Cresa Connection: Tollway Corridor - October 2021

Please find October'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

Texas is claiming the headquarters of California companies at more than four times the rate of its nearest competitor, according to Stanford University’s Hoover Institution. Texas won 114 California corporate relocations from January 1, 2018, to June 30, 2021, which was 89 more than 2nd best Tennessee over that same period. Forty-one of those companies planted corporate flags in DFW, with Austin claiming 57, Houston claiming 9 and San Antonio attracting 6 companies. High taxes, harsh regulatory policies, high cost of living and rising energy and utility costs are the core factors contributing to the California exodus. One executive who relocated his own firm from California to Texas stated, “Moving a company to Texas, there’s a sense of calmness and a sense of certainty. Regulations, per se, are not bad. But having some stability in knowing what they are, how much they might change, that stability is evident in Texas.” The COVID-19 pandemic offered an ideal exit opportunity for companies looking to leave expensive cities like Los Angeles, San Francisco and New York City. There were nearly 70 relocation and expansion announcements in the DFW area in 2020. Through the first six months of this year, there have been 50 corporate relocations and expansions. That trend is showing no signs of slowing down. Through the first half of 2021, the number of headquarter relocations out of California happened at twice the rate of previous years. High energy prices proved important to companies. Though Texas runs in the middle of the pack at 29th for commercial energy prices, it far outperforms California, which placed 48th among states. California’s average commercial energy price was $17.20 per kilowatt-hour in March compared to Texas’ average price of $10.41.

Electric vehicle maker Tesla, ranked number 100 on the 2021 Fortune 500 list of the largest publicly traded U.S. companies by revenue, is relocating its corporate headquarters from Palo Alto to Austin, becoming just the latest West Coast company to move to a state with no state income tax and relatively low cost of doing business. Tesla is currently building a major $1.1 billion manufacturing plant in Austin. CEO Elon Musk told shareholders that there was “a limit to how big you can scale in the Bay Area” with it being extremely difficult for workers to afford homes in the immediate area and employees having to face very long commute times. Tesla, however, still plans to ramp up production in California at its factory in Fremont and at its plant in Nevada. The location branding value of this relocation for Austin is enormous. It puts the region front and center in the burgeoning electric vehicle industry. Temporary government restrictions in California since the beginning of the pandemic led to complaints by Musk on an earnings call with analysts and investors in April 2020. Months later, the billionaire decided he would personally move to Texas along with his charitable organization, Musk Foundation. The move to Texas put Musk, CEO of SpaceX, closer to the SpaceX launch site in Boca Chica, Texas. Lower taxes and fewer regulations on business operations are only part of the equation considered by Tesla in its relocation to Texas. Lower operating costs and the ability to attract in-migrating talent, coupled with relying on existing talent, also likely helped sway the company’s decision to relocate to Austin. The move comes as Tesla has been working to expand its battery storage business in Texas with a utility-scale project in Angleton near Houston. Earlier this summer, Tesla Energy announced a partnership with Brookfield Asset Management’s residential property arm to build the most sustainable neighborhood in the country in Austin. The new community will feature Tesla’s solar roof tiles, Powerwall battery storage and other sustainable features.

Gaedeke Group has begun marketing the sister building to its One Legacy West – Two Legacy West – located at the southeast corner of Legacy Drive and State Highway 121. Two Legacy West, which will be situated to the west of One Legacy West along the SH-121 service road, will be a highly-amenitized Class “AA”, 17-story, 410,000 square foot office tower featuring a community park, three outdoor amenity decks with fire pits, 15-foot floor-to-ceiling windows with unobstructed 360-degree views, curated market-style grocery with coffee bar, work lounges, game room, fitness center and conference centers. Two Legacy West will also feature a unique cantilever architectural design reaching out to its sister building on the west side. Gaedeke is not planning to break ground on the development on a speculative basis. The current asking rental rate is $38.00/SF, NNN ($16.00).

Frisco-based technology consulting firm MTX Group is expanding into the southwest U.S. with the opening of a regional office in Albuquerque that is projected to create 250 jobs over the next five years. MTX plans to invest over $2 million into its new office space. The direct economic impact of the deal is estimated to be $347 million over the next 10 years. The state of New Mexico is pledging job training assistance under the Job Training Incentive Program for new employees that MTX said will earn an average of $90,000 to $175,000 per year. The state will provide MTX $2 million from its local economic development job creation fund. The expansion comes just weeks after the company announced plans to open a Northeast regional office in Vermont, which will create 250 high-tech jobs over the next five years there. Powered by the Maverick Quantum Artificial Intelligence platform, MTX uses data to help organizations re-center outcomes around “happiness, health and economy” in over 35 states. The firm partners with cloud technologies like Amazon Web Services, Google Cloud and Salesforce.

