A commercial campus anchored by State Farm Insurance in a Dallas suburb has sold to the former owner of the Phoenix Suns in what's touted as the nation's priciest suburban office deal this year.
The 2.2 million-square-foot campus called CityLine in Richardson, Texas, is made up of four office buildings leased by State Farm Insurance at 1150 State St., 1201 State St., 1251 State St. and 1415 State St., and includes 120,000 square feet of ground-floor retail space and a nearly 42,000-square-foot medical office building at 3661 N. Plano Road.
The CityLine portfolio sold to 3Edgewood Real Estate, a Paradise Valley, Arizona-based entity affiliated with Robert Sarver, the former owner of the NBA's Suns, for $580 million, according to real estate professionals with knowledge of the deal.
The sale comes as office properties across the country have been hit by low demand after the pandemic spurred remote work policies among employers and cutbacks by companies in response to a weaker economy with higher interest rates. The deal provides a sense of the shifting values for the property type.
The deed for the CityLine deal was recorded Tuesday in Collin County, and the deal closed just a few days shy of the due date for a loan totaling more than $450 million secured by the property. CoStar data shows that he CityLine campus traded for less than it did when it was last sold about seven years ago for about $822 million.
Other top known office sales this year include the $998 million acquisition of a 49.9% stake in 245 Park Ave. in New York City, the $490 million purchase of One Liberty Plaza in New York City and the $305 million sale of Liberty Crossing 1 in Fairfax, Virginia, according to CoStar data.
The CityLine campus, located about 18 miles north of downtown Dallas in Richardson, is the largest known suburban office deal this year, according to CoStar data. However, some states like Texas are non-disclosure states and real estate prices are not made public.
The Dallas-Fort Worth region, the nation's fourth-largest metropolitan area with more than 7.8 million residents, has seen a slowdown of capital markets activity like the rest of the United States as an uncertain economy, the rising rate of debt and future of office space remains a concern among real estate investors.
Loan Maturity
The CityLine portfolio sold ahead of an upcoming loan tied to the property coming due Nov. 6, according to a mid-October report from credit rating agency Kroll Bond Rating Agency. The loan, current as of last month, had an outstanding principal balance of $452.3 million with a fixed interest rate of 2.785% with no extension options available. The credit rating agency placed the CityLine portfolio on its watch list ahead of the upcoming loan maturity.
About 95% of CityLine's total base rent comes from leases with State Farm Insurance, KBRA said in its report. State Farm Insurance's four triple net leases have expiration dates ranging from eight to 18 years beyond the loan term with renewal options of up to 20 years. None of the leases have early lease termination options.
State Farm Insurance previously told CoStar News it is considering subleasing some of its real estate on the campus.
The contracted leases with high-quality tenants as well as potential for "significant upside opportunities" made this a sought-after deal by investors, said Chris Murphy, a vice chairman in Newmark's Dallas office, in a statement. Newmark represented the sellers in the deal.
According to KBRA, the borrowers on the debt were South Korea-based Mirae Asset Global Investments with 94% of the loan and Transwestern Investment Group with 6% of the loan. Mirae Asset Global Investments, in partnership with Transwestern Investment Group, acquired the CityLine campus from Dallas-based developer KDC in 2016.
The proceeds from the $580 million sale to 3Edgewood Real Estate are expected to be used to pay off the loan in full, according to KBRA. Representatives for Mirae Asset Global Investments and Transwestern Investment Group didn't immediately respond to inquiries for a comment from CoStar News.
CityLine's new owner, 3Edgewood Real Estate, filed an application last month with the Texas Secretary of State to conduct business in Texas as the management company of JFSF Edgewood, a newly formed entity tied to Sarver, according to public records. Sarver did not immediately return an interview request from CoStar News Wednesday.
Sarver co-founded Southwest Value Partners, a real estate development company based in San Diego, in 1990. Southwest Value Partners did not immediately respond to a request to comment from CoStar News.
Sarver sold the Phoenix Suns and the WNBA's Phoenix Mercury basketball teams at the end of 2022 for about $4 billion.
For the Record
Newmark's Murphy, Robert Hill and Gary Carr, in cooperation with the firm's Kevin Shannon, Ken White and Alex Foshay represented the sellers in the deal. Newmark's David Milestone, Josh Francis and Henry Cassiday provided debt capital markets advisory in the deal.