Hines Selling 33-Story Office Tower in Downtown Houston

Hines and Prime Asset Management are selling a 698K SF, 33-story Class A office tower in Downtown Houston that is 65% leased, with rents almost half the price of a new Hines office tower next door.

The building at 717 Texas Avenue, which opened about 20 years ago and underwent a $12M renovation in 2019, has been struggling to regain its footing since its largest occupier—McMoRan Oil & Gas, which had leased half the tower—moved out in 2017.

The partners are aiming for bids at $225M, or $322 per SF, and are pitching the property to value-add buyers by telling them they can achieve a stabilized yield of 8.5% within three years by capitalizing on the recent renovation and leasing up the vacant space, according to a report from Green Street.

JLL, which secured a $163M loan to refinance 717 Texas in 2017, is marketing the tower for Hines and Prime Asset Management, the US investment arm of Lebanon’s Hariri family. Rafik Hariri, who was the billionaire prime minister of Lebanon when the building was completed in 2003, was assassinated in 2005.

Hines, which has new developments surrounding the 717 Texas tower, is touting the tower as a newer building than the prevailing inventory in Downtown Houston, most of which was built in the 1980s.

Hines is also leveraging the higher rents of the newest buildings in the neighborhood as a part of its pitch for 717 Texas, including the company’s most recent project: the 1M SF Texas Tower at 845 Texas Avenue, which was completed by Hines and Ivanhoe Cambridge in December.

The rents at 717 Texas are averaging about $26 per SF, while Texas Tower, which is 70% leased, is fetching triple-net rents of $45 per SF, according to Green Street.

Hines, in a partnership with Cresset Wealth Advisors and Levi Family Partners, also is in the midst of building a 46-story luxury residential tower on nearby Milam Street. When completed later this year, the apartment tower, named Brava, will have 377 units.

If 717 Texas sells for the $225M asking price, it would become the largest office building trade since 2019, when the California State Teachers pension fund bought a 90% stake in Houston’s Bank of America tower from Skanska for $418M, or $595 per SF.

Only three office buildings have traded for more than $200M in Houston in the past five years.

According to a recent report from JLL, Houston’s central business district has 33.7M SF of Class A office space that is about 75% leased. The submarket accounted for 56% of the leasing activity in Greater Houston in Q2 2022.

Houston, like many other large urban office markets, has seen a wave of office relocations as tenants move into newer, higher-quality space.

The flight to quality that is making leasing of older office buildings much tougher as companies shifting to hybrid work patterns downsize office footprints was cited by Colliers as a factor in negative net absorption in Q2 in the overall Houston market.

Office leasing activity has been steadily increasing in Houston in recent weeks, with Class A rents now averaging more than $36 per SF, Colliers said.

According to Kastle’s weekly survey of office occupancy in 10 US cities, the office markets in Houston and Austin are leading US cities in their recoveries, with occupancy levels that have exceeded 55%.