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 63, 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.
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.
Anewalt believes more sales will follow, specifically the former IBC Bank Building at 3601 NW 63, the Central Park office buildings at 515 Central Park Drive, and the Atrium Towers at 3501 NW 63rd.
Company streamlines operations
The company has said in recent months that it plans to streamline its operations, and its workforce in Oklahoma City has contracted somewhat over the past year.
While Chesapeake had about 4,950 employees in Oklahoma City at the end of January 2012, the company reported that 211 employees recently accepted a buyout offer the company extended to some of its staff late last year, according to a regulatory filing.
Chesapeake also listed its 20-story Fort Worth office tower — the headquarters of its Barnett Shale operations — for sale in 2012. The company purchased the tower in 2008 for $104 million.
Kurt Foreman, executive vice president of economic development at the Greater Oklahoma City Chamber, believes Chesapeake’s surplus office properties won’t be empty for long.
“I don’t think it will create a glut on the market,” Foreman said. “We heard the same concerns when Devon announced its tower. There are few pockets of space downtown now based on what we’re seeing. We have a high number of companies from out of state wanting to come into Oklahoma City and we have a challenge finding large amounts of existing space for them.”
Anewalt agreed, noting that the office properties already sold by Chesapeake were never officially listed as being for sale. The buildings, she said, had buyers waiting and eager to do deals.
“We think the Chesapeake space will be absorbed pretty quickly,” Anewalt said. “The assets outside their campus will be easiest to sell. The assets in their campus will be trickier.”
With the Chesapeake campus designed specifically for that company’s needs, especially with garages located along the perimeter, Anewalt said any contemplated sale of some or all of the headquarters will be a challenge.
“The right buyer could make it work,” Anewalt said. “But it could be difficult.”
While the website for the company’s real estate arm, Chesapeake Land Development Co., lists numerous real estate properties in Texas and Virginia for sale, only for-lease office space is listed in Oklahoma City.
The company declined to speak with The Oklahoman about plans for its real estate assets in Oklahoma City.
Some buildings empty
Some of Chesapeake’s off-campus office buildings remain vacant.
After Chesapeake purchased the twin Atrium Tower office buildings at Lake Hefner Parkway and NW 63 in 2011 for $17.3 million, the company bought out the leases of all of the tenants in the building before launching a major renovation, said attorney Paul Quigley, a tenant in one of the buildings at the time of the transaction.
“They were very orderly about it and they gave all of the tenants different offers to entice them to leave,” Quigley said.
Today, Chesapeake offices occupy only one of the twin, six-story Atrium Tower buildings, although renovations are ongoing.
A large sign facing the roadway in front of the buildings advertises that office space in the towers is available for lease.
Staplegun, an advertising and marketing firm, was forced to relocate from its home at 6529 N Classen to CityPlace Tower downtown last year. Chesapeake bought the North Classen building for $2.35 million in September 2006. After leasing 80 percent of the building for several years, Staplegun Chief Executive Officer Phillip Baker said he was first presented with an “enormous” rent increase — and then an outright request to vacate.
“They were fantastic landlords,” Baker said. “They addressed problems with the heating and air, the landscaping was immaculate, and windows were kept cleaned. We never had issues.”
When Baker inquired as to whether any new leasing arrangements could be made, he said Chesapeake officials told him they needed the space and Staplegun needed to leave quickly.
“They were flexible with us when we couldn’t move out in 60 days,” Baker said. “They were friendly, but there was constant pressure.”
A year later, a sign remains in the entrance advising visitors of Staplegun’s move. The building remains empty, and the landscaping, Baker said, remains “immaculate.”
CONTRIBUTING: Paul Monies, Business Writer