321 replies to this topic

[Austin55]

Not off topic, but speculation resulting from it:  Why this large number of office buildings hitting the market?  My guess is that, with a lot of economic uncertainty in the foreseeable future, office tower property owners are seeking to liquidate their holdings.

Presumably so. I wonder what is perceived to be a better investment right now, something like StarT/O&G which has a possibly adapted future (resi/hotel) or a Class A landmark office structure. 

[Urbndwlr]

Not off topic, but speculation resulting from it:  Why this large number of office buildings hitting the market?  My guess is that, with a lot of economic uncertainty in the foreseeable future, office tower property owners are seeking to liquidate their holdings.

In some cases I suspect the owner or the owner's investment partners are pessimistic about the future of the office sector, and the investment partner is shifting allocation to other types of assets and is raising cash.   Many are shifting to distribution and multifamily, away from retail (especially) and office to a lesser degree. 

Also, many have already completed their investment plan for the building (often improvements, improve rents, occupancy) and their intended hold period is coming to an end.

[John T Roberts]

The Fort Worth Star-Telegram is reporting that two oil and gas exploration and production companies are merging.  The new company is reported to set up shop here in Fort Worth.  Right now, the companies are based in Houston and Tulsa.  The one interesting note in Gordon Dickson's article, linked below, is that the company may headquarter in the W.T. Waggoner Building, which is supposedly being converted into a hotel.  Maybe, the plan all along was to lease the lobby and the basement to a business, rather than have that serve as part of the hotel.  I don't know, but it is very interesting.  Also, Mr. Dickson gave a link and a plug to the W.T. Waggoner Building page on this site.

 

https://www.star-tel...e246756476.html

[Austin55]

That is certainly odd.

[John T Roberts]

I'm wondering if there is an error in the online article.

[roverone]

For sure when I read that article last night that really stood out to me also.  I thought that the W.T. Waggoner Building was quite far along in demolition, if not hotel construction by now.

 

It is unclear how many downtown jobs it would be, but the article itself explains that most employees would not be downtown.

[John T Roberts]

Roverone, I think the demolition is pretty far along on the upper floors of the W.T. Waggoner Building.  I'm not sure how much new hotel construction has been done on those upper floors.  The original bank lobby for the National Bank of Commerce, and shortly thereafter for the Continental National Bank has had very little work done inside since the renovations started.  To me, it would make sense that this would be the hotel lobby, but another option would be for an office lease. 

 

I will agree with you that it is hard to determine how many downtown jobs this will generate. 

[Stadtplan]

Not sure if this helps any?

http://www.fortworth...c=5053&p=128983

[johnfwd]

Not sure if this helps any?

http://www.fortworth...c=5053&p=128983

Thanks for posting this.  Having read the plan, it seems that office space would be devoted to the ground floor and the mezzanine.  But I'm guessing the ground floor level would be occupied by hotel-related offices.  If indeed the W.T. Waggoner Building is to be converted predominantly for hospitality use.

 

Now, when I think about two major oil and gas production companies merging and wanting to occupy space in downtown Fort Worth, I have to ask myself:  Why on earth would this new major corporation want to be located in a hotel?  And, why on earth would they occupy only one floor?  Did XTO occupy one floor only?  Unless this particular corporation will be strapped for cash, they will occupy several floors in a Class A Office Tower.  Please correct me if you believe I'm wrong about this.

[Stadtplan]

S-T article said Contango has 200 EE's most of which are doing field work and Mid-Con has 128 EE's guessing many in the field too, so maybe they don't need a ton of SQFT for office?  Maybe just a nice meeting space and some offices for the executives and support staff.

 

according to this, Contango has only 77 EE's so maybe they use temp labor based on demand and outsource some of their field staffing?

 

https://www.zoominfo...ntango/36096573

 

https://www.zoominfo...rs-lp/343570373

 

From Mid-Con's 2019 10-K Filing:

https://ir.midconene...4a-a98f5eca6eaf

 

Employees

The officers of our general partner manage our operations and activities. Neither we, our subsidiaries, nor our general partner have employees. Our general partner has entered into a services

agreement with Mid-Con Energy Operating pursuant to which Mid-Con Energy Operating will perform services for us, including the operation of our properties. Mid-Con Energy Operating has

approximately 100 employees performing services for our operations and activities. We believe that Mid-Con Energy Operating has a satisfactory relationship with these employees.

 

From Contango's 2019 10-K filing:

https://ir.contango....fc-a6ed3c1f1f88

 

Employees

On December 31, 2019, we had 124 full time employees, of which 62 were field personnel. Half of

our employees were previous White Star employees at the time of the acquisition. We have been able to attract and retain a

talented team of industry professionals that have been successful in achieving significant growth and success in the past. As

such, we are well-positioned to adequately manage and develop our existing assets and also to increase our proved reserves

and production through exploitation of our existing asset base, as well as the continuing identification, acquisition and

development of new growth opportunities. None of our employees are covered by collective bargaining agreements. We

believe our relationship with our employees is good.

