Nearly Vacant Houston Office Finds Buyer

A long-struggling office building with residential conversion potential appears to have found a new owner.

Special servicer Midland has chosen a buyer for One City Centre at 1021 Main Street in Houston, according to new servicer commentary on Morningstar Credit. The building has been in a downward spiral since 2020, when its largest tenant, Waste Management (now WM), left. That led to a default on the building’s loans, made up of two CMBS deals originated by JPMorgan totaling $100 million. The building was most recently appraised by Harris County at $25.9 million.

For months, Midland covered principal and interest payments with reserve funds and what cash flow remained, but that wasn’t enough to make the August 2023 payment, according to the servicer comment. Its net operating income at the end of 2023 was just $2,324, according to Morningstar. The property’s owner, Accesso Partners, has tried to lease the vacant space, to no avail.

“There are no material leasing prospects at this time,” the servicer wrote.

Instead, Midland decided to test the market, listing the building last October. A JLL team led by Martin Hogan and Rick Goings had the listing.

Potential buyers made their final offers in March, and Midland interviewed the top four bidders. The top bidder, who was not named in the commentary, was awarded the deal and is performing due diligence. Assuming it finds no glaring issues, the sale will close in the fourth quarter.

Midland, JLL and Accesso did not respond to requests for the buyer’s identity.

One City Centre is now one of many aging, mostly-vacant offices in the heart of downtown. Around 90 percent of its 607,500 square feet lies empty, according to marketing materials, and it may not even be an office building for long.

The building could fit about 550 apartments at an average size of 900 square feet, according to figures from a JLL sales brochure that takes a full page to emphasize its conversion potential. The unique structure of the building, where floor plates extend three feet out past the glass walls, would make it easier to create balconies without demolishing the curtain wall. It also sits in an Opportunity Zone and could qualify for tax breaks.

In markets across the country, conversations about office-to-residential redevelopment have remained just that: conversations. Relatively few have actually been completed, as the process has proven costlier and more technically difficult than originally thought. Still, downtown Houston, with its cluster of aging office assets, remains a tantalizing prospect.

“The availability of older, noncompetitive office buildings and continued population growth make Houston a prime candidate for conversions to multifamily and other use,” John Spafford, an executive at CBRE, said in an analysis of Houston office conversions last year. At the time, Houston ranked fourth in the country for office conversions, with work on five million square feet either planned or already underway. Still, that worked out to just seven projects, far from the groundswell of conversions some imagined after the pandemic.