KBS Buys 400 KSF Houston Office Tower for $69M

The thriving economy in Houston is attracting real estate investors like bees to honey and KBS Strategic Opportunity REIT Inc. is among the latest to claim a piece of the office market.

The thriving economy in Houston, Texas is attracting real estate investors like bees to honey and KBS Strategic Opportunity REIT Inc. is among the latest to claim a piece of the office market. The REIT just shelled out $68.5 million on the acquisition of 1800 West Loop South, picking up the 400,100-square-foot office high-rise from a partnership consisting of Pearlmark Real Estate Partners, The Easton Group, Chuck Cobb and Jorge Perez.

The property is hard to miss. Standing 21 stories in the West Loop/Galleria submarket, 1800 West Loop South sits just off the well-traveled I-610. The 30-year-old tower received a makeover in 2005, and today it is home to 40 businesses accounting for a total of 88 percent of the tenant roster.

KBS Strategic is undaunted by the less-than-stellar occupancy level at 1800 West Loop South, which will dip to 76 percent with the expiration of two leases by the end of the year. Given current conditions in the market, particularly in the West Loop/Galleria area, there is every reason to be positive. “Houston is among the best performing markets in the country and we believe that strong oil prices, an increasingly diversified local economy, and the lack of new office development will contribute to significant demand over the long haul,” Jeff Rader, vice president of KBS Capital Advisors, an affiliated entity of KBS Strategic, noted in a prepared statement.

Investors are taking note. The vacancy rate for Class A properties in Houston dropped to 8.8 percent in the third quarter, marking the lowest figure since 2008, according to a report by commercial real estate services firm CBRE Group Inc., which began marketing 1800 West Loop South on behalf of the seller in September. Additionally, asking rates continued to climb across metropolitan Houston including the West Loop, where quarter-over-quarter Class A rental rates rose $2.00.

“Houston has received more national attention during the first half of the year as one of the most robust economies in the nation,” per the CBRE report. “With continued job growth and economic stability, the office market has had a prime environment in which to flourish.”