Cresa Connection: Tollway Corridor - September 2021

Please find September'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.
 
Market News

The first six months of 2021 were marked by a strong recovery in commercial real estate sales volume from a pandemic-induced slump in 2020. Investment volume across the five main property types through June was 26.4% higher than it was in the first half of 2020, and only 5.6% lower than pre-pandemic 2019 levels, as investors have begun to sort out what the post-recession economy will look like. New York lost its top spot for total commercial real estate transaction volume in the first half of the year for the first time since 2005. The DFW region led all markets nationwide with transaction volume increasing 20% in the first half of 2021 to $13.4 billion. Dallas office usage is 48%, according to business security and access provider Kastle Systems, which is 15 percentage points higher than the average for major U.S. office markets. As remote work continues, it will continue to put pressure on lower-quality office space.

Global consultancy giant AECOM is joining a wave of Fortune 500 companies relocating their headquarters to Texas from California, a state with higher taxes, higher business-related costs and a more stringent regulatory climate. AECOM, a construction, design and engineering firm, plans to move its corporate headquarters to its existing Dallas office from Los Angeles effective October 1. CEO Troy Rudd and other corporate leaders are already based in Dallas. The company cited the benefits of DFW as a corporate hub and a relatively high concentration of experienced job candidates in the engineering and consulting industry as reasons behind the move. AECOM has 1,200 employees in the DFW market in addition to offices in Houston, Austin and San Antonio. The firm’s existing Dallas office is in the Galleria Towers building at One Galleria Tower (13355 Noel Road), which also houses Amazon as its largest tenant. The firm still expects to maintain a large presence in California, where it has 2,500 employees at its downtown Los Angeles office and other offices throughout the state. The move means Los Angeles will lose the headquarters of its largest publicly-traded company (ranked #189 on Fortune 500 list).

San Diego-based mobile infrastructure consulting firm MD7 has announced it will be relocating its headquarters to the DFW area and is expected to create 218 jobs locally. MD7 has agreed to invest $6.8 million in capital improvements when it relocates to One Bethany at Watters Creek in Allen. In exchange, MD7 is expected to receive $773,000 from the Texas Enterprise Fund for creating well-paying jobs (minimum $66,000). MD7, a consultancy that works in over 20 countries with mobile operators and infrastructure providers for site acquisition, lease management and other services, currently occupies 23,800 square feet in its San Diego office with a lease that expires in October 2022, but has not yet announced a size for the new Allen office. MD7 follows a string of other recent, higher-profile California relocations to Texas, including Oracle (to Austin), Hewlett Packard Enterprise (to Houston), Charles Schwab (Westlake) and Digital Realty Trust (to Austin).

Mortgage giant Fannie Mae has subleased 38,000 square feet of its Granite Park Seven office space to Addison-based technology firm Trintech. In 2017, Fannie Mae moved almost 1,000 workers into the 10-story, 330,000 square foot high-rise office building developed by Granite Properties. Trintech, an international financial software developer with over 3,500 clients, plans to occupy the space in November. Roughly 9 million square feet of excess office space is on the market for sublease in DFW as net office leasing declined sharply over the last 18 months since the start of the pandemic.

Frisco’s massive new $10 billion Fields development has announced plans for an urban-style, mixed-use project with office, retail and high-density housing uses on U.S. Highway 380 at the north end of the 2,500-acre development. Called North Fields, the 175-acre project will be developed along the south side of U.S. Highway 380. Designs for North Fields by architect Gensler show more than a dozen buildings in the project, which will be situated just north of the PGA of America’s new headquarters. The low- and mid-rise buildings will be constructed around a small lake. It will be the equivalent to Plano’s Legacy Town Center in size.

New York-based The Related Companies has acquired International Plaza I, the 13-story, 376,558 square foot high-rise office tower just north of Spring Valley Road along the Dallas North Tollway service road. Built in 1999, the tower is part of the three-building International Plaza campus that once housed JPMorgan Chase’s regional offices. International Plaza I is now home to the headquarters of Tenet Health System. Since 2018, the building has been owned by New York-based investor Taconic Capital. The sale to The Related Companies was financed with a $65.4 million loan from Bank of America. This sale represents the third, high-profile Dallas North Tollway office building to exchange hands to a New York investor this summer. In August, MetLife purchased The Offices Two at Frisco Station and, in June, Opal Holdings acquired Headquarters II in the Legacy area.

