Westland Bunker Campus 550/552/554 CLUB DRIVE MONTGOMERY, TEXAS FOR SALE David L. Carter CCIM, SIOR Direct 713 830 2135 david.carter@colliers.com Dan Peterson Direct 952 897 7713 dan.peterson@colliers.com Everett Thompson Direct 650 281 4768 everett.thompson@colliers.com Tom Condon, Jr. Direct 713 830 4007 tom.condon.jr@colliers.com
Executive Summary Offering Overview THE OFFERING This offering provides investors with a highly-secure, multi-tenant, missioncritical campus investment containing of over 250,000 square feet of office and data center facilities located on 50 acres of land 45 miles northwest of downtown Houston, Texas. The Westland Bunker Campus is comprised of a four-story multi-tenant Disaster Recovery building occupied by approximately 20 tenants and two data centers. Data Center One is an 8MW subterranean colocation facility with national credit tenancy. Data Center Two is an above ground purpose-built shell currently with a 12MW capacity design. This offering provides a unique opportunity for an investor to leverage the current income, operations and infrastructure to capitalize on a mission-critical value-add play in a growing market. FINANCIAL TERMS The property is being offered without an asking price. A call for offers date will be set at a later date. WESTLAND BUNKER ADDRESS: 550-554 Club Dr. Montomgery, TX GROSS BUILDING SF: 250,000 SF PROPERTY TYPE: 2 Datacenters/Disaster Recovery Building YEAR BUILT: 1982/2005/2015 SITE AREA: 50 ACRES APPROX OCCUPANCY: Office: 90% DC1: 75% DC2: 0% CY2018 NOI: $3,911,904 ASKING PRICE: Submit Offer COLLIERS INTERNATIONAL 2
Executive Summary Property Overview Located 45 miles north of downtown Houston in Montgomery County, Texas; the Westland Bunker Campus is a historic fortress with modern robustness and redundant connectivity. Originally built as a selfcontained corporate campus and bomb shelter on its own 50-acre site, Westland Bunker Campus is now home to multiple organizations mission critical business operations within the Disaster Recovery building and subterranean data center. At 345 feet above sea level and 45 miles further inland. The Westland Bunker Campus expanded its state-of-the-art data center facilities in 2015 with a second data center to become an ideal location option for larger mid-continent data center requirements. As Houston s most secure data center, the Westland Bunker is a Tier III (equivalent) operation. The 8MW Data Center One has several colocation tenants including its largest tenant, T-Systems (subsidiary of Deutsche Telekom). The 12MW Data Center Two is a 108,000 square foot purpose-built shell. Valued as-is by third party appraisal at $14 million, Data Center Two has security, utility delivery and one 10,000 square foot pod all in-place today. The Disaster Recovery building at the Westland Bunker Campus contains over 100,000 square feet over four floors of multiple tenants. A central atrium, fitness center, bar and swimming pool are among the amenities. COLLIERS INTERNATIONAL 3
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Research & Forecast Report HOUSTON OFFICE Q3 2018 Houston s office market is finally on the mend Lisa Bridges Director of Market Research Houston Market Indicators Relative to prior period VACANCY Annual Change Quarterly Change Quarterly Forecast* Houston s office market made more progress in the third quarter than it has in the past three years, posting positive absorption of 901,844 SF, a substatial increase from the negative 0.7 million SF of absorption recorded one year ago. Leasing activity increased 22% over the quarter, and Houston s overall vacancy rate is finally below 20%. Houston s job growth increased by 3.7% over the year according to recent data released by the US Bureau of Labor Statistics. The Houston MSA created 101,200 jobs (not seasonally adjusted) between August 2017 and August 2018, growing faster than Texas and the U.S. during the same period. Employment sectors with the most substantial growth includes the construction sector which grew by 13.5% over the year, and professional and business services which increased by 7.2%. According to the U.S. Energy Information Administration, Gulf Coast refineries are taking in record levels of crude oil. Crude oil exports were up significantly in the first half of 2018 and West Texas Intermediate crude oil prices jumped in the first week of October 2018, exceeding $75.00 per barrel for first time since November 2014. The increase in crude oil production, along with the increase in crude oil prices and significant job growth are all indicators that Houston s economy is bustling and it is positive news for Houston s office market. NET ABSORPTION NEW CONSTRUCTION UNDER CONSTRUCTION *Projected Summary Statistics Houston Office Market Q3 2017 Q2 2018 Q3 2018 Vacancy Rate 19.2% 20.1% 19.7% Net Absorption (Million Square Feet) New Construction (Million Square Feet) Under Construction (Million Square Feet) -0.7-0.1 0.9 0.2 0.1 0.1 2.2 1.8 3.3 Class A Vacancy Rate CBD Suburban 19.0% 21.7% 19.7% 22.3% 19.3% 21.9% Asking Rents Per Square Foot Per Year Houston Class A $35.31 $34.93 $34.18 CBD Class A $44.36 $44.28 $45.28 Suburban Class A $32.92 $32.24 $31.04 COLLIERS INTERNATIONAL 8
