Why is Brookfield Selling Apartment Buildings in Downtown Dallas?

Four properties that recently hit the market shine a light on multifamily demand, or lack thereof, in downtown Dallas.

Brookfield Corporation listed a portfolio known as Mercantile Place on Main, with Berkadia as its broker.

The properties comprise about 500 units, clustered in the center of downtown:

The Element, 1808 Main Street
Mercantile Continental Building, 1810 Commerce Street,

Mercantile National Bank Building, aka The Merc, 1800 Main Street, and
The Wilson Building, 1623 Main Street.

The complex has fewer than 30 vacancies, according to its website. Some of the units rent for less than $2 per square foot. The buildings share amenities such as a pool, club rooms and outdoor terraces.

The move by Canada-based Brookfield comes with signals of distress. The 213-unit Merc was watchlisted in March by Morningstar, with an estimated loan of about $45 million and value of about $38 million.

It also indicates that demand for apartments in downtown Dallas might not be what it seems.

Downtown Dallas is facing a glut of high-end apartments, said Steve Triolet of Partners Real Estate.

The trend is likely to continue, too, thanks to a pipeline of almost 4 million square feet of office-to-resi conversions in the area. That equates to at least 1,800 apartments, which would increase the neighborhood’s stock by 20 percent. And that doesn’t account for new apartment projects that are under construction, such as Mill Creek Residential’s 333-unit Modera St. Paul, which is expected to open next year at 400 South St. Paul Street.

Brookfield could be looking to offload its downtown multifamily holdings before more office-to-resi conversions come on the market, he speculated. Requests for comment from Brookfield and Berkadia haven’t been answered.

The Element, standing 15 stories and holding 150 units, was built in 2007. The other three buildings in Mercantile Place on Main are former office buildings that were converted to residential between 1999 and 2013.

The properties are valued for tax purposes at nearly $120 million, and Brookfield’s tax bill for them was over $3 million this year, according to the Dallas Central Appraisal District.

Brookfield has been hard-eyed with various portfolios recently. The investor defaulted on over $1 billion in loans and gave back the keys to office buildings in downtown Los Angeles earlier this year, a head-turning move that put a sharp focus on that city’s struggling office sector.