Blockbuster Houston Office Deal

by CoyDavidson on November 10, 2010

Brookfield Acquiring Heritage Plaza in Houston CBD

In what would be one of the biggest office sales this year nationally as well as Houston history in terms of transaction value, Brookfield Office Properties is on the verge of acquiring the 1.2 millions square foot Heritage Plaza Office Tower according to a report in Real Estate Alert. The current owner Atlanta based Goddard Investments placed the trophy office tower on the market earlier this year.

The reported $325 million dollar sales price or $285 per square foot exceeds market expectations which had been tagged at no more than $250 per square foot. Goddard acquired the property in June of 2005 at a price of $121 million following the departure of Chevron Texaco who occupied approximately 700,000 square feet. Chevron Texaco relocated after purchasing the former Enron Building at 1500 Smith for its Houston headquarter operations. Heritage Plaza, located at 1111 Bagby Street was completed in 1986 and was once the poster child of the Texas Real Estate Bust of the 1980’s, as the property languished until Texaco signed a major lease for 550,000 square feet in 1989.

Houston’s top office sale to date is the $367 million / $289 per square foot price tag a GE Pension Trust Partnership paid Houston-based Hines in 2007, for the 1.3 millions square foot Bank of America Center located at 700 Louisiana in Houston’s CBD.

The Brookfield transaction comes after reported negotiations with San Antonio based USAA Real Estate fell apart. Brookfield acquiring the asset makes perfect sense in that they are already have a major stake in downtown Houston office assets with a portfolio totaling 9.1 million square feet, which includes Allen Center and Cullen Center. Brookfield completed the largest lease in Houston earlier this year renewing and expanding KBR’s corporate headquarter lease for 1,182,023 square feet at Cullen Center, after the construction and engineering giant scrapped plans to build a West-Houston campus.

The Heritage Plaza sale to Brookfield, if finalized will further bolster the awareness of Houston among real estate investors. Houston has been prominently mentioned as a primary gateway office market expected to attract investor interest, all though not on the same level as New York, Washington D.C., Boston, Chicago and San Francisco. Houston’s Central Business District has been a strong performer. While it has not been immune from the recession, Class A vacancy in downtown Houston was 10.1% at the end of the 3rd quarter and the average quoted rental rate of $35.20 for Class A space is among the healthiest in the nation.

Top U.S. CBD Office Rents

  1. New York-Midtown Manhattan: $63.20
  2. Washington DC: $52.30
  3. Boston: $45.60
  4. Miami: $41.80
  5. Stamford: $40.70
  6. Los Angeles: $39.00
  7. San Francisco: $36.20
  8. Houston:  $35.20
  9. Chicago: $32.50
  10. Oakland: $31.10

Source: Colliers International: North American Office Highlights 3Q 2010

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