919 Milam: Available vacancy in a high-absorption, supply-constrained submarket.

HOUSTON-In 2010, at what could be considered the height of the economic downturn, Fort Worth-based M-M Properties acquired 919 Milam for close to $60 million in an all-cash transaction.  At the time, the iconic downtown office building was 76% leased.

A little more than two years later, M-M Properties has decided to put the 543,259-square-foot office building on the sales block. The occupancy currently stands at approximately 94% and, according to CBRE’s Jared Chua, who is helping to market the building, the seller felt that with the building’s location, stabilization and renovations to the tune of $4 million, it was an ideal time to introduce the more than 50-year-old building to a group of possible new owners.

Though the General Services Administration (GSA) will be vacating five floors, Chua says an existing tenant has expanded to one of the floors, while another is looking to possibly expand to possibly a floor and a half. As such, “The new owner will get about 75,000 square feet of space,” Chua tells GlobeSt.com.

In the space-constrained, low-vacancy, high-absorption market such as Houston’s CBD, that amount of space is rare – and it offers interesting upside for a potential new owner. CBRE statistics show that class A office space in the CBD stands at 92% occupancy, and class B space is 91% occupied. In 2012, office absorption in the CBD stood at about one million square feet, which represented a fourth of the total 4 million square feet of absorption taking place throughout the entire metro area.

“You’re seeing a lot of demand, a lot of new tenants coming into the market,” says Chua, who is working with CBRE colleagues Bernard Branca, John Alvarado, Russell Ingrum and Gary Carr to market the office building. “This is one of the largest concentrations of energy space and it’s where the law firms are located.” An added plus is that downtown is the only submarket served by mass transportation. “We get a lot of demand from that side of the tenant base,” Chua observes.

Chua says the building just hit the market this week, and at this time, there isn’t a hard-and-set call for offers, but that will likely be decided soon. There is also no asking price, though office buildings with a mix of current and previous cycle rental rates can trade for $300 per square foot, while those with more progressive rental rates have been known to get as high as $400 per square foot. Chua says new construction, such as Hess Tower, which sold in late 2011, can go for as close to $500 per square foot.

And many classes of buyer will likely be interested. “There continues to be a flight to quality among investors,” Chua remarks. “Houston is on the radar screen for just about everyone because of economic growth and office fundamentals.” Even in the very short time during which 919 Milam has been on the market, Chua says core institutions, REITs, offshore investors and private owners have expressed interest in the property.