Vacancy & Availability Houston s citywide vacancy rate decreased 40 basis points from 20.1% to 19.7% over the quarter, but this was an increase of 50 basis points year over year, up from the 19.2% recorded in Q3 2017. Over the quarter, the average suburban vacancy rate decreased 30 basis points from 19.6% to 19.3% and the average CBD vacancy rate fell 60 basis points from 22.2% to 21.6%. The average Class A vacancy rate in the CBD dropped 40 basis points over the quarter from 19.7% to 19.3% and the average Class B vacancy rate in the CBD decreased from 31.3% to 29.8%. The average suburban Class A vacancy rate decreased 40 basis points from 22.3% to 21.9% between quarters, while the average suburban Class B vacancy decreased 10 basis points from 17.3% to 17.2%. Of the 1,717 existing office buildings in our survey, 83 buildings have 100,000 SF or more contiguous space available for lease or sublease. Within these, 26 buildings have 200,000 SF or more contiguous space available. Citywide, the available sublease space decreased over the quarter from 9.4 million SF to 8.8 million SF. Available space differs from vacant space in that it includes space that is currently being marketed for lease but may be occupied with a future availability date. In contrast, vacant space is truly vacant and is and may still be immediately available. Most of the sublease space is located in Class A properties as seen in the chart below. Q3 2018 Houston Office Highlights Q3 2018 Houston Office Highlights CBD VS. SUBURBAN CLASS A OFFICE VACANCY CLASS A OFFICE VACANCY 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% CBD Vacancy Suburban Vacancy FOR MORE INFORMATION JOB GROWTH Annual Change # of Jobs Added HOUSTON 3.7% 101.2K UNEMPLOYMENT 8/17 8/18 HOUSTON 5.1% 4.3% CLASS A OFFICE RENTS CLASS A OFFICE RENTS $50.00 $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 TEXAS 3.2% 386.9K U.S. 1.7% 2.4M TEXAS 4.4% 3.9% U.S. 4.5% 3.9% CBD Rents Suburban Rents COLLIERS INTERNATIONAL 9
Absorption & Demand Houston s office market posted 901,844 SF of positive net absorption in Q3 2018. Suburban Class A space recorded the largest gain, posting 457,043 SF of positive net absorption. Some of the tenants that relocated during the third quarter include the Harris County Veterans Service (moving into 118,800 SF in 500 Jefferson in the CBD submarket), Exterran Energy Solutions (occupying 44,900 SF in 11000 Equity Drive office building located in the West Belt submarket) and WorkSuites (moving into 30,355 SF at 2001 Timberloch Place in The Woodlands submarket). Rental Rates Houston s average asking rental rate increased over the quarter from $28.99 per SF to $30.02 per SF. Houston average rental rate for Class A space decreased over the quarter from $34.93 per SF to $34.18 per SF. In contrast, the average Class A rental rate in the CBD increased by a dollar over the quarter up from $44.28 to $45.28 per SF. The Suburban Class A rental rate decreased from $32.24 to $31.04 per SF. Leasing Activity AVERAGE OFFICE SALES PRICE PER SF 300 250 200 150 100 50 0 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% Houston U.S. Q3 '14 Q3 '15 Q3 '16 Q3 '17 Q3 '18 AVERAGE OFFICE CAP RATE AVERAGE OFFICE CAP RATE Houston U.S. Q3 '14 Q3 '15 Q3 '16 Q3 '17 Q3 '18 Sources: CoStar and Real Capital Analytics Houston s office leasing activity increased 22% over the quarter from 2.9M SF to 3.5M SF. Leasing activity includes new/direct, sublet, renewals/expansions and pre-leasing in proposed buildings. Some of the more notable transactions are noted in the table below. Highlighting the continuing improvement in the market, the office market recorded 2.3 million square feet of leasing activity in the first four days of the fourth quarter of 2018. Q3 2018 Select Office Lease Transactions BUILDING NAME/ADDRESS SUBMARKET SF TENANT LEASE DATE 801 Texas CBD 212,000 Vinson & Elkins 4 Jul-18 801 Texas CBD 155,000 Hines 