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Allegiance Telecom, INC

ALLEGIANCE TELECOM, INC.

CORPORATE HEADQUARTERS
Dallas, Texas
385,000 Square Feet


CLIENT OBJECTIVES:

  • To manage company's explosive growth with new HQ facility
  • Explore any existing options that could accommodate 300,000 RSF
  • Evaluate build-to-suit options (primarily as leverage to existing buildings)
  • Consolidate most operations into the new headquarters building
  • Mitigate the renunciation of current municipal tax incentives that would be forfeited in the event of a relocation from the current building

CHALLENGES:

  • Company has 95,000 RSF in one location on three different floors, having expanded as needed with eight years remaining on existing lease                                                     
  • Client has another 75,000 RSF of operations in another building with 3 1/2 years remaining on its lease
  • Project growth did not cohere to timing of a build-to-suit
  • Newly public company did not want to impact earnings with excess lease space

METHODOLOGY FOR PROJECT:

  • Comprehensive space programming for all current and future operations
  • Employee base study for all employees, sorted by positions within company
  • Comprehensive market evaluation of all existing and under-construction alternatives in the Dallas/Fort Worth Metroplex
  • Evaluation of new ground-up developments to determine fast-track timing of these options
  • Begin negotiations with the State of Texas and the City of Dallas to receive new incentives and preserve existing incentives (including meeting with and testifying before the Dallas City Council)

RESULT:

  • Proposed three attractive alternative facilities in separate municipalities for the company's management to evaluate
  • Finalize 238,000 RSF lease on one campus (two buildings) providing staged growth over an eighteen month period
  • Client could take down space sooner without any change in the commencement date
  • Complex was expandable to 388,000 SF by building a third building
  • No loss of any municipal incentives
  • Sublease of 75,000 SF in one of the existing locations
First Tennesse National Corporate Headquarters
FIRST TENNESSEE NATIONAL

CORPORATE HEADQUARTERS
Memphis, Tennesee
225,000 Square Feet


(NYSE: FTN, $24.8 billion in assets)


CLIENT OBJECTIVES:

First Tennessee National Corporation's objective was to determine the most suitable facility for its corporate headquarters. The alternatives included: (1) restructuring the bank's current lease at 165 Madison Avenue in downtown Memphis, (2) building a new “ground-up” facility in east Shelby County, and (3) relocating to an existing facility in east Memphis. A significant number of companies had relocated to the eastern suburbs, and a portion of the bank's management preferred to relocate from downtown. It was critical for First Tennessee to preserve and maximize its goodwill in the community, and accordingly, information obtained by the local press had to be controlled by First Tennessee.

CHALLENGES:

  • One of the largest employers in downtown Memphis and the largest tenant in 165 Madison Avenue (210,000 square feet)
  • Building was constructed in 1965 and had asbestos on the structural steel beams
  • Rental rate in excess of $16.00 per square foot, substantially above market (last half of lease term from sale/leaseback)
  • The space required significant reconfiguration and aesthetic improvements
  • Political implications of "abandoning" the Central Business District, as CEO Ron Terry was on the city's downtown redevelopment committee
  • Over 4 ½ years remaining on the lease
  • Restructuring the lease economics to market puts the landlord in negative cash flow position (non-recourse loan), thereby requiring lender approval for loan restructure
  • Lender (Mutual Benefit Life) put into receivership by insurance commissioner of the State of New Jersey
  • No other alternatives in the CBD could accommodate this requirement

METHODOLOGY FOR PROJECT:

  • Completed space programming, including long-term expansion to maximize efficiencies
  • Zip code geographical survey of all corporate employees
  • Preformed economic analysis to educate First Tennessee's management as to minimum restructuring package required to warrant current lease extension
  • Began educating current landlord on market conditions and general parameters for First Tennessee to restructure and extend the lease
  • Evaluated build-to-suit land sites throughout Shelby County
  • Requested proposals from five developers for build-to-suit options (several proposals were site-specific; others imputed land basis based on market conditions)
  • Comprehensive evaluation of every existing alternative in the entire Memphis office market
  • Completed space planning test fits and renderings of prospective build-to-suits for evaluation by management and leverage with current landlord
  • Long term lease to exploit historically soft market conditions recommended

RESULT:

  • Negotiated with and educated the State of New Jersey insurance commissioner, Mutual Benefit Life (in receivership), and the landlord (Bealls Corporation) as to (1) market conditions and First Tennessee's tendency to relocate to east Memphis, and (2) the building's long-term financial performance if First Tennessee vacates
  • Negotiated a 225,000 RSF restructured 10-year lease with an effective 10-year rental rate of $8.88 per square foot per year [$10 per square foot (first five years) and $12 per square foot (years 6 through 10)]. Resulted in an annual rent reduction of $4.8 million over the remaining four years [$1.2 million (35% reduction from current rent)]
  • Economics of the restructured lease set a new benchmark for class "A" buildings in downtown Memphis
  • Client lauded by the local press for keeping its primary corporate headquarters in the CBD (the continued growth has provided opportunities to pursue suburban and other states for offices)
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