 

In addition to our employees, we use the services of independent consultants and contractors to perform various

professional services. As a working interest owner, we rely on certain outside operators to drill, produce and market our

natural gas and oil where we are a non-operator. In prospects where we are the operator, we rely on drilling contractors to

drill and sometimes rely on independent contractors to produce and market our natural gas and oil. In addition, we

frequently utilize the services of independent contractors to perform field and on-site drilling and production operation

services and independent third party engineering firms to evaluate our reserves.

 

Corporate Offices

Our principle corporate office is located at 717 Texas Avenue in downtown Houston, Texas, under a lease that

expires March 31, 2021. Rent, including parking, related to this office space for the year ended December 31, 2019 was

approximately $0.6 million. We also have a corporate office located at 301 NW 63rd Street, Oklahoma City, Oklahoma,

which we acquired through the White Star Acquisition. See Note 4 – “Acquisitions and Dispositions” for more

information. The lease for this office was amended effective December 1, 2019, upon the closing of the White Star

acquisition, and expires January 31, 2022. Rent, including parking, related to this office space is expected to be

approximately $20,000 per month through the expiration.

[Austin55]

Interesting numbers from the Downtown PID agenda

 

 

Garage Occupancy – We are tracking the estimated parking garage occupancy to gauge the number of people returning to downtown for work. At the start of pandemic, downtown was at 15% occupancy in parking garages. That percentage has climbed over the past few months. Garages are sitting at 35% as of September. We do expect more of an uptick once we get the October numbers. 

Office Vacancy - The multi-tenant vacancy in the third quarter 2020 versus the fourth quarter of 2019 increased by 4.9%. The Class-A vacancy percentage for the third quarter 2020 was 20.4%. This was 2.3% higher in the third quarter of 2019. However, reported rates have remained stable.  

Retail – Retail vacancy increased 5.9% from the third quarter 2020 versus the fourth quarter in 2019. This a 1.8% increase.  

Ground Floor Use Maps shows all the ground floor uses in the core of downtown. For a few years now, DFWI created a ground floor use map and updated it shortly before the pandemic started. In August 2019, downtown had 5.3% vacancy (205K square feet). In March 2020, vacancy was 5.8% (225K square feet). Currently, as of October, vacancy is at 7.1% (276K square feet available).

Hospitality – Year to date, there was a 55% decrease in room nights sold as of August. Due to the pandemic, we still have a significant drop in occupancy rates for the last six months.

 

Resident Survey – Mr. Mitchell reported very preliminary numbers from the resident survey. We had a very strong response rate and we are about two-thirds of the way processing them. The survey included specific COVID-19 questions. A snapshot of the responses received to date showed:  4.1% of the people surveyed said that the pandemic affected their employment status, while 81.6% said it did not.  51% surveyed said that their employers are undecided as to when they will return to the office. 16.4% said they plan to return before the end of the year. 18.7% said they will return to the office in early 2021, and 13.4% said they will continue to work virtually permanently.  

 

Spending pre-COVID 2019: People were averaging spending $881/month at downtown restaurants. That amount reduced to $238/month during the pandemic. The amount spent at downtown retail stores averaged $123/month pre-COVID and has reduced to $26/month. $176/month were spent at bars. That number now averages $29/month.

 

Mr. Mitchell emphasized that the above numbers are very preliminary. A full report will be released as soon as all the information is recorded.

 

 

[Austin55]

There has been some crazy turnover in the downtown office market in terms of ownership.

 

-Burnett Plaza

-ST/O&G Building(s)

-Oncor Building

-Binyon O'Keefe
-Winfield Building

 

Not recent past

-All of XTO's buildings

-Pier 1's HQ

-777 Main (2014)

-Radioshack

 

Any I'm forgetting?

 

City Place has now been listed for sale.  Below is a link to a Culturemap Fort Worth Article:

 

https://fortworth.cu...ntown-for-sale/

 

Adding City Place to the list.

[Jeriat]

What do you think would be a good new fit for City Place? 

[elpingüino]

Dallas Business Journal has another long feature about the business climate in DTFW, as well as hotels. So far half of the 46K downtown workers have returned in person. Andy Taft is also quoted, "The office leasing pipeline has picked up a lot lately as we emerge from COVID. There are a couple of significant potential deals looking at space now."

Downtown Fort Worth's 46,000 employees are returning to the office. More prospects are in the pipeline

[Austin55]

These deals are interesting to hear about. Having other companies making a big splash in move in might help convince some of the other 50% that haven't come back yet that it's a good time to do so.

[elpingüino]

More in the Dallas Business Journal,
Office market in downtown Fort Worth is flagging, but not for long

It's a really insightful interview with Geoff Shelton, who leads Holt Lunsford commercial real estate in Fort Worth. He's really bullish about downtown vacancies turning around soon. He was also surprised that many downtown tenants are using more space, not less.