Plano-based Aimbridge Hospitality’s founder, Dave Johnson, is leaving the fast-growing hotel management company to “pursue other external opportunities.” Earlier this year, Johnson stepped aside from daily operations and his role as CEO, turning over the CEO reins to Mike Deitemeyer. Johnson has been executive chairman since January, working primarily on mergers and acquisitions. Prior to being elevated to CEO, Deitemeyer served as global president of Aimbridge Hospitality and ushered the company through its merger with Interstate Hotels and Resorts in 2019. Aimbridge has grown through acquisitions over the last year, adding hundreds of hotel properties and betting big on a travel recovery at a time when the hospitality industry has been hard hit by the global COVID-19 pandemic. Aimbridge is a leading, global third-party hotel manager with more than 1,500 branded hotel and resort properties in its portfolio. The company employs more than 60,000 workers across 20 countries. The hospitality group outperformed competitors in the first half of 2021 with a market share that surpassed 2019 and 2020 levels.

A Plano-based blank check company, Direct Selling Acquisition, filed for a $200 million initial stock offering, hoping to target direct selling businesses to take public. The company, founded in 2021, plans to seek businesses with values between $500 million and $2 billion. Special-purpose acquisition companies, known as SPACs, look for fast-growing companies to merge with and take public. Investors in the SPAC buy shares in the new company and later decide whether to keep the shares or get their initial investment back with interest. Last year was a record year for SPACs, with 248 deals totaling $83 billion. This year, that number is already up to 413 deals totaling $122 billion. Direct Selling Acquisition is led by CEO Dave Wentz, former CEO of Utah-based USANA Health Sciences, a multi-level marketing health products company listed on the NYSE. Mike Lohner will serve as CFO, using his background as co-founder and chief strategy officer of Austin-based card-linked offer platform DOSH, which sold in March for $275 million. Multi-level marketing is big business in Texas, which sees more direct sales activity than any other state at an estimated $5 billion annually with more than 2 million active sellers in the state.

Plano-based hair removal chain European Wax Center has raised $180 million with an initial public offering and has plans to grow. Its private equity owner, General Atlantic, which took a majority stake in the company in 2018, has invested heavily in the company over the last few years. The company’s $486 million in revenue last year solidifies its position as the leading provider of out-of-home waxing services by sales and network size. The company’s 800 locations throughout the U.S. delivered 13 million waxes in 2020 and 21 million pre-pandemic in 2019. With consumer spending on the rebound this year, European Wax Center projects to use the capital infusion to expand to 3,000 locations through adding 60 to 80 locations annually over the next 15 years.

Two office towers are in the works for one of the last building sites in Plano’s $3 billion Legacy West mixed-use development. Dallas-based tax services firm Ryan LLC bought the 6-acre development site near the southwest corner of the Dallas North Tollway and State Highway 121 in 2017. The vacant block is north of the Liberty Mutual Insurance regional campus. Since the land acquisition, Ryan, which is now based in The Galleria office complex, has been working on plans for the Legacy West site. Ryan has filed plans with the city of Plano for 10-story and 23-story office buildings, the taller of which building would house Ryan’s headquarters at more than 400,000 square feet with the smaller building being available to tenants. Ryan has partnered with Minneapolis-based developer Ryan Cos. (no relation) on the project, which is being designed by Gensler. In 2019, Ryan LLC reached an agreement with Plano to relocate more than 500 of its headquarters staff to the Legacy West location. In order to qualify for economic incentives, Ryan will have to make the move by 2023, which leaves them with a very tight construction window given the typical 18-24 month timeframe for high-rise office construction.

A New York real estate investment firm that specializes in enclosed shopping malls has purchased Plano’s 1.4 million square foot The Shops at Willow Bend, which opened in 2001 and was one of the last enclosed malls to be built in the U.S. Syracuse-based Spinoso Real Estate Group, which owns more than two dozen malls, acquired the mall after former owner Starwood Retail defaulted on a $137.5 million loan that came due in late 2019. Starwood recently invested millions of dollars into altering the mall’s mix to drive more traffic by building an outdoor restaurant wing along the Dallas North Tollway side, including Mexican Bar Co., Knife Steakhouse, Terra Mediterranean and Whistle Britches, and adding Crayola Experience in 2018.

