Why Southern Land Co.'s 'Beautiful Product' Might Pull Houston's Highest Rents
Southern Land Co. plans to ask for the market’s highest office and multifamily rental rates at its first project in Houston.
SLC broke ground on the 953K SF mixed-use building at 2811 Kirby Drive on Tuesday.
The development in the Upper Kirby area, near River Oaks, will include 812K SF of residential, 107K SF of office, 15K SF of ground-level restaurant space and six levels of podium parking. Designed by Solomon Cordwell Buenz architects, the 38-story apartment tower, Lily River Oaks, will be connected to a 10-story tower, 2811 Kirby, with four floors of trophy office space.
The all-in estimated project cost is $270M, Southern Land Co. Chief Investment Officer Dustin Downey said in an interview with Bisnow, adding that the developers and contractors trimmed the budget by about $7M to make the economics work.
Nashville-based SLC is a privately held, full-service real estate development company responsible for luxury apartments, master-planned communities and mixed-use projects in markets including Denver, New York, Las Vegas and Charleston, South Carolina.
SLC had to contribute significant equity to the Houston project — about $40M more than originally planned, CEO Tim Downey said. SLC began looking for a development opportunity in Houston about 15 years ago, and Tim Downey said it was worth the wait to secure this project at this development site.
“It's a beautiful product. Any other developer would have cut a bunch of stuff and gotten $20M out of this deal,” Dustin Downey said. “But because it’s my family’s money, it’s part of our brand.”
Triple-net asking rents for the office portion will start at $55 per SF, the highest rate ever seen in Houston, he said. The average asking rate for Houston office space was $30.57 per SF in the first quarter.
Although top-tier buildings have seen asking rates as high as $57 per SF, Dustin Downey said any rents on par with 2811 Kirby’s are in the small remaining spaces of Downtown Houston trophy buildings.
“Pushing rents definitely helped us get started,” Tim Downey said.
Heightened construction costs and tariffs delayed the project by about a year.
Rates at 2811 Kirby will be justified by amenities like a full floor of wellness and fitness, a large outdoor deck, outdoor seating areas and easy-access parking.
“But mainly it’s the 3 L’s of real estate: Location, location, location,” Dustin Downey said.
“Having a boutique style here at Upper Kirby, we really think that there’s going to be a lot of very selective clients and people who want to move into this building for the address, for their proximity to C-suites’ homes and, frankly, for proximity to other tenants in the building,” he added.
Stream Realty Partners will handle office leasing for the project, and brokers have already reported receiving inquiries. It is one of the very few office buildings that have broken ground in Houston’s Inner Loop during the past five years.
The 145K SF office building being developed at The RO, a mixed-use development also near River Oaks, is fully preleased and slated for tenant occupancy in June.
Andres Construction is building 2811 Kirby, which is slated for completion in 2028.
Lily River Oaks will include 331 rental residences, including 18 penthouses. Amenities will include rooftop indoor and outdoor spaces and a seventh-floor garden deck.
The groundbreaking comes as Houston’s multifamily development pipeline hit its lowest level since 2011, according to CoStar data. There were only 638 starts in the first quarter, and the under-construction pipeline now stands at just 12,000 units, most of which are luxury products, according to CoStar.
The project team includes Kimley-Horn for civil engineering and DeSimone Consulting Engineering for structural engineering. SLC is a leader in landscape architecture and horticulture.
