In what is believed to be the largest commercial real estate deal in Texas history, Thomas Properties has agreed to pay $1.15 billion for the former Equity Office Properties portfolio in the state’s capital city.
Los Angeles-based Thomas Properties Group Inc. (Nasdaq: TPGI) announced on March 28 an agreement to acquire the 3.5 million sq. ft. of Class-A offices from Blackstone Real Estate Advisors. Thomas will purchase the 10 Austin properties in a joint venture with undisclosed institutional investors.
The portfolio includes more than half of the Class-A office properties in Austin’s central business district, including the two most recently constructed office towers: Frost Bank Tower and 300 West 6th St. In addition to 2.5 million sq. ft. in the CBD, Thomas will be getting approximately 1 million sq. ft. in the rapidly growing Northwest Austin submarket.
“This is a truly extraordinary opportunity for our company and our investment partners,” said James A. Thomas, chairman and CEO of Thomas Properties, in a written release. “Austin is expected to exhibit the strongest job growth in the nation over the next five years and this portfolio is well positioned to benefit from that growth. With a young, highly-skilled labor force, relatively modest cost of living and attractive quality of life, Austin is a very desirable place for companies to do business.”
While the deal will be Thomas’ largest acquisition to date, it isn’t the company’s first foray into Austin. In 2000, TPGI purchased 270 acres in Far Northwest Austin for a planned office development. After the bursting of Austin’s technology bubble, however, the developer switched gears and marketed tracts for retail-heavy mixed-use. Finally in October 2006, TPGI announced it was ready to begin construction of 280,000 sq. ft. of office on the site, to be completed by the end of this year.
If the deal with Blackstone closes as planned around the end of May, it will transform TPGI’s Austin presence from a suburban developer into the city’s largest office landlord.
Occupancy in the Austin portfolio is approximately 82%. TPGI announced that approximately 75% to 80% of the gross purchase price, including closing costs, is expected to be financed with property-level mortgage debt, with the remaining 20% to 25% coming from equity investments by the company and its investment partners. Thomas Properties anticipates contributing approximately 6.25% of the overall equity to the transaction and expects to receive “a customary incentive and other fees that are typical for a transaction of this type.”
“We have long sought an opportunity such as this to expand our presence in this high growth, diversified market," says John R. Sischo, executive vice president of Thomas Properties. “We expect to be able to take advantage of rapidly improving market conditions to generate significant value growth for our company and our investment partners.”
Downtown properties in the portfolio include: Frost Bank Tower, 561,000 sq. ft.; 300 W. 6th St., 459,000 sq. ft.; San Jacinto Center, 404,000 sq. ft.; One Congress Plaza, 549,000 sq. ft.; and One American Center, 523,000 sq. ft. The portfolio’s suburban properties include: Stonebridge Plaza II, 193,000 sq. ft.; Park 22, 203,000 sq. ft.; Research Park Plaza I & II, 273,000 sq. ft.; Westech 360, 179,000 sq. ft.; and Great Hills Plaza, 141,000 sq. ft.