Cresa Connection: Tollway Corridor - November 2020

Please find November'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.

Lease Transaction Comps

1. Tenant: Corgan
Building: 6175 Main Street / Frisco Square
Type: New Lease
Size: 5,061 SF
Term: 96 months
Free Rent: 6 months
Start Rate: $29.50/NNN
Bumps: $0.75
TI: $42.50/SF

2. Tenant: Haskell Company
Building: 2591 Dallas Parkway / Hall Park
Type: Expansion
Size: 12,898 SF
Term: 42 months
Free Rent: 6 months
Start Rate: $21.25/NNN
Bumps: $0.75
TI: $18.00/SF

3. Tenant: Splunk
Building: 6860 Dallas Parkway / Gateway at Legacy
Type: Expansion
Size: 24,295 SF
Term: 132 months
Free Rent: 12 months
Start Rate: $28.00/NNN
Bumps: $0.50
TI: S60.00/SF

4. Tenant: OmnySIS
Building: 16000 Dallas Parkway / Tollway Plaza North
Type: Renewal
Size: 13,139 SF
Term: 64 months
Free Rent: 4 months
Start Rate: $23.00/NNN
Bumps: $0.50
TI: $25.00/SF

5. Tenant: Spaces
Building: 3300 Dallas Parkway / West Plano Village
Type: New Lease
Size: 31,090 SF
Term: 150 months
Free Rent: 9 months
Start Rate: $28.25/NNN
Bumps: $0.50
TI: $60.00/SF

Market News

DFW office space absorption fell more than 1.9 million square feet in the 3rd Quarter 2020, which ranked 5th nationally in markets with the largest negative office leasing. For the first nine months of 2020, net office leasing in DFW is down by 4.4 million square feet, which represents the greatest decline in office leasing since the 1980s real estate crash. Nationwide office absorption was negative 41.3 million square feet, which represents the greatest decline ever recorded for a single quarter.

Even amidst the pandemic, Dallas leads the nation in commercial real estate deals. Dallas topped much larger markets – including Los Angeles and Manhattan – as the U.S. metro area with the largest volume of commercial property transactions. Almost $12.8 billion in real estate acquisitions were recorded in the Dallas metro area through September. Total investment in Dallas is still down 27% year-to-date from the same period in 2019, which is far less than the 57% year-over-year decline in commercial investment activity nationwide.

CBRE Group’s pending corporate relocation to DFW will shift the balance of most Fortune 500 headquarters, giving Texas 52 against California’s 51. New York still has the most Fortune 500 companies at 54. DFW will have more than two dozen Fortune 500 companies and is the only U.S. metro area with three Fortune 10 companies, Exxon Mobile, McKesson and AT&T. As of the end of 2019, DFW had snagged 137 new corporate headquarters since 2010. About 35% (or 49 total) of those corporate headquarters relocations originated from California. One estimate showed that a corporate headquarter facility in Dallas is 17% less costly than Los Angeles, with major savings on labor, utilities, office rent, business regulations and other real estate costs. Los Angeles has a gross receipts tax on companies at a rate of $1.27 per $1,000 of retail sales. Others have noted the city’s sheer size, slow approval process for permits and handling of a growing homelessness crisis as relocation factors.

The sprawling office campus built for J.C. Penney (now known as The Campus at Legacy West) after it relocated from New York City to Texas has been transferred to the lender after owner Silos Harvesting Partners couldn’t restructure its debt. Silos had taken a $389 million loan from an affiliate of Plano-based Beal Bank to purchase the 1.8 million square foot office campus and surrounding acreage in a sale-leaseback deal with J.C. Penney in 2016. Silos planned to transform the single-tenant campus into a $1 billion mixed-use development. At the time, J.C. Penney reported the transaction as being a $353 million sale-leaseback transaction. The deed to the property transferred from Silos to CXA Corp., an affiliate of Beal Bank, this week. The deed transfer marks the conclusion of a financial saga playing out this year between Beal Bank and the real estate firm after the lenders served Silos with a notice of default in January. J.C. Penney is now evaluating its corporate office space options as part of its Chapter 11 bankruptcy filing. If Penney decides to exit its lease as part of the bankruptcy process, it would leave The Campus at Legacy West at 13% occupancy. Japan-based IT services provider NTT Data is the only other tenant in the campus, occupying 233,000 square feet. Prior to the property being transferred to the lender, a Japanese hotelier bough acreage to build the Miyako Hotel, a 250-room, 10-story luxury hotel overlooking Toyota’s campus. The Campus at Legacy West still includes 40 acres of raw land available for future development.

