Ill., Pa. firms will buy local buildings

Highwoods REIT selling 8 office sites and 10.5 acres of land

Commercial real estate

May 20, 1999|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

A Chicago investment firm and a highly active real estate investment trust have emerged as the buyers of Highwoods Properties Inc.'s local portfolio, consisting of eight office buildings and more than 10 acres of land in Baltimore and Howard counties.

Transwestern Investment Co. and Corporate Office Properties Trust combined will invest $82.2 million to acquire 612,000 square feet from Highwoods, a North Carolina-based REIT that is under pressure from Wall Street to dump assets and strengthen its balance sheet, sources said.

Highwoods announced plans last week to sell its Baltimore portfolio, as well as properties and projects in Florida, for $367 million, but declined to reveal the identities of the buyers, citing confidentiality contracts.

The company said the sales were necessary to redeploy capital and focus on markets where it can "improve long-term earnings potential."

Highwoods said it expects to record a $6 million gain on the Baltimore and Florida sales, and save $1.2 million a year in expenses.

"It's positive for the market in that it shows there is still institutional interest in buying property here that is both leased and unleased," said Dennis P. Malone, a principal at Colliers Pinkard, a Baltimore commercial real estate firm.

"Wall Street wants companies to be the dominant player in whatever markets they are in, and Highwoods isn't the dominant player in this market," Malone added.

For Chicago-based Trans-western, the Highwoods purchase is its first foray into the Baltimore area.

The 3-year-old firm will acquire three Owings Mills office and warehouse buildings, a 125,000-square-foot speculative office building nearing completion in Owings Mills and 10.5 acres of land there, and two Columbia office projects totaling 377,977 square feet. Its share of the purchase will be about $55 million.

In all, Transwestern manages or owns property valued at more than $1 billion.

Corporate Office Properties Trust will spend roughly $27 million for two Highwoods office buildings in Timonium that contain 233,632 square feet.

The acquisition marks the latest in a flurry of purchases in the past year by the Pennsylvania-based REIT, which owns most of the assets of the former Airport Square Cos. and Constellation Real Estate Group Inc.

In all, COPT controls 63 buildings containing roughly 5 million square feet and valued at $580 million. More than half of its projects are in the Baltimore area.

Neither COPT nor Transwestern officials could be reached for comment on the transactions, which Highwoods expects to complete by June 30.

About 100 acres of undeveloped land in Owings Mills, known as Riparius Center and expected to contain as much as 3 million square feet of office space, will be sold separately.

Highwoods has retained Preston Partners Inc., a Lutherville real estate firm, to market the land, sources said.

In the aggregate, the land is expected to sell for about $25 million, sources said.

Despite solid earnings, Highwoods has fallen under pressure stemming from a $2 billion buying spree in 1997 and 1998.

In the first quarter of the year, Highwoods reported funds from operations -- a key gauge of a REIT's financial performance -- of $60.8 million, or 87 cents per share, a 35 percent gain and a 16 percent gain, respectively, from the corresponding period last year.

As part of that spree, Highwoods acquired the eight buildings and land in December 1997 from Riparius Development Co. for $93.7 million in cash and stock, and later spent $23 million to buy the five-story Clark Building and the 12-story Merrill Lynch Building, both in Columbia.

Pub Date: 5/20/99

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