Houston’s office market is hitting the reset button.
Major companies in The Bayou City are listening to their employees and agreeing to their demands for hybrid or remote work arrangements.
As seen in other major cities, the so-called flight-to-quality trend is also impacting Houston. Office tenants are increasingly moving to newer, smaller, or renovated offices outside of city limits, while the traditional business district is offering investors opportunities to pick up some of its more iconic office towers.
Starwood Property Trust did just that by buying the former headquarters of Marathon Oil
through a foreclosure sale.
The Greenwich, Connecticut-based company foreclosed on the former Marathon Oil Tower, a 1.2 million-square-foot, 41-story office building located at 5555 San Felipe in Houston’s Galleria-Uptown neighborhood, during the second quarter of this year.
“During the quarter, we foreclosed on a 5-rated $50 million first mortgage and mezz loan related to a 41-story office building located in the Galleria Office District of Houston,” Starwood CFO Rina Paniry CFO said during the company’s Aug. 4 second-quarter earnings call.
She added, “The net assets of the property, including the assumption of an $88 million third-party first mortgage, were recognized at the carryover basis of our loan because the appraised value of the property exceeded the debt. Our last dollar basis in the property is $102 per square foot.”
In total, the appraised market value of the two sections of the property, formerly owned by Houston-based M-M Properties, is $170.5 million, according to Harris County Appraisal District records.
M-M Properties renovated 5555 San Felipe after buying it in 2018 for $175 million with
Boston-based The Baupost Group. Notable additions included a food hall, coffee bar, collaborative work areas, media wall and fitness center.
Over the next six months, Starwood will determine if 5555 San Felipe will remain an office tower or be converted into something else.
“We’re trying to figure out what we ought to do with it”, said Starwood CEO Barry Sternlicht during the call. “Should we convert, should we see it as an office building or convert to a residential site?”