Oil and gas exploration firm Gulf Coast Western is buying a two-building office complex along the Dallas North Tollway for a discount, with plans to spend up to $10 million to renovate the property and fill it with tenants.
The Dallas-based energy company acquired Parkway Office Center North and Parkway Office Center South for an undisclosed sum through a foreclosure deal. Gulf Coast Western is the largest tenant in the office complex, with a full floor totaling 14,000 square feet on the fifth floor of the southern building, Fleeger said. The company plans to expand onto half of the fourth floor for a total footprint of about 21,000 square feet.
"My investment philosophy has always been contrarian," Gulf Coast Western President and CEO Matt Fleeger told CoStar News. "A lot of people are running from commercial real estate, but, from my perspective, I'm investing in my home, and I believe we can make this in a fun place to office."
Fleeger, who grew up in Dallas, is a self-described wildcatter, or someone who drills for oil and gas without any assurance they will find something, a risky and expensive bet in the cyclical energy industry.
Fleeger plans to leverage the relationships he's built in the local business community and during his time at Southern Methodist University to fill the buildings with tenants. The office complex was 45% occupied at the time the deal closed. He also plans to bring in Mesero Tex-Mex restaurant, a business in which he is a partner, to operate the building's empty restaurant space.
The new ownership group plans to invest between $8 million and $10 million to make the two-building office complex a home-away-from-home for tenants, Fleeger told CoStar News.
"I'm not afraid of making what some may consider to be a risky investment," Fleeger added. "It's what I do for a living, and this helps diversify my investments. We are making investments that can only be done by someone who actually leases there with a desire to deliver a great building rather than someone who is looking at this as a commercial investment opportunity."
Gulf Coast Western bought the two buildings through a partnership with Enverra Real Estate Partners by acquiring the complex's loan from its former lender, Principal Financial. The $22 million loan was purchased at an undisclosed discount by the new owners that then foreclosed on the buildings' prior owner, Apex Pacific Partners, on Sept. 3, according to the new ownership group.
The acquisition was Enverra's first deal since the real estate firm formed in June. Enverra has three other potential investments lined up in Atlanta, Miami and Washington, D.C., as it seeks to invest in the nation's Sun Belt.
Distressed loans
Enverra was founded after the firm's partners began seeing a rise of distressed note sales from lenders on high-quality office and apartment properties in the first and second quarters this year, Enverra Managing Partner Tommy Spinosa told CoStar News.
As lenders seek to sell distressed real estate loans, Spinosa said the upended capital markets have led the firm to make all-cash offers using the balance sheets of the partners to invest alongside high-net-worth individuals, family offices and private investors wanting to pick up real estate at a discount. Like the purchase of the Dallas office buildings with Gulf Coast Western, the discounted price tag gives the group the funds to invest in a building with deferred maintenance and a need for more amenities, Spinosa added.
"We want to bring the Class A standards back" to the Dallas office complex "immediately," said Spinosa, who most recently worked at Bridge Investment Group.
Enverra isn't alone. There's been a rise of tenants acquiring their offices as values have plummeted an estimated 30% to 40% in the Dallas-Fort Worth region, said Bill Kitchens, CoStar's market analytics director, citing market sources. Those tenant-buyers are targeting mid-range office buildings and budgeting for renovations, Kitchens said.
Some recent Dallas-Fort Worth region office acquisitions by tenants include Raising Cane's new office headquarters and Associa, a property management firm expected to invest $55.5 million into the renovations of an office complex in Richardson, Texas. In each case, the companies are seeking to expand their operations while planning for future growth.
Gulf Coast Western is also expanding its offices by a half floor in the property, with plans to reposition the office complex in North Texas, which sits at a midpoint between the northern suburbs and the upscale Preston Hollow neighborhood — two parts of the region where employees live — making this the perfect location for its headquarters and where the office has been located for 12 years.
From an investment perspective, the Parkway Office Center North and South acquisition was a good opportunity to buy an underperforming asset in a well-performing submarket along the Dallas North Tollway, Macki McKim, a partner and co-founder of Enverra, told CoStar News.
The makeover of the two-building office complex spanning about 230,000 square feet is getting started with work on the exterior's facade and replacing some glass. Enverra is managing the renovations and the office buildings.
The planned upgrades include a new facade, 38,000 square feet of speculative suites and revamping the lobbies, cafe, common areas and adding amenities such as a fitness center, tenant lounge and golf simulator and a large conference room. The garage and landscaping are also expected to undergo improvements.
Texas markets, including Dallas and Austin, are expected to play an important role in Enverra's strategy as it shops assets in the nation's Sun Belt, McKim said. The real estate investment firm is seeking office and apartment properties ranging between $30 million and $70 million.
Along with Enverra's Dallas office, where Spinosa and McKim are based, the firm also has offices in Atlanta and Washington, D.C.