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Kaizen To Develop Massive Office Project In Dallas Suburb

Despite office demand in North Texas wobbling during the pandemic, Kaizen Development Partners is moving forward with the build-out of a new 200K SF speculative office building in the suburb of McKinney

Rendering of future Kaizen and McKinney EDC office building in District 121.

The eight-story building is slated to begin construction early next year inside Craig International’s District 121 mixed-use development alongside Highway 121 and Alma Drive.

“Kaizen Development Partners has an entrepreneurial track record of delivering projects exactly like this based on strong fundamentals, irrespective of momentary market conditions," Kaizen CEO Derrick Evers said in a statement. 

The spec build, which is being developed through a partnership between Kaizen, the city of McKinney and McKinney Economic Development Corp., is expected to add much-needed office space to the North Dallas 121-Corridor. While the DFW office market as a whole remains in a state of flux after the coronavirus outbreak, the North Dallas suburbs of Allen and McKinney remain hot spots for corporations.

Over the past 12 months, the DFW metroplex faced 1.4M SF of negative net absorption in the office market as a whole, according to CoStar Group data. But Allen and McKinney recorded 107K SF of positive net office absorption, while the same submarket's rent grew 1.4% year-over-year, reaching an average of $30.70 per SF this year, CoStar said.

McKinney's 121-Corridor has been in high demand among corporate tenants for the past few years. It entered the pandemic in a strong position with demand for office space still high, despite concern about the future of corporate tenancy. 

"Despite the uncertainty created by the pandemic, the area has performed well with 70K SF of positive net absorption in the first half of 2020," CoStar Director of Market Analytics Paul Hendershot said.  

Market analysts noted in mid-2019 that McKinney and Allen's 121 Corridor is a natural landing spot for Fortune 100 companies and single-office tenants that want a location in the affluent Dallas suburbs. 

"There definitely has been an appetite for suburban development in the metroplex over the last five years as these areas have emerged as their own stand-alone office nodes," Hendershot said of Allen and McKinney. "They can no longer be viewed as merely bedroom communities for commuters."

Last August, Stream Realty data indicated that the Allen and McKinney submarket had the second-lowest Q2 2019 office vacancy rate, and the third-highest absorption rate in the DFW metro area. 

"The Allen/McKinney submarket ranks fifth in terms of cumulative inventory growth over the last five years, adding 2.1 million SF of office," Hendershot said. 

Since 2019, speculative office projects entering Allen and McKinney have leased up quickly, encouraging additional spec development. Kaizen already has two speculative office assets in nearby Allen, One Bethany East and One Bethany West.

McKinney’s office market also is attracting the confidence of VanTrust Real Estate, which launched construction on a 115K SF office building inside Craig Ranch this month. The VanTrust office site, which will be named McKinney Corporate Center II, follows on the heels of VanTrust’s McKinney Corporate Center I, which quickly reached a 100% occupancy rate. 

JLL brokers are handling leasing for the new Kaizen development, but the developer declined to comment on the capital stack or name any of the lenders financing the deal. The project is expected to break ground in the first quarter of next year.