The CEO of Farmers Branch-based Tenet Healthcare, one of the nation’s largest investor-owned healthcare systems, has stepped down as of August 31. Ron Rittenmeyer has turned over day-to-day operations to Saum Sutaria, Tenet’s president and COO. The transition is part of a long-term succession plan the 74-year-old Rittenmeyer championed when he took over. Sutaria, a doctor and healthcare consultant who worked at McKinsey for 18 years, joined Tenet in 2019 as COO and was quickly promoted to president. The new CEO will have big shoes to fill. Rittenmeyer is largely credited with turning Tenet, the eighth largest public company headquartered in DFW, around after years of losses and costly legal payouts. Rittenmeyer’s strategy when he took the reins hinged on a company culture shift toward ethics and quality of care. He also quickly divested in non-core operations, generating about $1 billion in cash. The company has since invested in ambulatory centers, acquiring up to 45 surgical centers in December 2020 in a $1.1 billion deal. Earlier this summer, Tenet sold five of its Florida hospitals to Dallas-based Steward Health Care in another $1.1 billion deal.

VanTrust Real Estate
announced the sale of The Offices Two at Frisco Station, a 210,424 square foot, Class “A” office building completed in 2020 as the second office building in VanTrust’s 242-acre, Frisco Station mixed-use development. New York-based MetLife is the new owner, which also purchased the adjacent The Offices One at Frisco Station in September 2019 for $92 million or $387/SF. The Offices Two is 95% leased to a host of investment-grade credit tenants with publicly-traded companies accounting for 90% of the property’s leased space. Tremendous activity from institutional capital on recent office offerings has resulted in new high-water marks from a pricing perspective in the DFW market.

VanTrust Real Estate is marketing a 12-story office tower (“Addison Station”) in Addison near the northwest corner of Arapaho Road and the Dallas North Tollway. Plans for the tower vary in size from 250,000 to 350,000 square feet, largely dependent on the interest level and/or certain amount of pre-leasing garnered by the developer from corporate users. The office tower site is situated near a planned DART commuter rail station. The DART silver line is set to open in 2023, connecting Plano and Addison to DFW International Airport.

A partnership between Invesco Real Estate and Legacy Investing has acquired a 260,000 square foot data center campus developed by Colorado-based Flexential Corporation at the intersection of Bush Turnpike and Plano Parkway in east Plano. Flexential entered into a sale-leaseback agreement with Invesco and Legacy Investing that will allow Flexential to expand the campus by 130,000 square feet to meet heightened demand for its hybrid IT infrastructure solutions. DFW is one of the nation’s fastest growing data center markets with demand from both enterprise clients and consumer transactions.

Plano-based last-mile logistics startup Pickup has hired two former GameStop executives – Jason Zubrick as CTO and Tim Delgado as VP of Technology and Chief Information Security Officer. With new tech leadership in place, Pickup has elevated its security program with features that will position the company to further disrupt the logistics and supply chain industry. The company pairs able-bodied pickup truck owners who can move heavy objects with businesses like At Home and Big Lots that need to move big items. Pickup recently raised $15 million in venture capital as part of a Series B funding round in March, with the intention of doubling its workforce this year.

Plano-based natural gas company Vine Energy, which went public earlier this year, is being acquired by Oklahoma City-based Chesapeake Energy in a stock and cash deal valued at $2.2 billion. The acquisition consolidates two energy companies with significant assets in the Haynesville and Mid-Bossier shale plays in northwest Louisiana. Vine Energy, which is backed by private equity giant Blackstone, went public in March with an initial stock offering that netted the company $324 million. Vine entered the Haynesville Basin in 2014 when it partnered with Blackstone Energy Partners to acquire Royal Dutch Shell’s assets for $1.2 billion. That deal included 107,000 acres in the core of the natural gas shale basin. The company has about 125,000 acres. Chesapeake expects the acquisition to add $1.5 billion to its free cash flow and boost its quarterly dividend by 27%. The company picks up 370 drilling locations in the Haynesville/Bossier basin.

