Cousins Selling North Point Campus
Cousins Properties is selling one of the last of its Atlanta suburban office assets as it shifts focus to development projects.
Cousins CEO Larry Gellerstedt revealed that Cousins plans to sell North Point Center East, a four-building, 542k SF office campus next to North Point Mall that is home to Merrill Lynch Wealth Management and Medassets Inc, which secured 100k SF there in 2014. It's also selling 2100 Ross and Points at Waterview, two office assets in Dallas. During a recent Q2 conference call with analysts, Larry called all three “highly profitable development projects for Cousins,” but said they “represent the last of our suburban properties and are no longer complementary to the rest of the portfolio.” He says Cousins aims to reap “in excess of $250M” at a 6.5% cap for the sale of the three assets. Initial bids on North Point Center East are expected next month with a closing by year's end. In turn, Larry says the company will redeploy the capital to "compelling and higher yielding development projects."
The pending sales come at a time when Cousins is extremely bullish on the Atlanta market. “The recovery has taken hold across the entire metro area, and real estate fundamentals are as strong as I've seen in my career,” Larry told analysts, citing 80,000 new jobs created in the past year, and 2.2M SF of office space absorption, “which ranks second nationally, and the vacancy rate has fallen to 13%, the lowest since 2001.” And despite Three Alliance Center being underway, Larry told analysts that he doubts any office projects of “material size that don't have significant pre-leasing” will start this year, allowing Cousins to push rental and occupancy rates as tenants have fewer options in the market. “The next two to three years should be an excellent environment for our Atlanta portfolio, which accounts for over 40% of the company's NOI.”
Cousins also revealed more about its arrangement with NCR Corp to build its 485k SF HQ in Midtown. According to docs filed with the SEC, Cousins secured the site at 8th and Spring streets for $27M, borrowed under the firm's credit facility. Larry did address the issue of the “rumors of a potential sale of NCR” and how that could affect its pre-leased project during the analysts' call. “We appropriately structured the lease to provide for credit enhancement that would be triggered in the event that NCR's credit rating was downgraded “as a result of a near term corporate transaction.” Larry did not elaborate beyond that.
Lastly, Cousins CIO Colin Connolly revealed that Terminus 100 occupancy “dropped to 90% during the quarter as two customers left the project for a lower-cost alternative.” Colin did not name those tenants. “Given the favorable market fundamentals, we were very comfortable trading short-term drop at occupancy for higher long-term rental rates, which we believe will enhance the properties long-term value.” Cousins also is renovating Terminus, adding new common areas, “collaboration space” and new amenities, such as a new Starbucks with Peachtree Road frontage that will open this fall, he says.