Houston's Largest Office Sales Of The Year
Houston had a big 2017. In between the highs (World Series!) and lows (oil and Harvey), the city managed to have a banner year of office investment, seeing some of the city's biggest assets change hands.
"It's been a big year, several big deals have gotten done," JLL Managing Director Rudy Hubbard said.
But he said Houston's office investment market still has room for improvement. The sector's strength has come from a few high-profile deals.
"Seventy percent of office investment is tied up in these mega-deals," Hubbard said.
Most of the deals are older buildings that need some form of refurbishment, signaling value-add opportunities for investors who want in on the Houston market. Much of the investment conversation has revolved around Hurricane Harvey. The Category 4 storm was the most powerful to hit the United States' mainland in more than a decade.
JLL found 57 office buildings totaling 15.5M SF sustained damage, some of it very minimal. The Katy Freeway, Galleria and Midtown submarkets accounted for 84% of the flooded office properties. Combined, the damaged assets have an estimated 1.5M SF in need of repair, mostly lobbies and other first-floor facilities. Considering the potential for damage, Houston's office inventory was spared.
"We've tried to spread the word [that CRE was not that affected]. I don't think investors as a whole understand Harvey," Hubbard said.
Despite the storm, Houston assets continue to change hands. Some of the area's biggest deals were done Post-Harvey.
Size: 4.2M SF
Buyer: Brookfield Asset Management
Seller: JP Morgan
With an estimated price of $875M, the sale of Houston Center tops the list of Houston's office trades of 2017. With the acquisition of the 46-story LyondellBasell Tower, the 51-story Fulbright Tower, the 40-story 2 Houston Center, 4 Houston Center and the Shops at Houston Center, Brookfield now owns 12M SF in Houston's central business district. Brookfield is planning to redevelop the asset, focusing on enhancing the overall tenant experience with improvements to the building's lobbies, skybridges and common areas.
HFF Senior Managing Director Jeff Hollinden, Executive Managing Directors Scott Galloway and Mark Gibson, and Senior Director Trent Agnew represented JP Morgan.
Size: 4.9M SF
Buyer: TH Real Estate, Silverpeak and Candian Pension Plan
Seller: Parkway Properties
Greenway Plaza has been one of the city's most successful and consistent office submarkets. A joint venture of TH Real Estate, Silverpeak Real Estate Partners and Canada Pension Plan purchased a 49% stake in the 4.9M SF office portfolio for $512M.
Parkway, which retained 51% ownership, is using the money to upgrade the property. Renovations began by converting Houston City Club into a Life Time Fitness, after which renovations will continue piecemeal all over the 10-building portfolio.
Size: 2.1M SF
Buyer: Lincoln Property Co., H.I.G. Realty Partners
Seller: Northwestern Mutual
Formerly one of Houston's premier office portfolios, Greenspoint Place has had a tumultuous history since the asset's anchor tenant, Exxon Mobil, vacated, leaving the asset 40% occupied. It was turned over to the lender, Northwestern Mutual, in 2016, and Transwestern sold the property on its behalf in August to a JV between Lincoln Property Co. and H.I.G Realty Partners.
The deal for the six-building complex was a positive sign for Houston's struggling northern submarket. Upscale office space in the area is now 50%, the highest it has ever been, according to Transwestern's Michelle Wogan. While the submarket struggles, Greenspoint's location, amenities and pricing are starting to turn around. Transwestern has handled around 150K SF of new leases in the past year in Greenspoint Place in addition to other sale and lease activity in the area.
Lincoln Property Senior Vice President Zach Thomas oversaw the deal while NorthMarq Capital's Warren Hitchcock and Bill Haley advised LPC on the purchase and capitalization.
Columbia Property Trust Portfolio
Size: 1.1M SF
Buyer: Spear Street Capital
Seller: Columbia Property Trust
Columbia Property Trust wanted out of Houston. Its assets, including 5 Houston Center, Energy Center 1 and 515 Post Oak, sold for $272M in gross proceeds. Houston should not take it personally — the deal was a year-long sell-off of roughly $1B in assets.
For the asset's buyer, Spear Street Capital, Houston is too big to ignore. In addition to acquiring the three Class-A office assets, Spear Street is working with Transwestern to convert Exxon Mobil's former Buffalo Speedway campus into a mixed-use project.
Energy Center 4
Size: 597K SF
Buyer: Bank of America
Seller: Trammell Crow
ConocoPhillips pre-leased the entire building while it was under construction, but when the tower was complete, the oil and gas giant put the space on the sublease market. Now that the building has new owners, Conoco's interest has resumed. The company has filed build-out permits for roughly $79M. Construction is underway at the tower, a ConocoPhillips spokesperson confirmed, and the company plans to move into the building in 2018.
Burns & McDonnell Plaza
Size: 272K SF
Buyer: Lingerfelt CommonWealth Partners
Seller: ROC Fund
Situated along 610 near the Galleria, Burns & McDonnell Plaza is one of Houston's most visible office buildings. The 14-story building was purchased for $52M. The tower is 81% occupied and is anchored by Burns & McDonnell, an international engineering, architectural and consulting firm.
"Our company is excited to enter Houston at this time," Lingerfelt Senior Vice President Jay Kraft said in a statement. "We have been tracking the market and believe the basic fundamentals are strengthening. We look forward to exploring other opportunities and expanding our presence."
Dow Administration Building
Size: 230K SF
Buyer: Cole Capital
Seller: CORE Real Estate
Out in Lake Jackson, HFF worked the sale of DOW Administration Building, part of a new research and development complex developed for Dow near its manufacturing site in Freeport. Completed in 2015, the property consists of a four-story, LEED Gold-certified office building with 230 SF fully leased to The Dow Chemical Co.
HFF Senior Managing Directors Danny Miller and Mark West and Director Martin Hogan represented the seller.
Size: 216K SF
Buyer: Whitestone REIT
Seller: Bailard Inc
Anchored by Whole Foods with over 99% occupancy on one of Houston's most high-profile intersections, BLVD Place is one of the healthiest assets to change hands. Included in the deal was a 1.4-acre tract where Whitestone plans to build a six-story building with 46K SF of retail space on the first two floors and 91K SF of office space on the top four. The company estimates the development cost will be $45M.
Adding to the buzz in the area, Hanover is also working on Hanover BLVD Place, a 32-story, 281-unit tower on 1.5 acres off South Post Oak Lane adjacent to Hanover's existing Post Oak apartment tower.
HFF's Rusty Tamlyn, Matt Kafka and Trent Agnew repped the Wulfe-Bailard entity. Broker information for Whitestone REIT was not provided.
"The norm will be a dramatic improvement over 2016," Hubbard said.
With a record amount of dry powder looking to invest, Houston's countercyclical nature will boost its office market in 2018 and beyond. The city's fundamentals are improving. The same factors that caused the massive expansion of the Houston metro area will be the reason it continues to thrive.
"Investors are seeking out Houston to find better yields," Hubbard said.