Costco Wholesale Corp. is the highest bidder for a 10-story office building next to one of its largest stores in Dallas, the latest in a series of similar deals by the retailing giant around the country.
The 198,374-square-foot office building, known as North Central Plaza I at 12655 N. Central Expressway, is being auctioned off by Hartman SPE, a real estate firm working its way through the bankruptcy process. The property owner has asked the U.S. Bankruptcy Court for the District of Delaware to approve the $14.25 million sale to Costco.
This wouldn't be the first time the wholesale club has bought an office building. In the past few years, Costco has strategically acquired similar properties, such as the purchase of the former Hertz Corp. office building at 14501 Quail Springs Parkway in Oklahoma City for a new operations center. In June, Costco also bought a small 1980s-vintage office building at 7375 Boston Blvd. in Springfield, Virginia, adjacent to its retail center at 7373 Boston Blvd. to possibly expand its operations.
The next highest bidder for the Dallas office property put in a bid for less than $12.1 million, according to documents filed with the court. Attorneys for Hartman SPE filed the paperwork to complete the deal, alerting the public they have until 3 p.m. CST on Dec. 13 to object to the potential sale, which requires approval from the bankruptcy judge overseeing the case.
Costco did not immediately respond to interview requests from CoStar News.
Robert "Bob" Young, executive managing director at Dallas-based retail real estate brokerage Weitzman who was not involved in the deal, said the retailer likely has a plan already for the property. Costco is often looking for nearby properties to build gas stations or fulfillment centers.
"Costco has it going on, and when you look at their footprints and their business, if potential space comes available to adjacent locations, they have been known to purchase it," Young said. "This is a reminder that your best prospect or buyer is your next-door neighbor and to always be looking at who owns real estate adjacent to one of your properties."
Mike Geisler, founding principal and managing partner of Dallas-based retail brokerage Venture Commercial, who also was not involved in the sale, predicted Costco would not be an office landlord for long.
"They will likely tear it down," Geisler speculated. "Everyone is doing different things with fulfillment centers today with a lot of experimentation underway and it would make sense for them to want to give their customers more conveniences."
Besides, he added: "Retailers are poor landlords. They usually want to stick to their core business, which is being a retailer, and I could see them wanting to wind down the office leases in the building as quick as possible."
The market where the building sits traditionally has appealed to companies looking to house their back-office operations, such as insurance or financial services firms. Many have begun to rethink how they do business, Geisler said. According to CoStar data, the office building is about 72% leased with its largest tenants including Zion Oil & Gas, Move It Storage and Cadence Bank.
The early 1980s-vintage building likely needs quite a few updates, Geisler said, which could explain the price.
For office buildings past their prime, Moody Younger, co-founder of Dallas-based real estate services firm Younger Partners, said it's not uncommon for office buildings to be sold for land value, since many can't be easily converted into more productive use, such as apartments.
More Sales
The proposed sale of this North Dallas office building is part of a larger portfolio sale being pursued by Hartman SPE, a subsidiary of Silver Star Properties REIT. Hartman filed for Chapter 11 bankruptcy protection to sell an office, retail and industrial portfolio last valued at $400 million in an effort to pay back $217 million in debt.
This week, U.S. Bankruptcy Judge Mary Walrath gave Hartman SPE approval to sell Gateway Tower, an office building spanning more than 260,000 square feet at 8111 Lyndon B Johnson Freeway in Dallas to Hamilton Commercial. The deal totaled more than $14.1 million, according to court records. Two other Houston properties also were approved for sale by the bankruptcy judge, including:
- A three-story, 42,621-square-foot office building at 15840 FM 529 in Houston to Winthrop Realty Group for more than $3.1 million.
- A three-story, 51,035-square-foot office building at 5870 Highway 6 North in Houston to Winthrop Realty Group for $2.86 million.