11/12/2008

Cousins Abandons Bid for Houston Complex

Cousins Properties has backed out of talks to pay about $700 million for Greenway Plaza in Houston, in yet another example of a transaction derailed by the credit squeeze.

The 4.3 million-square-foot office complex didn't have assumable financing, and Atlanta-based Cousins was unable to line up $500 million-plus of debt to complete the transaction, market players said.

The owner, Morgan Stanley Real Estate, has decided to retain the property. Greenway Plaza was the largest property that Morgan Stanley inherited last year via its takeover of Crescent Real Estate Equities of Fort Worth, Texas. Cousins and Morgan Stanley's broker, Holliday Fenoglio Fowler, declined to comment.

The sale of large office properties stalled across most of the nation late last year as the market downturn dried up financing and pushed down valuations. But until recently, large Houston properties were bucking the trend, especially when assumable financing was available. For a time, investors remained bullish about the city, which benefitted from the robust energy sector. But the Houston sales market has now also faltered amid the deepening financial crisis, the sharp decline in oil and gas prices and the aftereffects of Hurricane Ike, which battered the city.

Greenway Plaza is the second large Houston office property pulled from the market in two months. A partnership between J.P. Morgan Asset Management and Morgan Stanley opted to retain the Post Oak Central office complex after a proposed $243 million sale to CB Richard Ellis Investors collapsed. The fund operator withdrew its bid because of concerns about hurricane damage to the property and weakening market conditions.

The only remaining large listing up for grabs in Houston is a 50% stake in three office properties owned by the team of California State Teachers and Thomas Properties of Los Angeles. The 3 million-sf portfolio, which contains CityWestPlace, San Felipe Plaza and 2500 City West, is valued at $816 million. The CalSTRS team is talking with several potential buyers but has yet to select a winner.

While other major office markets saw a substantial dip in transactions in the first half, Houston eked out a 2% increase in sales activity, to $920 million, according to Real Estate Alert's Deal Database, which tracks transactions of $25 million and up.

Many of the deals that closed over the past two months were struck during the summer, only to be temporarily delayed following Hurricane Ike. They include Behringer Harvard's $135 million acquisition of One BriarLake Plaza from a J.P. Morgan partnership. Most recently, Donerail Corp. of New York bought a 369,000-sf office property called Two Riverway from a Coventry Realty Advisors partnership for $53.7 million. HFF brokered both deals.

Market sources doubt there will be much activity in the remaining two months of the year.

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