HOUSTON – (Realty News Report) – A Tanglewood-area skyscraper, recently considered as a candidate for conversion to residential, is back on the market.
The 41-story building, formerly known as the Marathon Oil Tower, is being marketed by Eastdil Secured for building owner Starwood Property Trust, a REIT led by billionaire Barry Sternlicht.
The value of the 1.2 million SF building has declined significantly since it was acquired in 2013 by CBRE Investment Management for $245.5 million, according to Real Estate Alert.
The anchor tenant, Marathon Oil, which occupied 60 percent of the building, left in 2021 and relocated to a new office thower in CityCentre. The former Maraton building’s occupancy now stands at 15 percent.
A joint venture of Baupost Group and M-M Properties acquired the tower from CBRE in 2018 for $176.5 million or $148 per SF.
But the impact of the Covid pandemic, the work-from-home trend and softness in the oil markets have not been kind to Houston’s office properties.
In the second quarter of 2024, the city’s overall vacancy rate increased to 26.9 percent, up from 26 percent in the second quarter of 2023, according to Colliers.
Even a $20 million redo of the Marathon Oil building was not enough to buck the trend. Across the city, many tenants rotated into newer Class AA buildings even though landlords invested heavily into upgrades for many 40-year-old towers.
Ownership of the Marathon Oil building transferred to Starwood Property Trust in 2022 as Starwood foreclosed on the building’s mortgage and assumed its debt. It translated to Starwood acquiring the tower for $119 million or $102 per SF.
Right after the acquisition Starwood’s CEO Barry Sternlicht said his firm would be considering its options, including converting the building to residential.
“We’re trying to figure out what we ought to do with it,” Sternlicht said in 2022. “Should we see it as an office building or convert it to a residential site?”
Since then, the concept of converting office to residential has lost some of its luster as professionals dig deeper into the challenging details of conversions.
Now it appears Sternlicht is ready to pull the rip cord and leave the future of the building to others.
The purchase price could be lower than anyone ever imagined.
In the current sales effort, the building may receive offers as low as $35 million ($30 per SF) or as much as $82 million ($70 per SF), says Real Estate Alert.
The property, 5555 San Felipe, sits on five acres between Chimney Rock and Sage Road on the northwest side of the Galleria area.
High-rise residential in the area appears to be in demand – or at least the prices of nearby condominium units are highly impressive. Pelican Builders recently completed a 17-story condo tower called The Hawthorne at 5656 San Felipe. Hawthorne units currently listed for sale range from $1,495,000 ($986 per SF) to $4,345,000 ($1,262 per SF), according to the Houston Association of Realtors.
Converting the Marathon/Starwood building to a mixed-use project appears to be a manageable scenario, if appealing homes can be configured inside. A low acquisition price could present bargain office space for a large tenant.
The valuation decline of the Marathon Oil Tower is shocking even for people who were around Houston during the big bust of the 1980s. This is not a Class C building.
Real Estate Alert says today’s price for the tower could represent as much as an 85 percent decline from the 2013 high-water point. A decline of 85 percent is unlikely. But the price fall is going to be stunning. And 5555 San Felipe is not the only building facing this kind of discouraging reality.
Sept. 16, 2024 Realty News Report Copyright 2024
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File: Bargain Price on Sternlicht Skyscraper