HOUSTON – Parkway Inc. has agreed to sell a 49 percent stake in its Greenway office portfolio for $512 million, or roughly $210 per square foot. The transaction could mark an important turning point for Houston’s office market after several difficult years.
The investment is one of the largest to materialize in Houston in recent years, a market that saw activity decline sharply after the energy-sector downturn. Since that shakeout, institutional-quality office acquisitions in the city have been rare.
The stake being sold covers a roughly 5 million-square-foot, 11-building office campus located near Buffalo Speedway and the Southwest Freeway within Houston’s Inner Loop. The assets include the 10-building Greenway Plaza complex and the adjacent 630,000-square-foot Phoenix Tower. Greenway remains one of the strongest submarkets in the city.
Parkway is a real estate investment trust based in Orlando; despite its headquarters, nearly all of its holdings are in Houston. The company emerged last year through a merger involving Cousins Properties.
The buyers are three institutional investors: affiliates of TH Real Estate, Silverpeak Real Estate Partners and the Canada Pension Plan Investment Board, which together are acquiring the 49 percent interest.
Interest in Houston office assets has been growing. Lucian Bukowski, executive vice president of CBRE’s Houston office, says a number of investors focused on the Houston market have been approaching brokers recently. “They are trying to figure out if now is the time to buy. They already have the equity raised,” Bukowski explains. Prospective buyers commonly ask whether the market has bottomed out and whether current prices are low enough to buy and wait three to five years for a recovery.
Parkway CEO Jim Heistand says the Greenway sale allows Parkway to reduce concentration risk and diversify its portfolio. Parkway owns about 8.7 million square feet in total, and Greenway represented roughly 57 percent of those holdings. Selling nearly half of Greenway reduces the company’s exposure within Houston.
But does this transaction signal something broader for Houston?
Does the Greenway deal mean the drought of institutional investment in Houston is over and that large investors will return in force? The logic of buying low and selling high is straightforward, and the market is currently at a low point. Yet large institutions and pension funds are generally cautious; Greenway represents a blue-chip asset that carries less risk than many of Houston’s weaker submarkets.
Therefore, while the Greenway sale is significant, it does not necessarily indicate that institutional buyers will immediately move into distressed submarkets such as the Energy Corridor in large numbers.
However, the transaction could encourage entrepreneurial and forward-looking investors who accept more risk to reenter Houston. When the Greenway deal was announced, some observers took it as a signal that investor sentiment may be shifting. For certain investors, this could be the sign they needed to begin deploying capital again in the Houston office market.
By Ralph Bivins, Editor, Realty News Report, a Texas-based publication.
Feb 22, 2017 Realty News Report Copyright 2017