Prentiss Properties, Pushing Office Strategy, Pays $63.3 Million for Bay Area Property

Dallas-based Prentiss Properties Trust is paying $63.3 million for an Oakland, CA, office and development site, action that closely follows a planned disposition of the REIT’s final holdings in Houston and Dallas.

The move is not an indication that the REIT, set to be acquired by NJ-based Mack-Cali, is reducing its presence in TX, says Rick Bower, Prentiss Properties vice president of capital markets. “It’s not necessarily a focus on getting out of Texas, but a focus on core markets,” Bower told GlobeSt.com. He says the REIT is redirecting its emphasis to office properties from industrial holdings. Before the end of first quarter 2001, Prentiss plans to dispose of its remaining industrial holdings in metro Washington, D.C., and Tucson, according to a company statement. In this year’s second quarter, industrial dispositions in Dallas and northern CA generated $56.3 million while another $4.2 million was realized by the sell-off of a 26,730-sf industrial holding in a Philadelphia suburb. The Dallas portfolio consisted of five buildings totaling 664,306 sf while northern CA’s two buildings had a combined 382,322 sf.

Bower says the markets key to Prentiss’ future are the Bay Area, Southern California, Denver, Washington, D.C., Philadelphia, Sacramento, Chicago, Los Angeles and … Austin and its corporate home, Dallas. The most closely watched markets are Austin, northern VA and Delmar, north of San Diego, according to Bower.

“The Lake Merritt Towers acquisition provides Prentiss Properties the opportunity to enhance our position in the San Francisco Bay Area and our position as a dominant player in the Oakland BCD,” according to a prepared statement by Thomas F. August, Prentiss president and CEO.Prentiss will continue to shift holdings through dispositions and acquisitions through November’s merger to create the nation’s fourth largest REIT with a combined capitalization of $5.9 million and a 457-property portfolio in 16 states and the District of Columbia. All forthcoming deals have been agreed to by Mack-Cali, according to Bower.

The latest deal to come down the pike, the fully leased, 200,000-sf Lake Merritt Tower office building and the 2.5-acre Lake Merritt Tower II office development site, serves as a like-kind exchange to offset Prentiss’ ongoing industrial disposition program while bolstering its emphasis on class A office ownership. The properties are being purchased from a fund managed by CB Richard Ellis Investors Inc. The side-by-side properties abut Prentiss’ 530,887-sf The Ordway building.

Prentiss plans to develop Lake Merritt Tower II within the next 12 months at an estimated cost of $145 million, say officials. To keep par with Prentiss’ philosophy, the structure will need to be 35% leased before construction begins. That, at least, is the thinking behind a project-in-waiting in southwest Austin at the intersection of MoPac Expressway and Barton Skyway, Bower told GlobeSt.com. That property is capable of delivering 1 million sf of office product to the market, but present development plans call for phases of 150,000 sf to 200,000 sf, which will complement more than 600,000 sf in four Barton Skyway class A office structures, two of which are under construction. “We’re looking for potential tenants so we can start the building,” Bower says, alluding to a possible start of a complementary office phase. “We’re very bullish in Austin.” As of June 30, Prentiss had five office projects, totaling 734,000 sf, under development at a projected delivery cost of $125.4 million.

Bower says he can’t speak for what will occur after the merger in terms of acquisitions or dispositions. What is certain is the Prentiss buyout will give Mack-Cali a strong southwestern presence. Prentiss has 180 office and industrial sites, totaling 18.3 million sf, the bulk of which are in the southwest. Mack-Cali presently controls 266 mostly northeastern properties, representing 28.4 million sf, in 12 states. Also being acquired is Prentiss’ 25 million-sf management deals with third parties. The real estate giants’ combined capitalization could fuel a development pipeline for 75.6 acres of developable land, representing 2.6 million sf of leasable space, that Prentiss owns, mostly situated adjacent to its existing properties.

Whether Houston will get back on the key list after the merger is sealed remains to be determined. Since late July, Prentiss has sold three Houston properties and has placed four more on the market. Dallas, on the other, hand, has been closely watched in recent years for development opportunities, and will remain part of Prentiss’ focus, emphasizes Bower.