A San Francisco-based pension fund adviser has contracted to purchase the two-building Dulaney Center project in Towson for roughly $30 million, a sign that suburban office buildings are once again in favor with institutional investors.
The RREEF Funds' planned acquisition of the two buildings and accompanying parking garage at Dulaney Valley Road and Fairmount Avenue comes as underlying fundamentals for suburban office projects are improving. In the Towson area, for instance, the office vacancy fell by one-third between year-end 1993 and 1994 while rents generally have been increasing.
"Towson is an improving market in terms of its vacancy and net absorption levels," said RREEF Vice President Steve Grant, who confirmed the deal but declined to confirm the $30 million price tag reported by industry sources. "And the current ownership has done a good job of stabilizing the project."
For RREEF, a pension fund adviser with assets under management totaling $5.6 billion, the nine- and five-story buildings would mark its largest investment in the Baltimore area since it acquired the Annapolis Mall a decade ago.
The fund, whose real estate portfolio contains apartment complexes and 51 million square feet of commercial space, owns five retail and industrial projects in the Baltimore/Washington corridor, said Cindy Talmadge, a RREEF spokeswoman.
Mr. Grant said RREEF was attracted to the 306,000-square-foot project and adjacent seven-level, 1,600-space garage because of its location, the difficulty in assembling land for new office projects in Towson and Dulaney Center's proximity to the $250 million Towson Town Center across Fairmount Avenue.
"Certainly the institutional investment community is re-evaluating office properties, and is looking primarily in suburban locations," said J. Joseph Casey, president of Casey & Associates Inc., a leading area commercial real estate brokerage firm. "They realize the market has hit bottom and is coming back."
The transaction, set to close next month, does not include the adjacent 284-room Sheraton Baltimore North hotel, which has been owned since May 1992 by a Philadelphia firm.
For the Meridian Group Inc., the Washington firm that bought Dulaney Center from NationsBank Corp. for $17 million in February 1994, a sale to RREEF would generate a 76 percent return and illustrate the Towson office market's tremendous upturn in the past year.
Meridian had been offering Dulaney Center for sale at $34 million, based on the project's strong recent leasing activity and projected 1996 rental income of $5.6 million, according to an investment package circulated earlier this year. Meridian declined to comment.
The project is 97 percent leased to MCI Telecommunications, MBNA America, Merrill Lynch and Whitney, Bailey, Cox & Magnani and others. And at $30 million, RREEF's price will represent a 34 percent discount off the amount NationsBank predecessor Maryland National Bank had lent Dulaney Center's developers between 1982 and 1987.