Allied Tower Foreclosure Dramatic Example of Fallen Real Estate Values
DALLAS (AP) _ The foreclosure of one of Dallas’ most striking downtown buildings is a stunning example of the hard times in Texas real estate caused by overbuilding in the boom years, investors and analysts said Wednesday.
Manufacturers Hanover Trust Co., in the largest foreclosure sale in the city’s history, agreed Tuesday to pay $204 million for the 60-story Allied Bank Tower. That amount will be applied against the $214 million still owed the bank by a partnership of developers.
Developer William T. Criswell Jr., who heads the partnership, said rental rates about 25 percent lower than projected made it impossible for his company to continue financing the debt incurred on the 1.2 million square-foot tower.
″We are grossly overbuilt in the Dallas market,″ said Wayne B. Swearingen, president of the Swearingen Co. brokerage firm. ″The one sin committed by the real estate market was to overbuild. It based growth on the five boom years when we were No. 1 in office absorption.″
The resulting glut of office space and declining rents has come back to haunt those who speculated heavily in the real estate of Texas cities, principally Dallas and Houston.
Michael O’Neill, Manufacturers Hanover vice president, said the Criswell project is the bank’s largest defaulted real estate asset in its portfolio.
Manufacturers Hanover announced a $51 million fourth-quarter writeoff in real estate, attributing most of it to the Allied Bank Tower.
Don Dahlberg, a commercial investor with Re-Max International Inc., attributed the fall in real estate values to several factors, including the slump in oil, one of the state’s most important industries.
″We were in a boom period. Investors bought land for speculation, they started to overpay for the land, and then this momentum built,″ he said.
Also on Tuesday, Dallas County lenders took back 43 of 172 defaulted properties, each valued at $1 million or more.
″This (Allied) is only the most visible of a number of foreclosures that occurred because the lenders thought it was the only remedy,″ said Swearingen. ″In some cases, foreclosure is the best remedy.″
But he said the Dallas office market is getting a bad reputation.
″We are fourth in the nation in absorption of office space,″ said Swearingen, whose company will soon occupy two floors of the Allied tower. ″We are still making leases. But we still have contraction.″
Manufacturers Hanover allowed Criswell and his wife and business partner, Sharon, to continue managing the property.
″You know how long a huge project like this one takes - four years in this case - and no one could have envisioned then what happened to the Texas market,″ said Criswell spokeswoman Marsha Bills. ″Given what the rental rates have done, they were undercapitalized to continue leasing of the building.
″The sad irony is that the building leased more space than any other building in downtown Dallas last year, and it was only open four months,″ she said. The building, about 50 percent leased, was brought in on time and under budget, she said.
The blue-green glass, prism-shaped landmark was designed by Henry Cobb, an associate of famed architect I.M. Pei.
″You have to look at a project like Allied 10 to 15 years down the road. And my crystal ball is not that big,″ said Dahlberg. ″Apparently, others’ are not either or they would not have foreclosed on it.″