A partnership of Stream Realty Partners and DRA Advisors has purchased the 20-story office tower at 600 Jefferson for a redevelopment that will inject more momentum into the surging southern sector of downtown Houston.
Stream Realty will immediately start to spend millions of dollars to renovate 600 Jefferson, a 450,000-square-foot office tower that was built in 1972.
Stream Realty will immediately start to spend millions of dollars to renovate 600 Jefferson, a 450,000-square-foot office tower that was built in 1972.
The building, purchased from Brookfield Office Properties for an undisclosed price, will be upgraded with renovations to elevate the building into top-tier status earning higher rents, says Paul Coonrod, managing director and partner with Stream Realty.
The upgrades will include renovating the exterior façade and lobby, upgrading finishes to Class A consistency and — importantly — changing the building’s address.
The building sits between Louisiana and Smith streets. Giving the building a Smith or Louisiana street address — instead of 600 Jefferson — will give the building a more recognizable address, Coonrod says.
“We think it’s an outstanding repositioning play,” Coonrod says. “We will be investing a significant amount of capital into the building during the first nine months of ownership.”
Downtown action
Stream Realty is not the only developer that has recognized the potential in the southern part of downtown. Other southern downtown plays planned or under development include:
1. The Residential Rush
Multiple multifamily projects are in progress, including: a pair of 20-story towers by Camden Property Trust; the 24-story SkyHouse Main by Novare Group; a 207-unit building by Alliance Residential – and others.
2. Exxon Mobil
The 45-story tower that was developed in 1962 as the headquarters of Humble Oil & Refining Co. will be vacated next year by Exxon Mobil. Shorenstein Properties bought the building for $50 million and it plans to redevelop the tower, 800 Bell.
3. The Mickey Leland Federal Building
Located across the street from Stream’s 600 Jefferson, this building has been re-skinned and refurbished to the max with government stimulus money.
4. The Wedge
Not only is Wedge Commercial renovating its 43-story tower at 1415 Louisiana, it is also developing a hotel next door. It will be a 12-story 230-room Hilton Garden Inn, which is a mid-priced brand that competes with Courtyard by Marriott.
5. 100 Stories of Ambition
Two separate groups have 50-story buildings on the drawing boards. One is Five Allen Center, Brookfield’s proposed 50-story office tower on the southwest edge of downtown. Brookfield will not break ground without a tenant. The other 50-story proposal is the Chevron building at Smith Street and Leeland. When the building was announced, Chevron was awarded a tax break for bringing jobs to Texas. Chevron has delayed groundbreaking until late in 2015.
Although the southern side of downtown is red-hot now, it hasn’t always been that way. Over the years, surface parking lots were available en masse. But as downtown development has taken off recently, fueled by the city’s new tax rebate for multifamily, full city blocks are harder to come by.
Strong office market
The downtown office market is strong. The overall vacancy rate in downtown Houston is less than 10 percent — one of the best office vacancy rates in the country — and rents have been rising sharply. Some Class A buildings are quoting rents near $50 per square foot, a record high. The strong downtown market prompted Hines to break ground earlier this year on a 1 million square-foot skyscraper on Main Street at Texas Avenue, but that building will not be completed until late in 2016.
Today, United Airlines is the anchor tenant in the 600 Jefferson building, which is 91.4 percent leased.
With its play at 600 Jefferson, Stream has tapped into one of the biggest visions ever articulated in downtown Houston. The 600 Jefferson building is part of Cullen Center, which was developed by an organization created by Houston oilman and philanthropist Hugh Roy Cullen.
Cullen, who died in 1957, assembled 12 acres of land on the southern side of downtown for a massive urban development of skyscrapers and hotels. Called Cullen Center, the project moved forward even after Cullen’s death.
“This is the beginning of a project Mr. and Mrs. Cullen spent some years in dreaming and planning,” Gerland Veltmann, the Cullen’s attorney told the Associated Press in December 1959 when Cullen Center broke ground. “This will be a memorium to Mr. and Mrs. Cullen, an investment in excess of $100 million and Cullen Center will be to Houston what Rockefeller Center is to New York City.”
The 600 Jefferson building was not the first building in Cullen Center. It opened in 1972. The 600 Jefferson building, which sits with its parking garage on a full city-block, was designed by Neuhaus & Taylor.
At one time, the 600 Jefferson building was known as Continental Center II, before the merger Continental Airlines and United.
Today, United Airlines is the anchor tenant in the 600 Jefferson building, which is 91.4 percent leased.
United lease expires in 2018. That will be the time the landlord can raise the rents significantly to correspond to the current market.
Stream, which has offices across the nation, is no stranger to the process of upgrading buildings and leasing them up with higher rental rates.
With the same partner, DRA Advisors, Stream bought and redeveloped The Bellevue, a 14-story office building on South Shepherd Drive, near Fairview. The building was developed in 1984 by a partnership two political powers of the past – former Texas Gov. John Connally and former Lt. Gov. Ben Barnes.
Stream and DRA bought the Shepherd Drive building in 2011. They repositioned and renovated the tower, leased it up and took profits when they sold it this fall to Principal Financial Group.
The 600 Jefferson building has similar upside potential, as Stream flows into the southern part of downtown.
SOURCE: Culture Map Houston
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