Road / Preston Plaza
Type: New Lease
Size: 7,353 SF
Term: 68 months
Free Rent: 8 months
Start Rate: $24.50 + Electric
3. Brown Fox, PLLC
Building: 6303 Cowboys Way / The Offices Two at Frisco Station
Type: New Lease
Size: 6,322 SF
Term: 66 months
Free Rent: 6 months
Start Rate: $34.00/NNN
4. B2B Web Ventures
Building: 5055 Keller Springs Road / Liberty Plaza I
Type: New Lease
Size: 6,664 SF
Term: 90 months
Free Rent: 6 months
Start Rate: $22.50 + Electric
I specialize in representing office tenants in the North Dallas/Plano/Frisco market. Please let me know if I can be of service with your real estate needs (relocation search, expansion, lease renewal negotiations, building/condo purchase, sublease, portfolio management).
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Tor Erickson | Senior Vice President
5005 Lyndon B. Johnson Freeway, Suite 800
Dallas, TX 75244