Houston’s CityCentre Sold by HFF, Equitized by JLL in Two Deals

September 19, 2011
By Nicholas Ziegler, News Editor

CityCentre II

In two separate deals on the same property, Jones Lang LaSalle and Holliday Fenolglio Fowler L.P. each came away with good news: HFF closed on the sale of the 1.8 million-square-foot CityCentre II and JLL secured the equity funding for both the acquisition of CityCentre II and the development of CityCentre III. While it’s not the first time both companies have been involved in the same development, the arrangement proved to be an interesting one.

“The most intriguing thing is that there is a single investment vehicle for the acquisition of II and for the development of III,” James Tramuto, executive vice president of JLL, told Commercial Property Executive. “It’s very rare to find an investor who can, with the same bucket of capital, develop a new deal as well as buy another core asset.”

The CityCentre II deal was straightforward, with HFF arranging the sale of the 149,827-square-foot, mixed-use property on behalf of a partnership between an affiliate of Midway Cos. and a proprietary fund managed by L&B Realty Advisors. The six-story development features 128,499 square feet of office space and is 90.2 percent leased to tenants including BB&T Corp., SEACOR Holdings and Cargill Inc.

“Our mandate was to sell building II,” H. Dan Miller, senior managing director with HFF, told CPE. “It also happened that the buyer of the building we were selling also wanted to provide equity for III. This is the best of climates to find equity for to-be-built buildings.”

The CityCentre III transaction was slightly more complicated, as it involved a mixed-use development project that is slated for completion in 2012. The building will consist of 103,000 square feet of office space as well as 17,000 feet of ground-level retail space. The property, already 44.3 percent pre-leased to tenants including Texas A&M, LLOG and Montco, has seen already seen a great deal of interest.

“For new-development projects, it’s typically very difficult to find tenants based on the risk of the building not getting done,” Tramuto said. “This development [at CityCentre III] hasn’t had any problems. The Houston market is anchored by the energy industry, and there’s been significant job growth.”

JLL was hired in January 2011 to arrange joint-venture equity for the CityCentre III project, and arranged a new partnership between LaSalle Investment Management, Inc., and Midway via a single investment vehicle.