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High-profile Dallas tower refinanced at more than double the interest rate of prior loan

The Union to get new financing ahead of balloon payment coming due
The Union, a 22-story office building near Uptown Dallas with accompanying retail space, including multiple upscale restaurants and a Tom Thumb grocery store, is backing a $227 million commercial mortgage-backed securities loan. (CoStar)
The Union, a 22-story office building near Uptown Dallas with accompanying retail space, including multiple upscale restaurants and a Tom Thumb grocery store, is backing a $227 million commercial mortgage-backed securities loan. (CoStar)
CoStar News
October 8, 2024 | 8:21 P.M.

The ownership group behind a high-profile office and retail tower near Uptown Dallas is refinancing the nearly fully leased property for more than double the interest rate of its prior loan to get ahead of a balloon payment due early next year, potentially setting the building up for sale.

An entity with ties to Seoul, South Korea-based KB Asset Management is using The Union, a 22-story tower and its adjoined retail building that span more than half-a-million square feet, to back a $227 million commercial mortgage-backed securities loan. The tower's office tenants at 2300 N. Field St. include Salesforce and Invesco, and its retail space at 2380 N. Field St. is anchored by a Tom Thumb grocery store and several upscale restaurants at the property.

If the loan closes as expected on Oct. 25, a credit opinion from Moody's Ratings said the maturity date will be extended to Oct. 9, 2029, with a two-year extension followed by three one-year extensions.

The non-recourse loan is expected to be originated on or around Oct. 9 by Goldman Sachs Bank USA to 2300 North Akard Owner LLC, the entity that is controlled by KB Asset Management, Moody's analysts said in their presale report. The first-lien mortgage is financially backed by the borrower's fee simple interest in the office and retail building, the report says.

The new financing with an interest rate totaling 8.3% is more than double the ownership group's prior rate of 3.27% that was secured in 2020, according to Moody's and Steve Triolet, senior vice president of research and market forecasting for Houston-based Partners. The deal shows that even as the Federal Reserve cut interest rates last month, as CoStar News previously reported, investors are not going back to "free money," Triolet said.

"Banks are working to get in front of loan maturities and work out a deal," Triolet told CoStar News, referencing The Union's ownership as having a balloon payment due on its loan in February. "Even as rates are starting to be cut, borrowers are paying more than they were a few years ago."

Despite the Federal Reserve's recent rate cut, Triolet said the market is getting "mixed signals" with Friday's strong jobs report adding fuel to the nation's economic momentum, potentially causing the Fed to not be as aggressive as expected on future rate cuts.

Triolet has spent decades tracking the Dallas-Fort Worth real estate market as an analyst for several real estate services firms, including Younger Partners and JLL. He is not directly involved with The Union or its financing but followed the property's development and lease up.

The Union was marketed for sale earlier this year with executives in the real estate community carefully watching to see if the prime property in the well-located neighborhood between Uptown Dallas and Victory Park would trade in the challenging capital markets environment. Triolet said he wouldn't be surprised to see The Union placed back on the market next year with this new financing likely being a short-term solution until a new situation is secured.

Moody's did not immediately respond to requests from CoStar News for additional information beyond the ratings agency's credit opinion. KB Asset Management also did not immediately respond to an emailed request seeking comment.

Another new office building in Dallas also landed financing recently, with The Epic in Deep Ellum, as well as two other Texas properties owned by Westdale, getting $115 million of bond funds through the Tel Aviv Stock Exchange. The funds replaced other debt on the properties and was a unique opportunity for Westdale as a private real estate operating company, the firm's president and CEO previously told CoStar News.

A bottom line

Goldman Sachs, the originator of The Union's new loan, is building a massive regional campus across the street from the building. The 800,000-square-foot, all-electric campus is expected to house about 5,000 of the company's employees. The investment giant was offered about $18 million in economic incentives from the city of Dallas for its expansion, CoStar News previously reported.

The Goldman Sachs regional campus is being built across the street from The Union Dallas (pictured on the right). (Candace Carlisle/CoStar News)

The Union was completed by RED Development in 2018 and was 98.1% leased as of mid-August 2024, according to Moody's report. Moody's touted the property's recent leasing, superior asset quality and experienced sponsorship but said those strengths were offset by soft office market fundamentals and its interest-only mortgage loan profile.

The Union's office portion is 98.6% leased with a weighted average term of about seven years, according to the report. Recently, Salesforce extended its lease in the building from May 2025 to May 2032 but decreased its space from 116,928 square feet to 58,464 square feet, the report said. Invesco leased space given up by Salesforce for a total of 58,464 square feet in the building through the end of June 2035.

The Union's retail portion, mainly occupied by grocer Tom Thumb with nearly 59,000 square feet, is 96% leased with a weighted average term of about 11.9 years, the report stated.

Like other major U.S. metropolitan areas, Dallas, part of the nation's fourth-largest metropolitan area with more than 8.1 million residents, has seen negative office absorption continue to push vacancy higher as companies right-size their office space. Office vacancy through the second quarter in Dallas was 22.7% with tenants returning 2.8 million square feet of office space in the first six months of the year, according to Moody's.

Even with negative absorption, "rental rates continue on an upward trajectory in the face of increasing vacancy" with this area near Uptown Dallas having an occupancy rate of about 92% and The Union outperforming its peers, Moody's said.

In early August, Cushman & Wakefield completed an appraisal on the property, concluding the as-is market value totaled $312 million, or $617 per square foot, according to the report.

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