Downtown Office Tower Purchased, Market briefs

In Houston, The Harris County government has purchased the 20-story 1010 Lamar building in downtown Houston.

Built in 1981, the 301,000-SF building came with a 490-space parking garage building that was the Sakowitz department store many years ago.

Jason Presley, senior partner in Houston for Goodwin Advisors, an investment sales and capital markets firm marketed the office tower.

When Goodwin’s marketing efforts began, it was believed a conversion to residential was a possible “strategic use,” Presley says.

But the trail of would-be buyers faded as the challenges of converting office building to profitable apartments seemed to present high hurdles as rising interest rates and construction costs increased.

However, the cost of converted office to residential is significant. Can a conversion deal “pencil out” so that the redeveloped building can cover construction costs, etc. and still provide a decent return on investment?

In the case of 1010 Lamar, an occupier stepped up and purchased the building. As stated by public record, the government of Harris County purchased the building for $26 million– a sizable sum in today’s market.

Harris County recently purchased the 1111 Fannin tower across the street. So the purchase of 1010 Lamar gives Harris County a central complex with two buildings for its use in government administration, along with a good supply of parking spaces.

The conversion of office buildings to apartments is difficult, but not impossible.

A group led by Eddie DeBartolo Jr., the former owner of the NFL’s San Francisco 49ers, is transforming a 20-story downtown office building into 372 units at 1801 Smith Street.

In addition, ambition has swirled around the long-vacant 44-story Humble Exxon building, a 1,223,585-SF tower at 800 Bell. Redeveloping the Exxon building, completed in 1962, will be difficult.

Transforming these aging buildings will be beneficial to Houston and its citizens. Presley said governmental incentives are needed to make these deals workable.

Over a decade ago, Houston’s highly successful Downtown Living Initiative, a city-backed program that offered residential developers a $15,000 per unit in tax incentives. The program resulted in the development of 4,251 new multifamily units, primarily in high-rise towers.

A similar program aimed office building conversions is being discussed the Central Houston organization and other city leaders.