Virginia-based Northridge Capital has acquired Fourteen555 (14555 Dallas Parkway), a 6-story, 249,564 square foot, Class “AA” office building along the Lower Tollway section of the North Dallas/Addison submarket, for approximately $80 million or $320 per square foot on a 7.50% capitalization rate. The property, constructed in 2018, also features a 3-story amenity building with a full-service restaurant, fitness center, open-air covered terrace and tenant lounge. Fourteen555 is 100% leased to a diverse mix of credit-worthy tenants, including OxyChem (124,782 SF), Moss Adams (34,554 SF), Common Desk (32,016 SF) and Infor USA (27,167 SF). The previous owner, New York-based Admiral Capital Group, had owned the building for two years after acquiring the property from the developer, Dallas-based Cawley Partners, in September 2019 for $103 million or $413 per square foot. The current sale price of $80 million or $320 per square foot, approximately $23 million below Admiral Capital Group’s initial acquisition price, is reflective of the fact that Admiral Capital Group, after its purchase two years ago, placed the asset on a 99-year ground lease to generate additional revenue - $1,886,000 in annual ground lease payments. The ground lease resulted in a higher than expected capitalization rate (+-200 basis points higher than if the property had been sold on a fee simple interest) in the sale to Northridge Capital.

San Mateo, California-based global financial tech startup Tipalti plans to open a new regional office in Plano next year as part of its global expansion and is planning to hire 100 employees by the end of 2022. Tipalti garnered national attention in 2020 when it completed a $150 million funding round, valuing the company at more than $2 billion and earning it a rare “double unicorn” status in the startup world. Tipalti’s bread and butter is providing middle-market companies with cloud-based software that automates their finances, including accounts payable and payment management, touting that it can eliminate 80% of the workload behind the mundane, yet critical, work of finance departments. Tipalti’s clients include Amazon, Twitter, Twitch, GoDaddy, Boston Globe Media, ZipRecruiter, Vimeo and Canva. Tipalti has raised $295 million to date from investors. The Plano office will be Tipalti’s fourth office and the company plans to have its 25 new North Texas employees working out of shared workspace by November 2021. Tipalti has yet to select a Plano location, but is eyeing Granite Park as its desired venue. By the end of 2022, Tipalti expects to see its Plano headcount rise to 100 new employees.

Plano’s pioneer Haggard family is seeking city approval to develop some of its last remaining vacant land along the Dallas North Tollway. Haggard Enterprises wants to rezone 142 acres on Spring Creek Parkway just east of the Dallas North Tollway. The land, part of the family’s original farm, would be used to build a mixed-use project with office, retail and residential construction. The Haggards, one of Collin County’s earliest major landowners who bought properties starting in 1856 and used the land for farming and ranching, are teaming up with Dallas-based developer Stillwater Capital on the proposed development. The proposed development plan would be for buildings ranging from one to four stories and include 700,000 square feet of office space, 700 multi-family residential units, a 98-room hotel, 30,000 square feet of retail space and a 427-unit senior housing community. About 13 acres at the Spring Creek Parkway and Windhaven Parkway intersection would also be set aside for future single-family home construction. More than 28 acres would be designated for open space.

Dallas-based Crow Holdings is under contract to purchase McAfee’s 3-story, 170,000 square foot Plano office building located at the southwest corner of Preston Road and Headquarters Drive. The building was originally constructed in 2002 and includes engineering labs, data center and call center components serving as one of McAfee’s regional offices. McAfee would either vacate the facility upon closing or do a short-term sale-leaseback transaction. McAfee is headquartered in Santa Clara, California, and occupies 44 offices globally with over 10,000 employees.

Dallas-based Ryan LLC, the world’s largest firm dedicated to business taxes with more than 3,000 employees in 60 countries and 18,000 clients, is moving ahead with plans to develop a new corporate headquarters in one of the last remaining tracts at Legacy West. Construction on the new 24-story, 400,000 square feet office tower on a 6-acre tract near State Highway 121 and Windrose Drive is scheduled to begin in early 2022. The office tower is part of a $338 million development, which could include a second tower at full build-out. Under the conditions of an economic incentives agreement that contributed to the firm’s relocation to Plano, Ryan LLC will qualify for $467,500 in economic incentives so long as the company moves its corporate headquarters and at least 550 full-time employees from its current headquarters in Dallas’ Galleria Towers by March 31, 2023. While construction on the new tower is not expected to deliver until the first quarter of 2024, a year after the city’s deadline, city council plans to consider a revision to Ryan’s agreement. Many North Texas cities have extended such agreements, taking into consideration the extraordinary impact the pandemic has had on office plans. Ryan LLC will occupy 200,000 square feet or 50% of the building on floors 1 through 11. The remaining 200,000 square feet on floors 12 through 19 will be available for lease. Ryan Companies, not affiliated with Ryan LLC, is the developer of the office tower. The Class “AA” office tower is being designed to include a fitness center, multiple conference centers, tenant lounge and café as well as outdoor amenities such as green space and bike storage.

Lease Transactions

1. VisiQuate
Building: 7160 Dallas Parkway / Legacy Town Center I
Type: New Lease
Size: 3,845 SF
Term: 64 months
Free Rent: 4 months
Start Rate: $30.00/NNN
Bumps: $0.50/SF
TI: Turnkey

2. 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

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

5. 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

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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).

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Tor Erickson | Senior Vice President

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

469.323.5395
terickson@cresa.com
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