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March 18, 2020  

Korean Buyer Strikes Houston Office Deal

KB Securities has emerged as the winning bidder for a Houston skyscraper at a price of $675 million, setting the stage for one of the biggest trades in the city’s history.

A partnership between Calpers and Hines last week awarded the deal for the 1.1 million-square-foot building, at 609 Main Street, to the South Korean firm. The estimated value of $613/sf would translate to an initial annual yield of just over 5%. Cushman & Wakefield is the broker.

Market pros are keeping a close eye on the progress of the deal, which comes as the coronavirus pandemic has roiled world markets and complicated travel for Asian investors to the U.S. — and as a plunge in oil prices has raised questions about the prospects for Houston’s office market.

The 48-story building, called 609 Main at Texas, is 94% occupied. Unlike most Houston office properties, it has minimal exposure to the energy industry. Major tenants include Goldman Sachs, Kirkland & Ellis, McKinsey & Co. and United Airlines. The weighted average remaining lease term is 10.6 years, providing stability. The building was completed in 2017 by Hines Calpers Green Development Fund, which develops “high-performance, sustainable” office buildings.

A sale at the estimated value would rank second among Houston single-property office trades, after the $855 million sale of the 4.3 million-sf Houston Center two years ago. Brookfield acquired that complex from J.P. Morgan Asset Management, which was represented by HFF.

The $613/sf valuation for 609 Main would set a Houston-area record for non-medical office properties. The current high-water mark of $595/sf was just set in December, when California State Teachers bought a 90% stake in the new 780,000-sf Bank of America Tower from Skanska USA. Eastdil Secured brokered that deal, which valued the property at $464 million.

The property KB is set to buy has a LEED platinum designation. The marketing campaign touted its location, at Texas Street in downtown Houston’s northwest quadrant. The lively neighborhood has a mix of shops, apartments, hotels and restaurants, and benefits from recently expanded rail access. The building has a 7,000-sf fitness center, roof gardens, an 8,000-sf conference center and a 13-level garage for 1,700 cars.

Should the deal close, it would be KB’s second big U.S. purchase this year. In February, a KB-led partnership paid $370 million for the 506,000 sf of office and retail space in a trophy mixed-use property in Dallas called The Union. The $730/sf valuation was the highest in the city’s history for an office property worth more than $30 million. JLL advised the seller, Phoenix-based Red Development.

CORRECTION (3/20/20): This article has been corrected. The original version misidentified the winning bidder for the 1.1 million-square-foot office tower at 609 Main Street in Houston. It is KB Securities, a South Korean investment bank, not KB Asset Management. Both are subsidiaries of KB Financial Group of Seoul.