HOUSTON CHRONICLE COMPLEX DOWNTOWN GOING ON SALE — A YEAR OR 2 TOO LATE? 
The Houston Chronicle‘s former real estate reporter says Hearst is putting the Chronicle complex at 801 Texas Ave. up for sale at a less-than-ideal time. Ralph Bivins reports that the newspaper’s parent company has just selected brokerage firm HFF to market the building, on the block surrounded by Milam, Travis, Texas, and Prairie, and its separate parking garage. But “Hearst would have met stronger demand by putting the Chronicle property on the market a year or two ago,” Bivins writes. “Hearst moved too late to catch the crest of the wave. The price for the Chronicle property is expected to be less than $50 million.” In July, the company announced the newspaper’s offices would be moved to revamped facilities in the former Houston Post complex at 4747 Southwest Fwy. [Realty News Report; previously on Swamplot] Photo: Ralph Bivins
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How are these normally priced? PSF of office + some premium based on land? Then higher/lower CAP based on age? Why would they have got more a few years ago? I’d imagine the buyer isn’t going to be the user, right? I’d assume the buyer would have it as an income property?
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Either way, if it’s an income property it should be easy to price. How much rent can I get? What’s the resulting NOI. Apply a CAP for that building type/location = price. Or am I missing something? And if a user wants to buy it, then he’d just have to pay a bit more than an investor would be willing to pay for a target return (but less than it would cost to rent something similar).
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Is it as simple as buying apts? We look at how much does a place bring in, relative to it’s cost. Compare that against the income of other blds (relative to price) in the area. We’ll take a bit less rent (relative to price) in a good area, and demand a bit more in a bad area. Some people have these 100 page spreadsheet ‘deal analyzers’ when it’s always seemed to be pretty simple to figure out if a building was a good deal or not.
This is a land/redevelopment deal Cody. There will be fewer players chasing it b/c groups like Skanska and Hines are already building on sites they acquired years ago. They probably don’t have an appetite to bid up additional development sites this late in the cycle.
Its a heck of a good development site. Hope whatever goes there is worthy of the location. It’ll make great parking lot in the short term.
I may be wrong here Cody, but I think you’re trying to go a bit too far here and that’s he’s just simply saying that downtown land prices have already peaked and are settling back down until some of the current construction is finished and leased out. I say that based on the fact that this is surely a demo and rebuild project, right?
Cody,
I think in a long term stable market at equilibrium without transaction costs, your analysis is spot on.
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I think the idea here is that in the last two years lower value (or just other) properties have been bought and are now being developed. Now the future developer of this property will be building into a more competitive/lower priced market. Wouldn’t you lower the amount you were willing to pay for apartments if you new that a bunch of brand new complexes were about to be finished in the immediate area.
Thanks for the info. If it was being sold as a knock down, I was curious what the land size was so I could see what $50m of “less than $50m” would be in terms of price per SF of land.
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Looking on hcad, I don’t see 801? For whatever reason, there are only 3 address on Texas Ave that show up on hcad between 600-1000. 703, 807, 909. Am I searching wrong or is 801 not the ‘hcad’ address? I’m sure I could look up the plot map and the tax id and all of that but it was more just idle curiosity :)
Give me a break, this is a fantastic location. I don’t care when you market this building it has great quality and it’s highly desired. If they take less than 50 million they’re nuts. Developers have coveted this property as long as I can remember. I think anyone buys this guys bullshit.
Don’t*
It’s will have suitors I assure you and they’ll pay for this location. I assure you if they put up that lot in front of One Shell, they could name their price I don’t care what the market indicator say. Both of these properties are unique and their like the last of the great locations for a major skyscraper in the future. Watch and see.
Cody, the address is 416 Milam, or search for the Hearst Corporation. The main building is an entire block, 62,500 sq ft. The parking garage is at 710 Preston, and is just under 37000 sq ft..
HCAD seems to put a value of $500 per sq ft for downtown land, so both properties together might be somewhere between $40 million and $50 million. That’s what Shorentstein apparently paid for the ExxonMobil building, which included a parking garage covering a full block
Just to review what is on the table: the office building is on a full block (62,500 square feet). The parking garage is on about half of a block (36,684 square feet) that is catty-corner to the office building and that is also catty-corner to Market Square Park. The Chronicle building was put-together from multiple separate buildings on that full block, resulting in some wonky floor plans and a lot of built-in functional obsolescence. So yeah, all of this is almost certainly a land play.
With all the new office supply (Hines, Skanska, Silversteen) already in the works and many energy companies already announcing reduced E&P budgets for 2015, expectations about the downtown office market are getting unpleasantly reset. Bivins’ assessment is correct, this development cycle has already crested. Given that, and that land values are the most sensitive real estate asset class to the ebb and wane of economic conditions and even expectations about future conditions, yeah, Hearst missed the boat.
Cody – I think it might be an odd holdover since the Chronicle “building” is actually three buildings that were united under that marble cladding at sometime in the past.
Shannon, the dirt for the two pieces of land might be worth $50 million empty, but they have structures that have to be demolished to be usable. The parking garage is junk, and the building is completely unusable for anyone else. That drops the price significantly.
The facility is a tear down because of its limited usage floorplan, so, the price is for the land underneath. On a sale like this, the property is relegated to “highest and best use” for pricing. Then add in the amount of downtown land availability. Not too many lots available in the heart of Houston.
Ross: thanks for the info! So after demo costs, people will pay over $500/SF for downtown dirt. Wow.