Parkway to Sell Interest in Houston Portfolio for $512M

The Canada Pension Plan Investment Board and a partnership of TH Real Estate and Silverpeak Real Estate Partners will acquire stakes in the office properties.

Houston—It’s a Texas-sized deal. Parkway Inc. has arranged to sell a 49 percent interest in its Greenway office portfolio in Houston for $512.1 million, or an implied $210 per square foot, the company announced last Friday. The portfolio comprises an 11-building office campus totaling about 5 million square feet, in Houston’s Greenway submarket.

Greenway Plaza
Eight, Nine, Eleven and Twelve Greenway Plaza

The 11 properties are One, Two, Three, Four, Five, Eight, Nine, Eleven and Twelve Greenway Plaza; 3800 Buffalo Speedway and Phoenix Tower. As of the end of 2016, the portfolio was 89 percent leased overall, a Parkway spokesperson told Commercial Property Executive.

The properties’ new owner will be a joint venture, with Parkway retaining a 51 percent interest, serving as general partner, and providing property management and leasing services. The Canada Pension Plan Investment Board and a partnership between TH Real Estate and Silverpeak Real Estate Partners will each acquire 24.5 percent interests in the portfolio.

The JV expects to assume the existing mortgage debt of about $76.2 million secured by Phoenix Tower and has received a commitment from Goldman Sachs for a new five-year, $465 million mortgage secured by the other properties in the portfolio.

Net proceeds to Parkway are expected to be about $315.8 million, including the new debt placement and the payoff of Parkway’s $350 million existing term loan. The closings of the JV and the associated financing are expected to occur in the second quarter.

“The recapitalization of our Greenway Portfolio accomplishes several objectives for Parkway,” James Heistand, company president & CEO, said in a prepared statement. “First, we have established a great partnership with three well-capitalized and highly regarded institutional investors that share our view of the long-term resiliency of the Houston market and the expectation of an eventual recovery in Houston office fundamentals.”

In addition, Heistand continued, the transaction will both mitigate risk in a single office campus that represents 57 percent of Parkway’s overall square footage and “supply us with additional capital to immediately strengthen our balance sheet while providing us the flexibility to further diversify the portfolio through future acquisitions as the Houston market recovers.”

Speaking of Houston office market fundamentals, they’re not so hot right now. Though sublease inventory fell for the first time in more than two years, leasing remains weak and total market-wide vacancy edged up to 20.3 percent in the fourth quarter, according to a report from JLL.

The report noted that energy sector contraction driven by low oil prices was the main culprit, but also highlighted the Greenway Plaza market as the one relative bright spot, reaching net absorption well above its five-year average.