"The one thing that the core downtown struggles with is corporate relocations. Its a huge point of emphasis for the new mayor. Its always been organic growth, whether its people expanding or moving from buildings. And so a big focus for everybody now is to try and recruit the deals that are either going to far north Dallas or Alliance back into the core of Fort Worth."

[Stadtplan]

In contrast to elpingüino's previous post, I happened to catch this clip in my youtube feed and wondered your reactions?  Not sure if anyone here in commercial real estate, banking etc can confirm these concerns or is this typical "Chicken Little" the sky is falling stuff?  He threw out a lot of terminology all at once, so I tried to paraphrase what I could so we could discuss.  I sort of wondered about a few of these changes, when we might start to see a shift:
 
FOX BUSINESS ANALYST PREDICTS COMMERCIAL REAL ESTATE BLOODBATH

Pent-up forces that are all coming into play right now:
-Central business district office has devastated by stay-at-home / pandemic restrictions, which that disruption has caused those assets to be in non-covenant compliance.
-Class A retail that didn't get absorbed in the last cycle.
-Hospitality has been devastated.
 
Results:
-Causing massive defaults.
-Troubled Asset Deferral Program: none of these defaults have been reported in the last 18-months but that program which is part of the CARES Act terminated Jan 1, 2022 and they now have 60-days to report which would be around March 1, 2022.
-Banks are going to have to deal with these defaulted assets which is going to be a huge crisis.
-When banks are dealing with a lot of defaulted assets, they're not really in a position to make new loans.
-Assets that did stabilize but are now have been hurt are going to be hamstrung by their balance sheets, because three year's of historic operating statements won't really be there to support new debt, with values plummeting there's going to be a lot of blood in the streets and a lot of people looking for safe havens.
 
His "Bloodbath" Summary:
-Rents coming way down
-Values of buildings and retail operations coming way way down
-Cap rate compression: values sky rocketed over the last several years in a seller's market, but that's about to shift.  When there isn't debt, there's less players to take those assets on.  When those values drop, lenders have to go back through and re-value them.  This happened in 2008 and he feels this crisis is going to be even worse because the federal regulators send out appraisers to evaluate all of the assets that are in their long portfolio, and the pressure is going to be on those values to be pressed down, because rents are dropping, occupancies are dropping, and then the interest rate expansion which messes up the debt coverage so those forces together are going to cause values to plummet.  When that happens, everybody loses.
 

[roverone]

It is not my area of expertise, but it does make sense that there will be some delayed consequences of the pandemic as the times of federal mitigation come to an end even as the longer term changes in working behavior sustain.

 

Another thing that I've wanted to mention here that could trigger some new issues is that some commercial leases include both a base rent component and a variable maintenance component that may be indexed from a base year with, for example, the Consumer Price Index for Urban Wage Earners.  With the supply / demand inflation issues the world is dealing with right now, that index is seeing a significant increase -- exactly at a time when the utility of the office space is diminished.  I could see this causing more fall-outs if there is not some adaptation / renegotiation with these leases.  Also, if the commercial real estate financial models have included this variable component to hedge against inflation, it will likely cause an additional squeeze for them.

[elpingüino]

Dallas Business Journal, Fort Worth's office market surged in fourth quarter

Highlights:
The Fort Worth office real estate market (more or less Tarrant) had a really high absorption rate in Q4 and indicators suggest this momentum should carry into 2022. Fort Worth had 11% vacancy in Class A and B office space, compared to Dallas' 18%. The people interviewed attribute the success to the downtown A&M project, Fort Worth's large proportion of small and medium businesses, and the "live, work, play" approach to mixed-use developments.

[eastfwther]

Dallas Business Journal, Fort Worth's office market surged in fourth quarter

Highlights:
The Fort Worth office real estate market (more or less Tarrant) had a really high absorption rate in Q4 and indicators suggest this momentum should carry into 2022. Fort Worth had 11% vacancy in Class A and B office space, compared to Dallas' 18%. The people interviewed attribute the success to the downtown A&M project, Fort Worth's large proportion of small and medium businesses, and the "live, work, play" approach to mixed-use developments.

Can we find a comparable office market to compare with Fort Worth?  Dallas and Fort Worth's office markets are two totally different animals. Comparing them is pretty moot. 

[roverone]

For sure the idea of absorption rate without a deep understanding of the absolute numbers is pretty worthless.  As with most statistics, the denominator is key.

 

As far as comparable office markets, as mentioned in the other thread, the office market of Fort Worth is inexorably linked to the markets regionally nearby -- they strongly affect our attractiveness.

 

Fort Worth would be a completely different kind of place were it stand-alone.  We might look like an 8 or 9 standing alone, but only look like a 6 in the group.

[Crestline]

Can we find a comparable office market to compare with Fort Worth?  Dallas and Fort Worth's office markets are two totally different animals. Comparing them is pretty moot. 

 

I wonder if someone can find office market data for cities that neighbor Fort Worth in population:

 

 

Austin might be too similar to Dallas but the other three might work for comparison?