Cowboys owner Jerry Jones’ Blue Star Land and Lincoln Property Company are breaking ground on an 11-story office tower (“The Star V”) that will be situated in the northwest corner of the Dallas North Tollway and Cowboys Way adjacent to Baylor Scott & White’s Sports Therapy & Research facility. The 314,000 square foot tower, which will include a conference center and 7,000 square foot tenant lounge on the second floor, has already signed a few office leases and decided to pull the trigger on moving forward with development. The projected delivery date for the building is set for early 2023. Plano-based medical financial services firm Cain Watters & Associates is the first tenant to execute a lease at the property. Tenants in the building will also be able to utilize the Cowboys Club fitness, restaurant and conference center facilities. This will be Blue Star Land and Lincoln’s third office building at The Star after constructing the 6-story multi-tenant building that houses the Dallas Cowboys headquarters and recently completing the 17-story build-to-suit high-rise for Keurig Dr. Pepper’s regional headquarters. Rental rates at The Star V are being marketed at $38.00/SF, NNN ($20.00).

Plano-based Toyota North America has announced the company will produce as many as 90,000 fewer vehicles in North America in the month of August and expects to cut vehicle production in September by 80,000 vehicles as a resurgence in COVID-19 rattles the automaker’s supply chain, including in Japan where the company’s semiconductor chips are assembled. The slowdown, which amounts to a roughly 40% reduction in output, will affect most of Toyota’s North American assembly plants. Until recently, Toyota had fared better than most other automakers amid the crunch in computer chip supplies due to Toyota’s policy of stockpiling chips in advance of production.

Crow Holdings Industrial, one of DFW’s top industrial builders, has acquired 100 acres of land out of the 2,500-acre, $10 billion Fields development. The land site is along Preston Road, south of PGA Parkway, on the far eastern side of the Fields site and will be developed into an industrial business park to meet the strong demand for warehouse and distribution space in Collin County. Crow reportedly beat out seven or eight other qualified purchasers for the industrial site. The land site is also situated near the site where Jerry Jones’ Blue Star Land developed a successful industrial site called Star Business Park. In addition to the land sale, Hunt Realty and Karahan Companies, owners of the Fields development, will also invest alongside Crow in the industrial project. The industrial land sale represents the second recent major transaction in the Fields project after Arizona-based Taylor Morrison Homes purchased a site for the development of 500 single-family homes to be constructed on the north side of Panther Creek Parkway, west of the Dallas North Tollway.

Lease Transactions

1. ILG
Building: 5844 John Hickman Parkway / The Offices Three at Frisco Station
Type: New Lease
Size: 17,681 SF
Term: 120 months
Free Rent: 0 months
Start Rate: $34.00/NNN
Bumps: $0.75/SF
TI: Turnkey

2. Gulf Coast Western
Building: 14160 Dallas Parkway / Parkway Office Center
Type: New Lease
Size: 14,029 SF
Term: 120 months
Free Rent: 0 months
Start Rate: $22.00 + Electric
Bumps: $0.50/SF
TI: $17.50/SF

3. Eikon Consulting Group
Building: 6513 Windcrest Drive / Tollway North Office Park
Type: Renewal
Size: 5,324 SF
Term: 62 months
Free Rent: 2 months
Start Rate: $17.00/NNN
Bumps: $0.50/SF
TI: As Is

4. Sweet Water Financial
Building: 5057 Keller Springs Road / Liberty Plaza II
Type: New Lease
Size: 4,408 SF
Term: 65 months
Free Rent: 5 months
Start Rate: $22.00 + Electric
Bumps: $0.50/SF
TI: $15.00/SF

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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).

Learn why Cresa only represents tenants/occupiers exclusively.

Tor Erickson | Senior Vice President

Cresa
5005 Lyndon B. Johnson Freeway, Suite 800
Dallas, TX 75244

469.323.5395
terickson@cresa.com
cresa.com/dallas

 

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