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Real Estate Office space: Downtown market adjusting as XTO exits space

Office space: Downtown market adjusting as XTO exits space

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When XTO’s parent company Exxon Mobil announced its plan two month ago to transfer 1,600 employees from Fort Worth to Houston by 2020, it also announced its intention to sell six of the seven buildings it owns, including some meticulously restored vintage office buildings.

It didn’t take long for prospective buyers to express interest. Some are interested in office space while others see repurposing the space for hotel or residential use. Two of the buildings have already been sold.

“I can tell you that they’ve had dozens of showings so far of the available buildings … it was well over 40,” Andy Taft, president of Downtown Fort Worth Inc. said at the Fort Worth Business Press’ Business for Breakfast Series session on Aug. 23. “Most of the people that have been touring that real estate have been residential multi-family developers and hotels.”

XTO’s announcement reverberated through the Fort Worth business community as a loss of a significant corporate headquarters downtown at a time when there is already a glut of office space due to the relocation of D.R. Horton to Arlington and the addition of Frost Tower, which will add 280,000 square free of premium Class A office space around the end of the year.

Irving-based Exxon Mobil Corp. in mid-June told employees at its Fort Worth operations that it would move 1,200 employees to the Houston area campus in 2018 and 400 more in 2020.

XTO will keep about 350 employees here who are assigned to XTO’s Central Division and Fort Worth District and some midstream operations employees in the field to support its Barnett Shale operations.

The XTO buildings are Class B office space, according top officers with Jones Lang LaSalle (JLL), which has been hired to sell the properties.

XTO, originally Cross Timbers Oil Co., was founded by Bob Simpson, Steve Palko and Jon Brumley. The company and Simpson in particular have won praise for buying and rehabilitating a number of downtown office buildings that had fallen into disrepair. XTO’s headquarters building is the historic W.T. Waggoner building at 810 Houston St. The 20-story structure was designed by Sanguinet & Staats and opened in 1920.

One of the XTO buildings that was sold is at 801 Grove St. The Fort Worth Transportation Authority, “The T,” bought the building for its future headquarters, spokeswoman Laura Hanna said. The other is in the Stockyards.

The Petroleum Building, one of the jewels of the XTO trove, went on the market recently along with an adjacent parking garage. The 14-story building at 210 W. Sixth St. was designed by Wyatt C. Hedrick and built in 1927.

Originally called the Petroleum Building, its named was changed several times throughout the years before XTO restored the original name, according to fortwortharchitecture.com. The building has art deco elements and was remodeled in 1969 when some ornamentation was removed. When XTO bought the building in 2004, the company restored it to its original appearance.

An asking price was not announced but the building is valued at more than $7 million by the Tarrant Appraisal District.

The Fort Worth Business Press caught up with Ryan Matthews, executive vice president of JLL, to answer some questions about the status of the XTO buildings.

Please describe the status of the XTO buildings now and what has changed since the announcement of the move?

The Petroleum Building is on the market for sale as of Aug.1 and the plan is to call for offers after Labor Day.

We understand at least one building is under contract. Can you tell us about that?

To date, two XTO buildings have sold: 801 Grove and 600 E. Exchange. Both sold to office users. No other buildings in Fort Worth are currently under contract.

What type of interest have you seen in those buildings. Please describe, including the types of prospective users.

The interest in the Petroleum Building has been a mix of local and regional office investors, local office users and hotel developers.

There was discussion about leasing and selling the buildings. Can you tell us which option is getting better response?

The moderate size of the Petroleum Building sets up well for a 25,000- to 94,000-square-foot office user to purchase a downtown building with over five parking spaces per 1,000 square feet attached parking and occupy all or part of the building and lease the balance to third party tenants. Another unique opportunity is the ability to market single-floor occupancy to 5,000- to 6,000-square-foot tenants. It just so happens the average downtown tenant is around 5,000 square feet.

There has been some discussion about repurposing the buildings for other uses, particularly condos. Can you discuss that?

The hotel developers seem excited about the quality of construction, the condition of the building infrastructure, and the core downtown location. The adjoining garage could also be a competitive advantage for a hotel developer because they would be able to operate the hotel independent of the garage. This would open up the option for the hotel to sell the garage after the property is purchased.

We know there is a glut of office space in downtown Fort Worth. We’ve heard there is more demand for more downtown residential. Can you tell us about the residential need and what that market is like in downtown Fort Worth.

JLL has seen a high demand for well-located downtown residential development sites. There is currently a low amount of Class A inventory in the downtown core. I anticipate one or two of the XTO office buildings will be an attractive option for residential developers.

How soon do you expect that those buildings will move into the hands of new tenants or owners?

There is no set timeline to sell all of the buildings.

How has the downtown lease market changed since the XTO announcement?

The downtown Class B office market has been performing well at 90 percent occupancy and asking rents at $22 plus electricity. I believe the Petroleum Building (if sold to an office investor) would provide the downtown Class B tenants with an excellent option to lease space in a high-quality office building with a Class A location and address.

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