06/08/2011

MetLife to Sell Houston Office Stake to ING

ING Clarion, acting on behalf of New York Common Fund, has agreed to buy a 50% stake in Houstonís Wells Fargo Plaza from MetLife for $255 million.

The transaction values the 1.7 million-square-foot tower at $510 million ó the highest price ever attached to a single Houston office property in a trade, according to Real Estate Alertís Deal Database. The $300 valuation on a per-foot basis is also extraordinary, $15 higher than market expectations and just shy of the record $302/sf price on the pending sale of a much smaller property in the city.

HFF is brokering the sale for MetLife, which will retain the remaining 50% stake and continue to operate the 71-story tower, which is 95% leased. The insurer plans to redeploy the proceeds into core and core-plus properties this year and may team up with ING and Common Fund on those investments.

The price tag for Wells Fargo Plaza, which translates into a capitalization rate of about 6%, is further evidence of how frothy Houstonís office market has become this year amid a resilient energy industry. The $300/sf threshold is being approached with increasing frequency.

Last month, a sales agreement for a trophy office building in the Energy Corridor set a record per-foot mark for Houston. American Realty, an investment manager in Glendale, Calif., agreed to buy the 303,000-sf Energy Center 2 for about $302/sf, or $92 million. The initial annual yield is just below 7.25%. CB Richard Ellis is advising the seller, a partnership between Houston-based Trammell Crow and Principal Global Investors, the investment-management arm of Principal Financial of Des Moines, Iowa.

Meanwhile, an L&B Realty fund and Houston developer Midway are in talks to sell the 150,000-sf CityCentre 2, on the border of the Energy Corridor and Westchase submarkets, to an unidentified party for about $295/sf, or $44 million. The capitalization rate would be about 6.2%. HFF is advising the partnership.

The highest price ever paid on an absolute basis for full ownership of a Houston property came in August 2007, when a GE Pension Trust partnership paid $367 million for the 1.3 million-sf Bank of America Center.

In its deal, MetLife is seeking to reduce its exposure to the giant Wells Fargo Plaza while retaining some upside potential. The insurer is also shopping for a low-leverage $200 million mortgage in conjunction with the recapitalization, which will enable it to take more cash out of the tower, currently unencumbered by debt.

Wells Fargo Plaza, at a height of 992 feet, is the second-tallest office building in Houston, just shy of the 1,049-foot JPMorgan Chase Tower. It is also the largest multi-tenant building in the Southwest. The property, at 1000 Louisiana Street, is along the Houston Tunnel System of underground walkways.

Dynergy, a power company, has a lease on 207,000 sf until 2017. Other major tenants include Wells Fargo (184,000 sf until 2019), Petrohawk (111,000 sf until 2014) and a mix of national and international law firms, as well as the federal government. Asking rents are $28-30/sf on a triple-net basis.

MetLife shopped the building outright in 2007. At the time, market players thought it would shatter Houston pricing records by commanding $370/sf, or $629 million. However, the listing was pulled amid the market downturn.

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