Monday, January 16, 2017

Behind the J.C. Penney campus deal: 'Our bid was higher by design'



Dallas developer Sam Ware sits in his makeshift office near the statue of Mr. 
Penney within J.C. Penney Company’s nearly 25-year-old corporate campus.

“How do you like walking down the middle of the hallway,” Ware shouts to a J.C. Penney employee.

“There’s a lot more light in the building, Mr. Sam,” said the employee, who slowed down a minute to chat with the new landlord of the 1990s-era corporate campus within Legacy West.

The polling is an important part of Ware’s process in bringing sought-after amenities to the real estate, which is being re-marketed The Campus at Legacy West.

The J.C. Penney campus, as well as 45 acres of developable land surrounding the three-story, 1.8-million-square-foot property, was sold as part of a $353 million leaseback deal.

The Plano-based retail giant is leasing back 1.12 million square feet of office space — a little more than half of the building — in the deal. Ware and his Colliers International leasing team are shopping the remainder of the campus and some additional space to big tenants circling the market.

Without any concerns to the viability of J.C. Penney as a company and without any competitive 600,000 square feet of available space, Ware said he was able to make a significantly higher bid than his competitors — and that was part of the plan.

"We were able to de-risk the investment with these factors and the fact the campus included 45 acres of developable land," he told me. "The bid was significantly higher than the rumored other bids by design."

To recreate the campus, Ware calculates he'd have to sink in $950 million for the land and the Class A facility. To get it for $353 million with the cost of upgrades was a deal.

In marketing the space, Ware and his team have begun a $75 million upgrade to The Campus at Legacy, with J.C. Penney putting another $35 million in improvements to upgrade its carpet, paint and furniture.

According to Collin County deed records, Ware was able to secure $438.7 million in financing for the deal with a first lien loan from Beal Bank USA of $388.7 million and a second lien loan totaling $50 million.

Upon closing the deal in December, Ware — who had been working remotely from J.C. Penney’s rotunda next to the statue of James Cash Penney — began construction on the upgrades to the campus, removing indoor ficus trees from the massive corridors.

By removing the obstructions in the corridor, Ware said it would help give the building an upgraded sense of aesthetics of a state-of-the-art campus.

“Before it looked like a San Diego zoo, but we are now opening it up and watching it being functionally used,” said Ware, as he gave the Dallas Business Journal a tour of the campus, wearing his now-trademark button-down shirt, shorts and Crocs.

Ware also has plans for a number of other upgrades, including adding 300,000 square feet of leasable office space to the campus, which will bring its total footprint to 2.13 million square feet — or roughly the equivalent of 37 football fields.

The additional space will be converted from an existing mezzanine level in the campus, which is currently being used by mechanical equipment. The equipment will be relocated to the roof.

Meanwhile, Colliers International’s John Conger and David Quisenberry are touring would-be office tenants through about 600,000 square feet, which is the largest contiguous space existing in Legacy West.

“There’s nothing like it in this town with the amenities they have here,” said Conger, an executive vice president at Colliers International.
Even though The Campus at Legacy West has yet to be priced, Conger said he expects pricing to be comparable to market new building rents of $30 to $36 per square foot, triple net.

“The big deal list ebbs and flows as deals make and we are seeing another wave of large tenants looking in the market,” he said.

This space will become available in April after J.C. Penney finishes consolidating its corporate office within a smaller portion of the building.

Like a puzzle piece, Ware said he’s looking for a single tenant needing the entire 600,000 square feet of available space. The would-be office tenant would get its own entrance, signage options and direct roadway access to Legacy Drive.

“This is the only existing Class A, amenity rich space available in Legacy West,” he said. “There could potentially be some really disappointed tenants. Once it’s gone — it’s gone.”

Ware plans to mirror J.C. Penney’s improvements on the north side of the campus. The retailer already has begun some of its upgrades, including new paint, carpet, lighting, new fixtures and lower profile desks.

Other upgrades will include more eating options, adding 1,400 additional parking spaces, moving the Walgreen’s pharmacy and doctor’s office to the ground level of the campus off the main rotunda.

Dallas-based HKS Inc., the original architect for the J.C. Penney campus, is designing the upgrades and a master plan for the remaining 45 acres of developable land.

Edward Bogel and David Davidson Jr. of Dallas-based Davidson & Bogel Real Estate are marketing the land.

Davidson, co-founder of the firm, said the brokers are finalizing site plans with HKS, with an expectation a plan including hotels, office and residential uses will be available by the end of the year.


Candace Carlisle/Dallas Business Journal.