Behringer Harvard Buys Beau Terre

Beau Terre Office Park in Bentonville was never listed for sale.

But all 70 acres of it sold on June 11 to Behringer Harvard Funds of Dallas for $55.87 million. The original developers, Colon and Dana Washburn, turned down several previous offers for the retail vendor haven before BHF approached them in August.

“Behringer Harvard was the first person that we felt could maintain the value and the customer service level,” said Colon Washburn, president of Beau Terre Inc.

Beau Terre includes 371,083 SF of upscale office space spread through 36 buildings in northeast Bentonville. Jason Mattox, senior vice president of BHF, said Beau Terre is currently 96 percent leased. The complex has about 130 tenants and was appraised in 2002 by the Benton County Assessor for about $40 million. Beau Terre space leases from $14 to $18 per SF depending on tenant finish out and building location.

BHF is a firm that specializes in real estate investment trusts (REITs), mid-term and short-term funds and IRS Code 1031 like-kind exchanges. The deal marks BHF’s first foray into Arkansas.

The purchase was completed through the Behringer Harvard 1031 Exchange Program, of which there were 28 investors/limited liability companies that had interests ranging from 1 to 5 percent.

The 1031 plans enable property owners to defer tax liability on capital gains from certain real estate transactions.

The deal was brokered by David Boerner of Plunkett, Boerner & Associates Inc. in Little Rock.

New Kid in Town

BHF owns three other 1031 properties in Minneapolis, Houston and St. Louis. Only one of its 1031 properties is less than 90 percent leased, Mattox said.

BHF’s typical investment strategy involves the top 20 markets in the United States, in which it looks for “high-barrier-to-entry locations” — or markets where office space is usually undersupplied. Beau Terre, Mattox said, is therefore not a typical investment for Behringer.

“This property is unique because it is well-suited for vendors to Wal-Mart with its design and history,” Mattox said. “Vendors five to ten years from now will still want to be at Beau Terre because of its proximity to neighborhoods and Wal-Mart. It is a really well-developed park that fits the style and culture of the area.”

Robert Behringer, chairman, CEO and chief investment officer of Harvard Behringer, said the area is primed for investment.

“The predicted growth and existing demographics of Northwest Arkansas provide a firm foundation for an investment in a property with such a strong and loyal tenant base,” Behringer said.

Since BHF began in February 2003, the company has accrued more than $200 million in assets under management.

Of that $200 million, 1031 properties account for 40 percent, Behringer Harvard REIT I Inc. accounts for 45 percent, and Behringer Harvard mid- and short-term funds make up 5 and 10 percent, respectively.

“We have a program that we’ve developed similar to that of other investment sponsors.” Mattox said of the 1031. “It provides for tenant-in-common ownership for accredited investors across the country.”

Eligible investors for BHF 1031s must meet the accredited investor standards as dictated by the U.S. Securities and Exchange Commission under the Securities Act of 1933. They must have a net worth, or a joint spousal net worth, of $1 million. Other ways to qualify include three-straight years of two individual incomes of $200,000, or one spouse income of at least $300,000.

A 501(c)(3) corporation not formed for the specific investment can buy an interest if it has at least $5 million in assets.

BHF offers its 1031 investments through a network of independent broker dealers.

Founded by Robert Behringer, the firm is a successor to Harvard Property Trust, a private REIT that invested in institutional office buildings in the central United States, and, Behringer Partners, a sponsor of numerous “opportunistic” real estate investments. Harvard Property Trust began in 1995 and, at its height, had 17 buildings in its portfolio.

Behringer Partners and Harvard Property Trust, Mattox said, only offered investments to institutions and accredited investors. BHF offers investments in the independent broker dealer channel.

“We are seeing great demand across all four of our offerings,” Mattox said. “Right now, based on the overall economy, based on the low supply of 1031 opportunities, there is a great demand for those.”

Beau Terre Beginnings

Washburn calls Beau Terre the “only full-service office park in Northwest Arkansas.”

“We’re very excited about the new owners,” he said. “Especially their commitment to continue the service level that we’ve established and provide the best value for office space in Northwest Arkansas.”

Beau Terre, located at the intersection of Interstate 540 and Arkansas Highway 72, is home to vendor offices for Bayer Corp., The Clorox Co., Nestlé USA, The Coleman Co., Coca-Cola Co., Cadbury Schweppes PLC, The Gillette Co., Sunbeam Products Inc., H.J. Heinz Co., Gerber Childrenswear Inc., Bird’s Eye Foods Inc., The Scotts Co. and Morton International Inc.

“[Beau Terre’s tenants] have an incredibly important job calling on Wal-Mart, and they don’t need to be worrying about lights or toilets or bugs or whatever. It takes a tremendous commitment to understand the Wal-Mart customer,” Washburn said.

Washburn should know, since he spent 23 years in merchandising with Wal-Mart Stores Inc. before leaving in 1993 to start Beau Terre. Dana Washburn also spent several years in merchandising, working for Sam’s Club in Bentonville before the Beau Terre venture.

Colon Washburn said since its 1994 inception, Beau Terre has seen 500 different custom-office layouts. Its first three vendor tenants were Nabisco, Fuji and Rayovac, which became Beau Terre’s informal advisory board.

“By understanding the needs of the vendors, we could recommend the layout that would be most effective for them,” Colon Washburn said.

Washburn said his wife is the “best leasing person in the United States.” She was responsible for the tenant layouts and tenant leasing relations in Beau Terre, he said.

Amenities include T1 fiber-optic cable, on-site management, tech support, maintenance and telephone company (which saves at least 25 percent on local and long-distance calls), and a 24-hour fitness center.

In addition, Washburn said Beau Terre hosts an annual Christmas party, chili-cook-off and spring picnic.

Beau Terre opened its doors in October of 1994. Sellers Properties Inc. was the original general contractor, and Miller Boskus Lack Architects was the architect. CEI Engineering Associates Inc. was the engineer. About 90 percent of the subcontractors, Washburn said, stayed with the project for more than nine years.

The Washburns bought the original 30 acres for Beau Terre in 1991. They bought an additional 50 acres for Beau Terre North in 1999.

For the first nine months, Washburn said, getting tenants was a challenge. But in 1996, he saw a turnaround.

“I think vendors in Northwest Arkansas were really starting to understand Wal-Mart better,” Washburn said.

Eventually “word-of-mouth” among vendors became 98 percent of Beau Terre’s marketing, he said.

“We never dreamed that it would grow as fast as it did.”