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Brookfield Acquires Houston Center for $875 Million; Major Redevelopment Planned

Brookfield has acquired Houston Center in downtown Houston for $875 million.

HOUSTON – (By Ralph Bivins, Realty News Report) – Brookfield Property Partners has finalized its acquisition Houston Center, a collection of four downtown skyscrapers and a 200,000-SF retail center.

The $875 million sale of the 4.2 million SF Houston Center is one of the biggest real estate transactions ever completed in Houston.

Brookfield is expected to spend heavily – well in excess of $50 million – for a redo of Houston Center, which was constructed in the 1970s and 1980s.

“The focus of our redevelopment efforts is going to be on enhancing the overall tenant experience,” said Travis Overall, Executive Vice President and Head of the Texas Region for Brookfield. “Specifically, we want to expand and improve the offering of amenities and redefine the public areas- lobbies, skybridges and plazas.”

HFF represented the seller, J.P. Morgan Asset Management, which first bought a stake in Houston Center in 2004 in partnership with Crescent Real Estate. The investment firm later bought out Crescent to become sole owner of Houston Center.

Houston office leasing specialists say Houston Center needs upgrades to keep the building on a par with the new-era buildings. Brookfield recently completed a $48.5 million redo of its Allen Center complex in downtown Houston. That included tearing down a skybridge, installing lobby art and creating a park between Allen Center One and Two. And the company is preparing to spend more soon for additional phases of the redevelopment of Allen Center.

Brookfield also demonstrated its considerable urban redevelopment ability at its Manhattan West project in New York. There, Brookfield recently spent $350 million to transform a hulking concrete building nicknamed “the Elephant’s Foot” because it was so ugly, into a striking glass-clad building named 5 Manhattan West. Noted architect Joshua Prince-Ramus of the REX architecture firm was brought in for the Elephant’s Foot transformation.

Travis Overall, a Hines veteran who took over at the helm of Brookfield’s Texas operations earlier this year, said he is already seeking proposals from design firms for redeveloping Houston Center.

The Houston Center renovation effort is not a beauty contest; it’s a business strategy. The Houston office market is competitive and vacancy has been high since energy prices took a downturn and decimated Houston oil companies.

Houston Center’s occupancy rate is down to 72 percent. Brookfield’s redevelopment – if successfully completed – could fill Houston Center again and earn top rental rates. Recently, some office-leasing brokers suggested that Houston Center could even slide into Class B status if improvements were not made soon.

Brookfield has hired a new leasing firm – Houston-based Transwestern – to lease Houston Center.

One of the most interesting challenges will be seeing how Brookfield addresses the retail portion of the project – The Shops at Houston Center. The Shops has restaurants and some stores that serve the office tower population, but as a number of new downtown multifamily projects are being completed, opportunities exist for retail outreach to downtown residents. The Shops retail space is 71 percent leased.

With the redevelopment, Brookfield has the opportunity to create a broader catalyst to uplift the eastern side of downtown and counterbalance the negatives of imposing skybridges, cave-like sidewalks and fortress construction that can seem impenetrable to pedestrians.

Anticipation will be running high for Brookfield to hit a grand slam home run with the redevelopment of Houston Center.

“The office campus of the future is changing,” said Bob Eury, executive director of the Houston Downtown Management District. “Visionary leaders such as Brookfield understand the importance of variety and vibrancy in the workplace—creating a lively mixed-use environment is a must in today’s competitive office market, one that invites people to connect and have layered experiences.”

The redevelopment envisioned at Houston Center is far beyond what the seller – J.P. Morgan Asset Management – would tackle.

The buildings acquired by Brookfield include:

LyondellBasell Tower – 46 stories; 1.1M SF at 1221 McKinney St.

2 Houston Center – 40 stories; 1M SF at 909 Fannin.

Fulbright Tower – 51 stories; 1.2M SF at 1301 McKinney.

4 Houston Center – 16 stories; 674,000 SF on Lamar Street

The Shops at Houston Center – 3 stories; 196,000 SF on McKinney Street.

The Houston Center project began in 1970 with an ambitious master plan by Texas Eastern, which had assembled 33 contiguous blocks on the eastern portion of downtown. The 2 Houston Center building was completed in 1974 and LyondellBasell tower followed in 1978. The next two buildings were completed in the early 1980s by a partnership of Texas Eastern and Cadillac Fairview.

This isn’t the first time Houston Center has been sold. As a journalist, I have covered the sale of Houston Center several times over the years. Chicago-based JMB Realty bought it in 1989 for $400 million, considered a huge sum at that time. JMB sold Houston Center in 1997 to Crescent Real Estate of Fort Worth. The Five Houston Center building, constructed in the Crescent era, was spun off and is now owned by Spear Street Capital. In 2011, Crescent exited Houston Center, leaving the property to J.P. Morgan Asset Management.

With the acquisition of Houston Center, Brookfield, a major global real estate firm, now reigns as the largest owner of office properties in downtown Houston. Its 12.3 million SF portfolio includes One, Two, and Three Allen Center; 1600 Smith Street (formerly Continental Airlines headquarters); Heritage Plaza; Total Plaza; and now, Houston Center.

Dec. 4, 2017 Realty News Report Copyright 2017

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