By Steve Brown, The Dallas Morning News Knight Ridder/Tribune Business News
Jun. 14--At the Chase Tower in downtown Dallas, there are no 'Open House' signs, but don't be surprised to see prospective buyers taking tours.
And shoppers at the Galleria in North Dallas may not know that the mall itself is on the market. Despite the lack of outward indications, these buildings and other high-profile properties in Dallas are for sale.
Most sellers are hoping to attract out-of-state buyers who want to get ahead of the economic upturn.
Whatever the reason, property brokers say that it's been years since so many trophy buildings have been on the block in North Texas.
'You usually don't get an opportunity to buy the best stuff, and that's what is coming to the market in Dallas,' said Mark Gibson, executive managing director in investment banker Holliday Fenoglio Fowler's Dallas office. 'I think investors will get some good buys, but they shouldn't expect bargains.'
Unlike in the 1990s, when lenders sold billions of dollars in North Texas commercial real estate at cut-rate prices, the current offerings carry hefty price tags.
The Galleria complex -- which Mr. Gibson's firm is marketing -- is expected to fetch more than $300 million. And the downtown Chase Tower will easily top $200 million, agents predict.
Other buildings for sale, including the 2100 McKinney Tower in Uptown, 600 Las Colinas in Irving and 5956 Sherry Lane building in Preston Center, also are likely to attract top dollar when sold, according to brokers.
'It's just the best assets that are trading,' Mr. Gibson said. 'So you would expect these prices.'
Mr. Gibson and other investment property brokers say these buildings and other high-dollar deals will most likely wind up in the hands of institutional investors -- big funds from America or abroad.
Those investors are more concerned with the cost of money and potential return than how much a building costs, investment advisers say.
'The higher-quality assets are attracting the most capital, not only because of yield but the risk profile is relatively low,' said Evan Stone, who heads the Dallas office of Eastdil Realty.
'The availability of capital is tremendous, and from a macro perspective, real estate offers much better yields and security than alternative investments such as stocks and bonds.
'This is a dramatic shift from the hot stock market of recent memory,' he said. 'Further, interest rates are near historical lows, and capital that sat out much of last year and needs to be spent.'
Many first-class commercial real estate assets are generating 10 percent to 15 percent annual returns, 'which beat the heck out of other investment alternatives,' Mr. Gibson said.
'You can invest in trophy real estate and get a confident return -- something you can't say about a lot of other investments.'
Sellers have also become more realistic about how much their buildings are worth, said Jack Minter, who works in the Dallas office of CS First Boston.
'Some things are selling high and some cheap,' he said. 'We'll know in a few years if there were any bargains.'
A few years ago, many East Coast investment advisors blacklisted North Texas because of overbuilding. But when it comes to major properties, any bias against investing in Dallas appears to have ebbed, Mr. Minter said.
Mr. Gibson said the investment market is now looking more closely at the individual building -- not just the city where it is located. And even on that score, Dallas fares better.
'The institutional investor market realizes that Dallas has added more jobs than any other metropolitan area in the last 10 years,' he said. 'Buyers want to be positioned in markets that will benefit from job creation when the economy turns around.
'We've lost the label we had of being an unattractive market.'
Andrew Smith, chairman of L&B Group, one of the country's largest investment advisers, agrees. 'We have more credibility with investors than we used to have,' he said. 'All of the national real estate markets have weakened, and we haven't declined any more.
'Dallas and Atlanta are both beneficiaries of the fact that they have held up pretty well in this economy,' he said.
One aspect of the investment market that is weighing on buyers is the soaring cost of insurance on commercial properties.
'On trophy buildings there is a lack of available terrorist coverage, and the cost is astronomical,' Mr. Smith said. 'At the same time, all of your other insurance coverage is almost doubling.
'With the higher-profile properties -- whether they are in Dallas or Omaha -- the cost of insurance is going to blow you away.'
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(c) 2002, The Dallas Morning News. Distributed by Knight Ridder/Tribune Business News.
