“We had been thinking about the portfolio for a potential debt opportunity, and we sat down with the guys at Fuller and really liked them,” Lassere says. “When the existing lender offered debt at better-than-market terms – and considering how much we liked Fuller – we raised our hand to invest with Fuller on the equity side.”

Both Fuller and PCCP put equity into the deal. “We’re effectively buying both the buildings for about what they paid for one of them more than a decade ago,” Lassere says.

Fuller will handle the day-to-day building operations. Presently, 2425 West Loop is 58.5% occupied, and 1001 West Loop is 43.4% occupied compared to the submarket occupancy of 87.5%. Major tenants in the portfolio include Blue Cross Blue Shield and Xerox. The current large blocks of contiguous space in each building provide a unique tenant opportunity in the Galleria submarket.

It’s likely the buildings suffer from high vacancies because Ellman was unable to make market-rate deals given its high basis in the building. “By resetting the basis in the buildings, we can potentially do deals that are better than market,” Lassere says. “We think the Fuller guys are the right guys to turn these buildings around; they have a history of successful ownership.”

Lassere adds: “This is clearly a value-add opportunity because of our ability to lease up the space. At the same time, the underlying story of job growth here means that we can actually underwrite positive net absorption.”

Lassere says PCCP has been targeting Houston for investment opportunities for the past 12 months. He points to the city’s population, which grew at 2.2% through May 2010, more than double the national average, and the current unemployment rate of 8.3%, as key reasons to invest in the Bayou City.

“We love the story of Houston,” Lassere says, adding that the firm has bought multifamily, industrial, office and retail assets here.

Acquisition financing was arranged by HFF senior managing director Wally Reid and provided by NexBank as agent for a group of lenders managed by Highland Capital Management LP. HFF managing director Tucker Knight arranged the joint venture equity for the acquisition with PCCP.