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Opportunity Knocks: Why A Family-Owned Houston Firm Is Snapping Up Old Office And Paying Cash

While few have the appetite to become owners and operators of older office properties these days, Houston-based Tenant Managers is charging ahead — and snatching them up with cash — as it continues its strategy of running in the opposite direction of the market.

The investment firm bought two 1980s-era office buildings in the last month as part of its quest to own 1M SF of Houston office space by the end of the year, CEO Nirav Shah said.

Mili, Nirav and Nikhil Shah at 1500 CityWest Blvd. in Houston on Oct. 6

Tenant Managers bought 2929 Briarpark Drive, a 140K SF building in Houston’s Westchase submarket, and 6100 Hillcroft Ave., a 137K SF building in Sharpstown, within two weeks of each other last month. These purchases add to the 192K SF 1500 CityWest at 1500 CityWest Blvd. in Westchase that Tenant Managers bought in 2021. 

Houston office buildings constructed in the ’80s have a 31.8% average vacancy rate, making them the biggest contributor to Houston’s all-time-high vacancy rate reached in the third quarter. 

“We have always done assets that people have shied away from, where they’re true value-add,” Shah said in an interview with Bisnow at 1500 CityWest. “So multifamily, before multifamily was popular. In Covid, we ended up buying shopping centers. And then on the tail end, we ended up buying this office building. As we've grown, we've understood every segment, and then we've grown further in each of those segments.” 

Shah runs Tenant Managers along with his wife, Mili Shah, legal counsel for the firm, and his brother, Nikhil Shah, a principal of the firm. The family is originally from the East Coast but spent over a decade in South Texas before moving to Houston about seven years ago, Nikhil Shah said.

Tenant Managers’ portfolio includes 11 hotels and land slotted for development throughout Georgia and South Carolina, in addition to various multifamily, retail, pad sites and office properties in markets such as Brownsville, Texas, and Seattle, according to documentation provided to Bisnow

“We've always been interested in real estate, anything that's a value-add opportunity. And we are very much geared toward location,” Mili Shah said. “So we've strategically found assets in any asset class based on location. If we like the location, we like the price, then we'll go for it.”

Tenant Managers hasn’t disclosed the prices on its recent purchases, but The Real Deal reported that 2929 Briarpark Drive was valued this year at almost $10.5M, a drop of about $4.5M from the previous year. Tenant Managers’ cash-rich position means it doesn’t have to depend on what some have called an “absolutely horrendous” financing market to secure its purchases. 

2929 Briarpark Drive in Houston

“We have the financial ability to perform without going for external financing. That gives us the opportunity to guarantee a close,” Nikhil Shah said. “So currently, there are a lot of deals … that get papered, but they can't close. We don't have that issue.”

All of Tenant Managers’ deals take 45 days maximum, Nirav Shah said. No single asset class has led Tenant Managers to a financially successful position. The key is being opportunistic, Nikhil Shah said.

“We see an opportunity and we know our capability and how that fits that opportunity. And if that puzzle meets and matches out, then we go forward,” he said. “There are certain deals that just don't make sense to us because there's no opportunity or value-add that we can give to that asset. So we have to pass on those deals.”

The firm doesn't buy properties to improve and flip them, Mili Shah said, adding that it intends its properties to be generational investments. 

The firm bought 1500 CityWest 18 months ago at about 60% occupancy. It gave out tenant improvement allowances to help get new tenants in while upgrading common areas throughout the building, Nirav Shah said. When looking to buy more office assets, company officials felt confident they could replicate that formula in other buildings, he said.

“I think location is a big part of that,” Nirav Shah said. “Briarpark obviously was in Westchase, so we felt comfortable after getting [1500 CityWest] to 92% occupancy.”

Ariel Guerrero, the Texas and Denver regional lead of innovation and insight advisory for Avison Young, told Bisnow this week that there are “definitely some opportunities for investors to acquire lower-quality properties at a discount right now.” 

Investors will likely be the most drawn to assets with nearby amenities and workforce, as well as value-add potential, Guerrero said. 

“For some of these Class-B and C office assets, the money that it would take to bring those buildings up to date … modernizing the elevators or overhauling the mechanical system, or even a full-facade reclad or more, it may just not be worth it,” he said. “But there are some buildings that there's definitely potential, especially if it's in a well-located submarket.” 

Many office buildings are struggling, with companies downsizing and moving, contributing to low occupancy and financial trouble for landlords.

Tenant Managers bought 6100 Hillcroft from its previous owner, engineering company Fugro. Fugro is leaving the building after leasing the 75K SF Republic Square at 13501 Katy Freeway in the Energy Corridor, which will boost that building from 50% to 70% occupancy. 

There was a special servicer involved with at least one of the buildings Tenant Managers recently purchased, Nirav Shah said. 

“Obviously, today in the office market, you're going to see a lot of special servicing,” he said. “The deals are out there because of the lack of liquidity.” 

Nirav Shah said he believes the goal of 1M SF by the end of the year is reasonable and could be met by buying just one large asset or two to three smaller buildings. Tenant Managers handles leasing in-house with a staff of 12 people but plans to grow organically as it buys more property.