Oklahoma City real estate market braces for Chesapeake property sales

BY STEVE LACKMEYER AND BRIANNA BAILEY Published: March 18, 2013

Chesapeake Energy Corp. spent more than $170 million buying up office properties outside of its core campus over the past several years, but its spending spree appears to have run out of gas after company founder and CEO Aubrey McClendon announced his impending departure earlier this year.

Local real estate market observers are keeping a watchful eye on the natural gas company to see what it will do with the vast amount of office space it holds.

A recent report released by the real estate firm Grubb & Ellis/Levy Beffort, estimates Chesapeake controls about 7 percent of the city's office market.

Although Chesapeake's appetite for office space has been insatiable in recent years, the company has slowed the pace of its acquisitions and has even begun to unload some of its real estate assets at a loss.

A breakup and sale of the company “would have a devastating impact to office vacancy rates,” said Julie Anewalt, a research analyst with Grubb & Ellis/Levy Beffort who authored the report.

Records indicate McClendon, meanwhile, is setting about charting his future. A newly-formed McClendon company, Arcadia Capital LLC recently took out a $200,000 building permit for the sixth floor of the Harvey Parkway Building, 301 NW 63rd, which Chesapeake owned until January.

Filings with the Oklahoma Secretary of State show Arcadia Capital and McClendon Energy Operating LLC were formed by the law firm of McClendon's longtime friend and attorney, Shannon Self, in the weeks before and after he announced his upcoming April 1 departure.

McClendon declined requests from The Oklahoman for comment about Chesapeake's real estate or his personal investments. His employment agreement with Chesapeake contains a noncompete clause that is in effect until June 2017, after all of the company's severance payments are made and a six-month noncompete period has been fulfilled.

Anewalt is among those expecting McClendon to pursue plans much sooner.

Best-case scenario

A scaled-down Chesapeake staying in Oklahoma City with a new growing startup by McClendon is portrayed in a recent research paper Anewalt wrote as one of the best-case outcomes.

A dozen years ago, Chesapeake was a growing, but still relatively obscure energy company based in the Three Chopt Square office park at 6100 N Western Ave. After buying properties in the late 1990s for expansion of the core campus, the company started an office-building buying spree along the NW 63/Interstate 44 corridor between Meridian Avenue and Lincoln Boulevard.

“The height of Chesapeake's office ownership came in January 2012 after the purchase of Harvey Parkway,” Anewalt said. “At that point, it owned 1 million square feet of office space outside its campus.”

The office campus itself, meanwhile, grew to 1 million square feet, giving the company in early 2012 control of more than 8.5 percent of the city's office market, and control of 20 percent of the north and northwest submarkets.

In a June 2012 interview with Bloomberg, a company spokesman indicated Chesapeake spent more than $448 million constructing the core campus. An analysis by The Oklahoman of the company's off-campus office acquisitions shows more than $170 million was spent on such purchases.

The buying spree appears to have ended last summer.

Chesapeake spent two years trying to purchase the three-story headquarters of the Oklahoma Police Pension and Retirement System at 1001 NW 63. The 36,240 square-foot pension fund building is across the street from Chesapeake's main campus near NW 63 and Western Avenue.

But the deal fell apart in the months after McClendon stepped down as chairman of the company and several new directors were added to Chesapeake's board, said Steven Snyder, executive director for the Oklahoma Police Pension and Retirement System.

“I can only speculate as to what happened, but interest ended after the new board of directors took over,” Snyder said.

Chesapeake has also booked a $9.5 million dollar loss on sales of two office properties in recent months.

In December, Chesapeake sold the 10-story Caliber Center office building at 3817 Northwest Expressway to IBC Bank for $32.3 million, just one year after buying the property for $38.2 million. Chesapeake spent another $100,000 renovating the Caliber Center before selling it, according to building permits.

In December, Chesapeake sold the six-story, Harvey Parkway office building at 301 NW 63rd Street for $6.4 million. The company purchased Harvey Parkway in January 2012 for $10 million.

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