4 Jul-18 1001 Louisiana St CBD 93,896 Constellation 2 Aug-18 15377 Memorial Dr Katy Freeway 85,500 BP 2 Jul-18 1221 McKinney St CBD 72,900 Haynes and Boone 3 Aug-18 1177 West Loop South West Loop/Galleria 64,022 Cornerstone Home Lending 3.5 Sep-18 2050 W Sam Houston Parkway Westchase 55,000 Cardtronics 1 Aug-18 11000 Equity Dr West Belt 44,894 Exterran Energy Solutions 1 Aug-18 1 New/Direct 2 Sublease 3 Renewal/Expansion 4 Pre-lease in proposed / under construction 5 Colliers International Transaction Sales Activity Houston s office investment sales plunged dramatically over the year, falling by 45.3% since Q3 2017. The average sales price per square foot trended up from $197 to $221 per SF over the quarter. Houston s average cap rate of 7.5% is the same as the U.S. average rate. COLLIERS INTERNATIONAL 10
Market Overview HOUSTON DATA CENTER MARKET OVERVIEW Like most parts of the county, Houston continues to see continued evolution of the data center industry and market demand. Trends in Outsourcing, Hybrid, Cloud, Edge, Hyperscale; all except the last could be applicable terms for Houston over the last few years. Like other secondary markets, Houston was predominately an enterprise, private data center market until colocation operators began to build facilities in the area. Now major providers such as Digital Realty and Cyrus One among others have modern facilities in the market. Hybrid Deployments: Users are allocating workloads and apps in public clouds and with third party providers that can offer the spectrum of services under flexible yet financially predictable contracts. Driven primarily by the oil & gas industry, demand for new data center space declined last year. The more the overall Houston economy diversifies as it grows, the steadier the absorption of data center space and power has become. With events such as Hurricane Harvey, the move to facilities and operators built to handle these risks become more attractive. Growth in the Internet of Things (IoT): The number of connected devices is expected to exceed 50 billion by 2020, up from 18.2 billion in 2016. Going forward, ebbs in the recent market demand will keep pricing competitive. As the market needs diversity (more sectors in the area and newer needs such as edge computing) the market will see growing demand as providers give more service and contract flexibility. Trends Driving the Market More users are getting out of the data center business: Refresh cycles, data security compliance and the cost of operating mission critical facilities keep corporations assessing their strategic investments and core IT competencies. The Enterprise Data Center Still Lives, For Now... 83% of enterprises surveyed in North America still rely on their own data center only 17% 49% 18% rely solely on cloud service providers or colocation providers reported using both their own infrastructure and third parties (cloud or colocation providers), indicating a hybrid cloud world of survey respondents expect to build a data center in the next two years nearly 37% 50% Outsourcing: IT cost and complexity issues are driving enterprises to tap more resources outside of their own data center to meet business needs. Shadow IT: Cloud adoption is putting pressure on IT leadership to provide rapid solutions and corral deployments by other company departments. Edge Data Centers: Increased capacity, lower latency and local relevancy are driving development of smaller local data centers to connect content and apps to users faster. When enterprises run out of capacity, 62% said they would consider their IT infrastructure to accommodate growth, and 41% said they d use an IaaS, SaaS, or PaaS provider. Thirty-five percent said they d rent space at a colocation provider of organizations that are increasing their spending are upgrading or retrofitting existing facilities of organizations are deploying production applications in the cloud By 2018, 50% of all server racks in North America will be located at cloud and colocation data centers, up from 40% today, the study indicated Source: 451 Research COLLIERS INTERNATIONAL 11 Colliers Minneapolis-St. Paul Technology Services maintains a proprietary database of available data Dan Peterson Senior Associate Technology Solutions
Westland Bunker Campus MONTGOMERY, TEXAS FOR SALE David L. Carter CCIM, SIOR Direct 713 830 2135 david.carter@colliers.com Dan Peterson Direct 952 897 7713 dan.peterson@colliers.com Everett Thompson Direct 650 281 4768 everett.thompson@colliers.com Tom Condon, Jr. Direct 713 830 4007 tom.condon.jr@colliers.com