An affiliate of Newport Beach-based KBS Realty Advisors has added a pair of Houston office buildings to its fast-growing portfolio, bringing its total investments in the Texas city in the past month to nearly $105 million.
The company’s KBS Strategic Opportunity REIT Inc. said last week that it bought a pair of adjacent buildings in Houston’s Bellaire submarket that total about 314,000 square feet.
The multi-tenant buildings, named West Loop I and II, traded hands for $36.3 million, or about $116 per square foot. The seller’s name was not immediately disclosed.
West Loop I is an eight-story building with 169,536 square feet of rentable space, while West Loop II runs 144,337 square feet and is seven stories.
The property, located on a 5.6-acre site about three miles west of Houston’s central business district, is about 77% leased and brings in close to $4.7 million in rents annually, according to regulatory filings.
The deal marks the second notable sale in the Houston area in recent weeks for KBS Strategic Opportunity REIT, one of five non-traded REITs overseen by KBS, among the most active real estate investors in the U.S. during the past few years.
Earlier this month, it paid $68.5 million for the 1800 West Loop building, a nearly 400,000-square-foot office in Houston’s upscale Galleria district.
76% Leased
The 21-story 1800 West Loop office, which KBS expects to be about 76% leased by year-end, traded hands for about $171 per square foot.
Houston is “a city we believe will continue to outperform the rest of the country in the foreseeable future,” said KBS vice president Jeff Rader.
The vacancy rate for high-end offices in Houston now runs a little under 9%, its lowest level since 2008, according to data from brokerage CBRE Group Inc. Orange County, by contrast, has a vacancy rate closer to 17% for its better offices.
KBS’ latest purchases have some leasing work to do before its vacancy rates approach the area’s norm—one reason the company eyed the buildings as investments.
The Strategic Opportunity REIT aims to invest in buildings with more leasing risk than the other four non-traded real estate investment trusts KBS Realty manages.
Those funds have bought prominent skyscrapers in Chicago and Los Angeles, among other investments.
KBS-affiliated companies now own seven Houston-area buildings, totaling more than 1.6 million rentable square feet.
Low vacancy rates, a strong local economy and a lack of new development have seen investors flock to Houston’s office market in recent months.
Close to $2.5 billion of big-dollar office sales are expected to take place between September and year’s end, according to data from trade publication Real Estate Alert.
Offering Proceeds
Both of the Strategic Opportunity REIT’s latest purchases were funded using proceeds from the non-traded real estate investment trust’s ongoing public offering.
The offering has raised more than $400 million so far, which has been used to buy buildings totaling close to 3 million square feet, in addition to 1,375 acres of undeveloped land.
Its largest acquisition to date was a $78.7 million deal for a nine-building office campus outside Seattle that it bought in late July.
Prior to the Houston purchases, the REIT’s buildings were about 45% occupied, according to regulatory filings.
KBS Realty is headed up by Charles Schreiber, a former Koll Development Co. executive, and Peter Bren, brother of Irvine Company chairman Donald Bren.
The “K” in KBS is for late commercial real estate developer Donald Koll, who was involved with the company early on.
In addition to its five non-traded REITs, KBS Realty also has run 14 separate accounts, six commingled funds and five sovereign wealth funds since the company started 20 years ago.
