The Deep Retail Discounts at Houston Pavilions

THE DEEP RETAIL DISCOUNTS AT HOUSTON PAVILIONS Four years after its opening, the troubled Downtown mall-office complex known as Houston Pavilions may sell for $50 to $75 million below the cost of its construction. To avoid foreclosure on a loan valued at $130.7 million, the developers turned the property over to a receiver late last year; Transwestern is now marketing the project for sale. Offices are fully occupied, but the big problem is the 59-percent-vacant retail portion of the project, says Real Estate Alert: “More than half of the retail tenants haven’t been paying full rent because the overall retail occupancy rate remains below the prescribed threshold cited in their leases. A buyer could convert about 42,000 sf of vacant retail space into offices to exploit downtown Houston’s booming office market . . . However, a conversion of all the retail space isn’t an option, because doing so would make it impossible to meet the retail occupancy threshold necessary for the existing tenants to pay full rent.” [Real Estate Alert; previously on Swamplot] Photo: Flickr user cjt3

18 Comment

  • As a retail nerd this pains me. But retail downtown doesn’t work until there are more residential pop downtown (the tunnel system also sucks the life out of downtown, but that’s another story).

    Its a shame that the residential component of this development didn’t get built. That would have helped it a lot, I think. I’m hearing about other projects that are in the works or in planning stages, but downtown residential pop is going to lag for a while.

  • Sad. Maybe if the City had stayed out of it the market might have built something that would work.

  • Is it open on weekends and after 5 pm?

  • Raise your hand if you want to open a retail shop with no windows or direct entry/exit to the street and only a store front facing a narrow cavern that cuts through the middle of the development? Until they start knocking out the exterior walls and putting in windows and doors, the retail situation will remain the same.

  • Old School has it totally right. The design is totally stupid. Who even knows there’s retail there. And it’s too far away from the Arts District/Bayou Place to build on the people who are drawn there.

  • This thing was doomed from the get go.

    Contrary to what was stated above, it’s certainly not “impossible” to convert all the vacant retail to office. You just have to account for the fact that your current retail tenants will never be paying their full rent during the term of the lease. Any sophisticated buyer buyer will do exactly that and adjust their purchase price accordingly. The fact of the matter is that this location and design are NOT GOOD for retail users. It’s hard to invent demand where it doesn’t exist.

    This is exactly what happens when City Hall decides to get in the real estate development business. Mercado Del Sol anyone?

  • I can tell you that this is a prime area for certain types of retail, but what it really needs is everyday affordable restaurant type places. Mccormicks/Yao/Adalucia/Mia Bella and etc. are all ~$15 for a simple lunch. First place that opens up with lunches for 7-8 bucks will be packed. Also some kind of snack place would be nice, or a Jamba.

  • Old School is right. The design is scary to me – I wouldn’t go there even in broad daylight by myself. Too many places for someone to hide and it feels so empty and isolated.

  • Most people in the Houston area don’t even know that the Pavilions exist. How would they, with no publicity or marketing?

    The new sports station going in might help some.

  • As a law student, going to school next door to the Pavilions, affordable food would be great. Everything there is too pricey.

  • I love downtown and midtown. I love high density residential and retail. But the architecture of the Pavilions is fundamentally awful. Even if there was huge residential density downtown, it would still fail because it doesn’t face the street — no one will ever know what’s inside! It’s the world’s worst shopping mall.

    The buyer should gut the rest of the retail, convert it to office space. The only silver lining would be that at some point in the future, it could be converted back to retail… hopefully with the exterior walls knocked out, this time.

  • It doesn’t necessarily need exterior walls knocked out, but large clear signage of what is inside would be nice.

  • I live near downtown and go downtown often and have never been in there. I might have to check it out just because I’m curious.

  • This is Houston – free parking, free parking, free parking…get the point? That is the fundamental ingredient for retail success in this city. You can’t bake a cake without eggs, and you can’t have successful retail in Houston without free parking.

  • There is free parking if you buy something or eat something there… The restaurants all do very well here. It is the retail that is failing. HP has to compete with other great shopping venues around town. Until they get better foot traffic here the retail will fail. In order to get better foot traffic you need low, mid and high end shopping here (to cater to all who are in downtown) it’s a catch 22. And yes, the design was not the best for this location.

  • The LRT bringing in UH students should help it quite a bit.

  • I work downtown and I love the Pavilions (even the design). I only WISH there were more retail. I like walking through it at lunchtime – it sort of obscures downtown and has a nice settling feeling. It needs more retail to attract more people but agree that until there is more residential, businesses can’t make it. The lunchtime crowd alone can’t sustain it and suburb people aren’t going to drive downtown to shop – they need to already live there.

  • I work Downtown and eat out every day. I was deeply disappointed when I saw that the Houston Pavilions does not have tunnel access and reasonably priced restaurants. I and my coworkers therefore do not go there for lunch. The first mistake they make is not having restaurants in the tunnel.

    I suggest they convert those unoccupied empty spaces in the Pavilions into smaller reasonably-priced lunch places to bring in the lunch crowd and foot traffic. Inside and outside eating areas would be idea, with lots of sitting. Since it was built between two buildings, it is protected from the sun. Retail would survive and it could be a success.