Parkwood 121 Village (8454 Parkwood Blvd), a single-tenant, 40,000 square foot office building that was constructed in 2016 near the southeast corner of State Highway 121 and Parkwood Boulevard, has traded hands to Los Angeles-based private real estate investor WealthStone. Fortune 500 logistics company C.H. Robinson fully occupies the two-story building after moving into half the building in 2017 and then expanding into the entire building in 2020 after executing a new 10-year lease.

Dallas-based developer Cawley Partners has broken ground on its newest office building, which will be a four-story, 120,000 square foot Class “A” building (“The Parkwood”) just east of the Dallas North Tollway and south of Windhaven Parkway. The Parkwood is asking $29.50/SF, NNN and is expected to deliver in the 4th Quarter 2021. Cawley, which is building the project with Plano’s Haggard family who owns the land, has pre-leased 50% of the building to First United Mortgage.

Learfield Sports, the anchor tenant at 2400 Dallas Parkway (Park Center) which currently leases 47,006 square feet on the 4th and 5th floors, has placed 21,740 square feet of its footprint on the 4th floor on the market for sublease. Learfield is asking $25.00/SF + Electric and their lease expires June 30, 2024.

Cigna, which has leased the entire 209,089 square feet at 1640 Dallas Parkway in Plano since 2009, has placed the entire 3rd floor (52,272 square feet) on the market for sublease at $22.00/SF, NNN. The space will be available for occupancy as of April 2021.

Dallas-based developer Billingsley Co. has wrapped up construction on its 17th office building – IBP XVII (6201 Plano Parkway) – in its 300-acre, 1.4 million square foot International Business Park (IBP) near the northwest corner of the Dallas North Tollway and Bush Turnpike. This is the first of five buildings comprising almost 1 million square feet planned in the next phase for IBP. The 4-story, 187,100 square foot building includes a 9,000 square foot campus amenity center with conference facilities, food service, coffee bar, walking trail and a fitness center that will serve the entire development. Billingsley is asking $24.00/SF, NNN.

The Shops at Legacy, comprising 236,432 square feet of Class “A” mixed-use space in one of the premier live/work/play districts in the nation, is being marketed for sale. Constructed in 2007, this nucleus of the 2,665-acre Legacy Business District masterplan includes 121,496 square feet of retail space and 114,936 square feet of office space that is 82% leased with 7.2-years of weighted average lease term. The Shops at Legacy is anchored by five major restaurants, including The Capital Grille, Seasons 52 and Mexican Sugar, averaging $650 per square foot in sales.

Weeks after starting work on its new headquarters office building, the PGA of America is moving ahead with other plans for its new Frisco development. Developers have filed plans for a 27,000 square foot retail and entertainment center that would open in mid-2023. The Omni PGA-Golf Experience Retail will include five retail buildings and an open stage on PGA Parkway, south of U.S. Highway 380. The office building, resort hotel and retail center are part of the 660-acre PGA Frisco campus, which includes two golf courses.

Dubai-based developer Invest Group Overseas, developers of Frisco’s $1 billion The Gate mixed-use project on the west side of the Dallas North Tollway just north of The Star, are starting work on its next phase. The 49-acre Gate development’s next phase is The Shops at The Gate, which will comprise a two-building retail center with 16,000 square feet of restaurant and retail space. The Gate has already completed two apartment communities at the project and has plans for future hotel, condo and office developments.

Florida-based TerraCap Management, which purchased the two-tower Preston Park Financial Center at Preston Road and Preston Park Boulevard in 2019, has acquired the two-building Preston Park complex (1800 & 1820 Preston Park Boulevard) a stone’s throw away along Preston Park Boulevard. The two buildings have a combined footprint of 198,788 square feet and were sold by a partnership featuring Bay Area-based Libitzky Property Cos. and Dallas-based Sunwest Real Estate Group. Originally built in 1997, Preston Park features newly-renovated building lobbies, common areas, tenant lounges and conference centers. The combined occupancy of the property is 87.6%.

