News Article | 12/6/2004

MEPT Makes Texas Return With $60M-Plus Deal

DALLAS-The Washington, DC-headquartered Multi-Employer Property Trust has come back to Texas after a long hiatus to lay claim to 1.7 million sf in four buildings, the last large holding of a defunct partnership between Hillwood and Panattoni Development Co. The distribution block in Pinnacle Park and the Great Southwest Industrial Park has brought “north of $60 million.” “The hurdle was there was tremendous competition for the property,” William Heap, vice president and acquisitions director for Seattle-based Kennedy Associates Real Estate Counsel Inc., MEPT’s adviser and asset manager, tells “And, we were not the initial buyer.” Heap says he got a call from the seller to acquire the asset “with specific terms and conditions including a strict closing schedule.” The terms set out a three-week look, a sizable nonrefundable earnest money and quick close on an all-cash “north of $60 million” transaction, he confides.The sale turned deeds to the one-million-sf Pinnacle Park One, positioned on 45.4 acres at 3700 Pinnacle Point Dr.; 327,600-sf Pinnacle Park Two on 13.4 acres at 3801 Pinnacle Point Dr.; 212,490-sf GSW Gateway One on 9.4 acres at 3115 N. GSW Parkway; and 210,840-sf GSW Gateway Two on nine acres at 3125 N. GSW Parkway.A fifth building, the 280,028-sf GSW Gateway Three, sitting on 13.4 acres at 2940 114th St. in Grand Prairie, was pulled from the portfolio while Hillwood continues talks with a possible user. “At this time, we did not want to face the market with a vacant building,” Heap says, “plus Hillwood had a user interested in buying the building.”The industrial buildings were 94% leased to nine tenants with long-term leases when talks started and went to 100% by the closing when PharmaFab expanded a headquarters office into the last remaining hole in GSW Gateway One. Under the contract terms, Hillwood will continue to manage the assets.”It’s core real estate, stabilized and a good rent roll. The criteria at Kennedy is to never pay more than replacement costs for existing assets,” Heap says. “It was so close to replacement costs that we felt like that particular test was satisfied.” MEPT’s only Southern exposure is a 175,761-sf building in Boca Raton. The rest of the 157-property portfolio is scattered across 25 major metros in the West, Midwest and East. “The availability of a large, high-quality portfolio of stable assets brought them (MEPT) this way,” Heap says.Jack Fraker, executive vice president in Dallas for CB Richard Ellis Inc., says a dozen institutional buyers had lined up for a listing with no asking price. “It was a very clean, class A industrial portfolio, the kind that’s in demand by institutions,” says Fraker, whose Dallas team includes senior vice president Randy Baird and first vice president John Robinson. The three-year-old buildings, with all the bells and whistles of topnotch industrial product, would cost about 20% more to build with today’s construction costs, Fraker estimates. Additional value lies in their locations. “It’s hard to replicate these land sites,” he says.The MEPT deal closed around the same time that Hillwood was inking one with ING Clarion of New York City for a co-development and co-ownership alliance. None of the product in either package affects Hillwood’s AllianceTexas or Victory, Todd Platt, CEO of Hillwood Investments, stresses.North Texas’ Hillwood and San Francisco-based Panattoni joined forces in August 1998 to develop industrial product in key US markets and dissolved the venture in late 2000 after building some nine million sf. The MEPT deal was the last large block of jointly owned product. A 240,000-sf building is under construction in Nashville, where the JV sold more than three million sf in recent months to JPMorgan Chase, Platt says. “I’m sure it will follow our strategy for the rest of the park,” he says of the likelihood of a sale for the under-construction building. In Raleigh, NC, the duo hawked a couple buildings and 100 acres to several local buyers about six months ago.”We really have all the respect in the world for Panattoni, but we both do the same things so it didn’t make sense to co-develop,” Platt says. “It was a good experience…and we each had good economic results.” As for the last large sale, Platt says “it’s a real credit to the Kennedy organization. They did what they said they were going to do.” Kennedy Associates advises 11 clients with assets totaling $1.3 billion and three funds under the Multi-Employer branding, the $4-billion MEPT, a $530-million development group and $350-million hospitality investment branch. MEPT, a commingled, open-end equity real estate fund, typically holds onto real estate for seven to 10 years.