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$78 Million Foreclosure: Northwestern Mutual Takes Greenspoint Office Project from Hines/GM

HOUSTON – Lender Northwestern Mutual Life Insurance has taken over a Hines/General Motors Pension Fund office project in the Greenspoint area in a foreclosure proceeding.

The Greenspoint office market suffered when Exxon Mobil vacated 2 million SF and the Greenspoint office market has an ugly 43 percent office availability rate, the worst in the city, according to CBRE Research.

Hines said returning the 1.5 million SF Greenspoint Place buildings to the lender was a solution reached jointly by Hines, the General Motors Pension Fund and Northwestern Mutual.

Northwestern Mutual took possession of the Greenspoint property by submitting the “highest and best bid” of $77,523,880 for the foreclosure sale on July 5. Northwestern has engaged Transwestern to market and lease the project.

Hines departure is another stain on the Greenspoint area, a north Houston submarket with 13 million square feet of office space that also faces issues with an aging regional mall and underperforming multifamily.

Owned by Hines and the GM pension fund since the 1990s, Greenspoint Place is a six-building, 1.5 million-SF office complex, originally developed by Friendswood Development, which was the real estate arm of Exxon years ago.

The Greenspoint area, located near Beltway 8 and the Bush Airport, suffered when Exxon Mobil departed for its new campus near The Woodlands, leaving behind huge chunks of vacant space.

“Exxon, the major tenant at Greenspoint Place, is transitioning out of the campus, bringing the property’s occupancy below 40 percent,” Hines says  in a prepared statement. “Considering the average occupancy rate in this depressed (Greenspoint) submarket is only about 50 percent, due largely to the fact the energy market is hurting, ownership of the asset will be turned over to the lender.”

In June, 2011, when Exxon Mobil announced that it was building a 385-acre campus north of Houston, it was apparent that the move would have major aftershocks across the entire Houston real estate market.

In Greenspoint, ExxonMobil’s departure was particularly painful. The energy firm left 2 million SF of office space behind.

The Greenspoint office was exceptionally tight only three years ago. Oil was booming. Greenspoint’s Class A office vacancy was a microscopic 3.4 percent. But oil prices crashed, Exxon Mobil began moving out and vacancy has shot up beyond 30 percent, according to CBRE. The Greenspoint submarket has the highest vacancy rate in Houston, even worst than the beleaguered Energy Corridor.

In 2015, Hines spent several million to upgrade Greenspoint Place, adding a state-of-the-art conference center and a 7,000-SF fitness center. But the outgoing tide was too powerful.

Exxon Mobil was not the only firm to leave Greenspoint. Last year, Southwestern Energy moved its headquarters to far north Houston, leaving behind 250,000 SF of vacant space in Greenspoint. FMC Technologies is vacating another 250,000 SF with its move to Generation Park.

Then, American Bureau of Shipping recently announced it was leaving Greenspoint Place for another new building, which will be built near the new Exxon Mobil campus.

Losing powerhouse companies like Hines and Exxon Mobil, doesn’t make things any easier for Greenspoint boosters. The challenges facing Greenspoint are formidable.

Use whatever euphemism you wish – “giving back the keys” – or some of the other softball terminology that has been used in the media. This was a foreclosure.

But unlike some of the foreclosures in years past where the developer did not have the assets to make the payments, this is different. This is Hines, one of the most formidable real estate organizations in the world with a presence in 182 cities in 20 countries and $89.1 billion of assets under management.

Hines could have paid off the $78 million owed on Greenspoint Place from petty cash.

Maybe there some undisclosed reason that foreclosure was the chosen route. But what it looks like is that Hines/GM just looked at the facts and decided the Greenspoint submarket is headed for a sustained downturn. Maybe the sun will come out again someday, but currently the cloud of uncertainty over the Greenspoint area is dark.

A lot of people were excited and pumped up when Exxon Mobil announced in 2011 that it was building a 3 million SF campus in Springwoods Village in far north Harris County.

Some promoters in the CRE community were hyping up the north side as “The Second Energy Corridor” and such.

The Houston real estate market was so strong in 2011, there wasn’t much talk about the potential downside to Exxon Mobil’s move.

Exxon Mobil occupied millions of square feet of office space in the Energy Capital of the World and most folks assumed other companies would rush to backfill the office space that Exxon Mobil was abandoning. But that was before oil prices crashed.

Now that Houston’s office market has taken a tumble, the remnant of Exxon Mobil’s real estate holdings don’t shine and shimmer so much anymore.

In downtown, plans to redevelop Exxon Mobil’s former downtown skyscraper at 800 Bell have been put on hold. Third Palm Capital, the sole owner of the former Exxon Chemical campus in the Energy Corridor, is converting the old Exxon Chemical space into co-working facilities in the interim – its mixed-use development is on hold.

Then you have Greenspoint, which was one of the premier submarkets in Texas at one time. Exxon Mobil’s departure is a tough blow. If the civic leaders and Greenspoint boosters want to turn around Greenspoint, they better get serious – and soon.

July 11, 2016

— Ralph Bivins is editor of Realty News Report , a Texas-based publication.

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