GlobeSt.com UPDATE: Crescent Projects $87M Gross Gain

FORT WORTH-When the deal’s done, Crescent Real Estate Equities Co. and the Rouse Co. will be holding tickets to new markets, with the Fort Worth-based REIT getting upward of $80 million to shop for additional office product.

“I feel very confident that we’ll put the money to good use in a short time,” John C. Goff, Crescent’s vice chairman and CEO, said in this morning’s conference call. For previous story, click here.. Crescent’s gross gain is calculated at $87 million with a pre-tax return of 43%.

The letter of intent culminates months of negotiations that “we think is a terrific transaction for both of us,” Goff said. Crescent’s purchase of the 94%-leased, 1.1-million-sf Hughes Center in Las Vegas is “an important step in the execution of our strategic plan. We like the fact we can be a dominant player in such a high-growth market.”

Rouse’s $202 million in cash and debt assumption gives it a second large block in a market that it’s been looking to crack since 1997 when Crescent and Morgan Stanley sidelined it and others in the face-off to get the Woodlands from Mitchell Energy. Crescent’s up-front investment was $80 million for 42.5% interest in the Woodlands, but it took control two years ago by picking up an earned share to take its stake to 52.5%.

“It was logical for them (Rouse) to be interested,” Goff said. Crescent wasn’t actively marketing the asset although it fields calls every day from buyers interested in its residential holdings. Essentially, it was the right price at the right time. “I think we’ve demonstrated that we’re very dispassionate about the investments that we make from the standpoint we’d be willing to sell anything on the balance sheet provided we get appropriate value,” Goff stressed.

Crescent’s other residential holdings–Desert Mountain, Lake Tahoe and those held in partnership with Harry Frampton–carry a book value of $450 million, according to Crescent execs. Desert Mountain is down to 200 lots to sell so the FFO gain these days is now shifting toward the Frampton package, which includes Beaver Creek and Vail.

The Las Vegas inroad solely is aimed at office ownership, in keeping with Crescent’s game plan as the REIT taps a market with an annual positive absorption for the last two decades. Goff and team will be getting 1.1 million sf in a four-million-sf market.

Hughes Center is home to 140 tenants, mostly financial institutions, with the largest holding less than 6% of the total space, Goff said, noting the built-in demand for needed class A expansion space.

The REIT is paying an extra $10 million for 13 acres of developable land that could support another 400,000 sf of office space. A building surely would rise if the right pre-leasing commitment comes along. The Las Vegas dynamics are such that just 95,000 sf of class A space is coming out of the ground in two suburban buildings, the first to rise in “three or four” years.

In 2005, 16% of the Hughes Center roster rolls, but it “doesn’t translate to exposure” due to the market dynamics, Goff added. The rent in the eight-building complex ranges from $26 per sf to $28 per sf; year-to-date rent growth is 5%.

On the Crescent buy side of the deal, the discount-to-replacement cost acquisition is “an irreplaceable location” that neighbors Steve Wynn’s near-$2-billion development.

Crescent’s Jerry Crenshaw, executive vice president and CFO, said the $223 million for Hughes Center breaks down to less than $200 per sf in a market with a going rate of $225 per sf. Crescent’s total buy-in is tantamount to a 60% loan to value, said Jane Mody, executive vice president of capital markets.