Commercial property companies agree to deal

A pair of commercial real estate companies are gearing for a merger.

They're on opposite coasts, but both have a stake in Houston's commercial real estate.

Now, Orlando, Fla.-based Parkway Properties will buy the Los Angeles-based Thomas Properties Group for $294 million in stock. The deal is valued at $1.2 billion after debts, according to reports from The Los Angeles Times and The Houston Business Journal.

James Heistand, president and CEO of Parkway, stated the buyout will give Parkway more presence in the Houston area. Houston has been one of the hottest commercial real estate markets in the country thanks to a boom in its energy sector.

"Parkway will be adding a portfolio of seven, high-quality assets totaling 4.9 million square feet, each located in one of Parkway's targeted submarkets," Heistand said in a statement. "This transaction will significantly expand and upgrade our presence in Houston and simultaneously will allow us to fulfill our stated strategy of expanding into the Austin market. We continue to believe that our markets are in the early stages of recovery, and this transaction will give us an attractive basis with potential opportunity to create additional value through occupancy gains and rental rate growth."

Part of the deal
Thomas Properties was incapable of raising enough cash to buy out CalSTRS, a teacher's pension fund, so Parkway has agreed to give Thomas Properties up to $80 million in order to help liquidate the joint venture with CalSTRS. In turn, Thomas Properties and CalSTRS will send two Houston office towers to Parkway as part of the deal's conclusion.

"We elected to take the Houston properties and give City National Plaza to CalSTRS," Thomas Properties founder and chairman James Thomas told The LA Times. "They want to sell it."

Thomas said that his firm is a public company, but not a real estate investment trust, which restricted its means when trying to borrow money.

"The 2008 financial crisis came at the worst time for us," he said. "We had over $1 billion in debt coming due that in ordinary times we would have been able to refinance."

Thomas noted that his board believes the move "will maximize value for our shareholders, both in the near and long term." The move will also give Thomas Property stockholders tax advantages of a REIT structure, according to Thomas. 

The LA Times said the companies had net assets of comparable values at the time of the deal.

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