Frisco-based Evolve Mortgage Services, amid demand surging in the mortgage industry, has onboarded over 120 mortgage loan underwriters through September, bringing their total headcount to 400 employees, and aims to fill another 100 open positions by year end. Evolve is finding traction with mortgage lenders and banks by providing outsourcing services as the industry experiences surging demand amid lower interest rates. Evolve provides technology for every aspect of the mortgage lifecycle, including loan originations and loss mitigation. A mortgage underwriter, who might complete an average of one and one-half loan files per day, can rise to six or seven loan files daily by implementing Evolve’s technology. According to Fannie Mae, mortgage originations, which were $2.5 trillion in 2019, are expected to reach $4 trillion in 2020.

The 150-acre Frisco Square mixed-use development at the Dallas North Tollway and Main Street will be adding a 360-unit apartment community called The Modera Frisco Square. Mill Creek Residential’s project will include 31 townhomes and deliver in early 2022.

Dallas-based office developer KDC, which recently built Legacy West office campuses for Toyota, Liberty Mutual Insurance and JPMorgan Chase, is joining part of the team that built Legacy West on the next big development deal in Frisco, the 2,000-acre Fields project. The Frisco mega development, which is being planned for more than 10,000 homes and 18 million square feet of commercial space, is being built with Hunt Realty, Karahan Cos., Republic Property Group, Chief Partners and CrossTie Capital and could be value at more than $10 billion. A 500-acre section of the project was sold for the PGA of America’s new headquarters and golf courses. At the heart of the Fields project along the Dallas North Tollway, the developers plan to build a large commercial district along with another commercial area to the north on U.S. Highway 380. Zoning approval was achieved in March and the team is currently working with the city of Frisco on their entire infrastructure needs.

Local office developer Primera has broken ground on its 80,000 square foot Towne Square II project near the southwest corner of State Highway 121 and Preston Road adjacent to its Towne Square Place building developed three years ago. The tract of land on which this building will sit was originally going to be utilized for a hotel, but that deal fell through and Primera purchased the land. Primera’s niche is the small-tenant market where they will pre-finished 100% of the building’s 24 suites. Suites will range in size from 2,000 to 5,000 square feet. The building will include two shared conference centers and a tenant lounge. The building is scheduled for completion in September 2021.

Frisco-based home healthcare company Addus HomeCare is growing its national footprint after acquisition of an Ohio-based hospice firm in a deal valued at $192 million. Addus, which serves 59,000 patients across 25 states, has added $82 million in annual revenue to its top line this year via three acquisition deals and posted total revenue of $649 million in 2019. The company’s 2020 revenue through the 3rd quarter stands at $569 million, which is up 25% from the same period one year ago. Addus relocated is headquarters from suburban Chicago to Hall Park in Frisco in 2017.

Dallas developer Cawley Partners is partnering with Warren Buffett’s Grandscape developers to build 1.5 million square feet of office space at the 400-acre, $1.5 billion development on State Highway 121 in The Colony. Cawley’s plans call for three, 500,000 square feet, 17-story office towers in the Grandscape project, which is anchored by Nebraska Furniture Mart. Cawley is marketing the towers to corporate build-to-suit prospects, but in the event Cawley finds a tenant to occupy only half of one tower, the developer will accept the remaining lease-up risk in building at a 50% pre-leased rate.

Main Street Food Hall is expected to open in early 2021 in downtown Frisco. The food hall is a project from a group of California restaurateurs who relocated to Texas in 2019 to franchise a burger restaurant called Fatburger. While researching locations for the burger business, they discovered a 9,000 square foot building on John Elliott Drive near Toyota Stadium and Frisco Rail Yard. The estimated cost of the project is $9 million. Fatburger will naturally open the first stall at the new food hall, which will consist of eight vendors in addition to a beer garden. The other restaurants have not been named yet.

Frisco Station developers have broken ground on the second phase of its 30-acre park system. Canyon East, with an acre of parks and trails, is the first portion of phase two to break ground and will be ready by mid-2021. Construction is also underway on The Offices Three and a 322-unit luxury apartment community that will open in early- and mid-2021, respectively. Frisco Station plans call for 5.5 million square feet of office space, 2,400 apartments, 300,000 square feet of retail/restaurant/entertainment space and 650 hotel rooms.

Amazon has unveiled plans for a $15 million expansion at its Dallas tech hub, which is one of six U.S. workplace sites it planned to build up earlier this year, filing state construction permits in which Amazon disclosed it would add 105,000 square feet of office space spanning two office towers – One Galleria Tower and Two Galleria Tower – to its existing footprint. Amazon already has an existing footprint of 200,000 square feet at Galleria Towers after opening up a Dallas office six years ago with an initial 88,000 square feet at Two Galleria Tower.

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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