Deal reached to refinance half-full office tower
Freeport-McMoRan departed building, leaving 355,000 square feet available
Hines and Prime Asset Management, owners of the 717 Texas Avenue office tower, have obtained a loan to refinance the building as the departure of its biggest tenant puts another large block of space on the downtown market.
The 33-story building, which has been full through much of its 14-year history, is now 50 percent leased after the exit of Freeport-McMoRan, according to Hines.
JLL Capital Markets secured a $163.5 million loan through Goldman Sachs for the 696,000-square-foot building. The building, completed in 2003, was the first in Texas to attain LEED Platinum Certification from the U.S. Green Building Council for efficiency in its operations and design.
Originally opened as Calpine Center, the name changed to 717 Texas Avenue after Calpine Corp. greatly reduced its original footprint of about 250,000 square feet.
The building’s recent drop in occupancy did not deter lenders, according to JLL.
“There’s a lot of investor/ lender interest in downtown Houston from capital sources across the country,” said John Ream, a senior vice president with JLL who arranged the loan along with executive managing director Tom Melody.
“There were various types of lenders that were pursuing this one.”
The funds will be used to pay off an existing loan, which was about to come due. The owners can borrow additional money to fund improvements to fill the vacancy, according to JLL. The empty space equates to more than 355,000 square feet on 13 floors.
“There is a feature in this new loan that allows Hines and their partner to draw additional funds/upsize the loan amount as leases are signed,” Ream said.
Freeport-McMoRan, a mining company based in Phoenix, maintains offices for its oil and gas operations in nearby Pennzoil Place. The company expanded in Houston with the acquisition of Plains Exploration & Production in 2013 before the big drop in oil prices. It sold off oil and gas operations onshore California and in the deep-water Gulf of Mexico last year, as well as interests in some Wyoming assets this year.
The more than 355,000 square feet Freeport-McMoRan leaves behind is among the larger contiguous spaces available in downtown, according to Transwestern data. Other such spaces include: 1.3 million square feet in 800 Bell, Exxon Mobil’s former offices; nearly 830,000 square feet of Shell Oil Co. sublease space in One Shell Plaza; 371,000 square feet in Hines’ new 609 Main building; and 312,000 square feet of Chevron Corp. sublease space at Two Allen Center.
Terms of the bridge loan were not disclosed, but the owners will “eventually put longer-term debt in place,” Ream said.
Class A office rents, although higher due to the more expensive new supply on the market, have effectively remained flat as tenants have their pick of space directly from landlords or as sublease space.
“Everyone is being impacted by the aggressive terms of subleases” in the central business district, said David Lee, a senior vice president with Transwestern. “There are quite a few subleases that are very large in size, but also have a great deal of term remaining.”
Lee sees no worries for 717 Texas Avenue, which he pegs at the higher end of the rent spectrum.
“It will get full again,” he said. “We just need some sublease space to burn off and activity to pick up a little bit, and that building will be fine.”