High-Profile Texas Lifestyle Center Out for Bid

In what would be the biggest sale of a Texas shopping center in a decade, a developer is marketing a lifestyle center in Arlington that could fetch as much as $210 million.

The 737,000-square-foot Arlington Highlands, which opened in 2007, is 95% leased. At the estimated value, a buyer’s initial annual yield would be about 6.5%. Eastdil Secured is handling the listing for the property’s developer, a partnership led by Dallas-based Retail Connection.

A buyer would have to assume a $124 million securitized mortgage with a 5.7% coupon that matures in 2016. That encumbrance is a drag on the offering, given the lower interest rates currently available. Without it, the property would likely trade at a lower capitalization rate.

No Texas shopping center has sold outright for more than $200 million since 2002, when the 1.4 million-sf Dallas Galleria commanded $270 million, although a 37.5% stake in the 2.3 million-sf Houston Galleria traded hands in 2010 for more than $600 million.

Arlington Highlands blends a power-center component with a pedestrian-friendly setting for its smaller shops, evoking a traditional downtown “Main Street.” The 77-acre property has creeks, fountains, sculptures and varied storefronts that aim to make it a unique shopping destination.

Thirteen big-box tenants account for 43% of the space and drive significant traffic to the in-line stores. Major tenants include Bed Bath & Beyond, Container Store, PetSmart and Staples.

In-line sales increased 8.8% last year and average $400/sf, with 14 stores performing above $500/sf. The complex has 25 restaurants, including P.F. Chang’s and Dave & Busters. Original leases for in-line tenants have begun to expire and are typically being renewed with rent increases of 10%, according to marketing materials circulated to investors.

Rising rents and occupancy have boosted the center’s value since the owners refinanced it in late 2010. At that time it was 89.6% occupied and appraised at $173 million.

The center is at the intersection of Interstate 20 and Matlock Road. It’s in the South Arlington submarket, which has 16.5 million sf of retail space that is 89.2% leased on average. There are 333,000 people with an average household income of $70,000 living within a five-mile radius.

Arlington draws visitors, and shoppers, from nearby Dallas and Fort Worth because it is home to the Dallas Cowboys, the Texas Rangers, the Six Flags Over Texas amusement park and other attractions. As a result, the owners say Arlington Highlands serves an area with 830,000 residents, whose average household income is $71,000.

The investment-sales market for Dallas-area retail properties has been strengthening in recent months. For example, a power center in North Dallas traded at a capitalization rate below 6% in November. A partnership between Dallas-based Dunhill Partners and RioCan, a Toronto REIT, paid $82 million for the 480,000-sf property, Timber Creek Crossing. CBRE brokered that deal for Trammell Crow of Dallas.

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