The long-time tenant occupies 120,000 sf of the 156,572-sf Northbelt Corporate Center at 2350 N. Sam Houston Pkwy. East. Zaya S. Younan, chairman and CEO of the Los Angeles-based investment group, tells GlobeSt.com that the attention-getter for his interest in the deal was Southwest Energy's open lobbying to buy out other tenants' leases in the 10-story building.

"When you have the largest tenant trying to buy out the other tenants, I knew there was a potential opportunity there," Younan says. "We could build an identical property next to it and fill it with existing tenants." And, he will, with the closing now signaling the start of final talks with his lead tenant for the twin building plan.

Because many buildings in Houston have larger tracts, Younan's looking at the city in a different light. "Before, we were able to buy existing space at substantially lower prices than what it cost to build," he says. "Now, cap rates are up and pricing is up. You will see development activity slightly pick up to what it was in the past."

Northbelt Corporate Center was built in 1982 and renovated four years ago. The new owner says the average in-place rent is 21% below market. Southwest Energy and the US Customs Service occupy 93% of the building in leases that expire in 2013 and 2009, respectively, while the rest of the roster has just nominal rollover for a couple years, according to Younan. CB Richard Ellis has been hired to lease the building; Younan's team will manage it.

Darrell Betts and Scot Farber, senior vice presidents in Houston and Dallas for Grubb & Ellis Co., marketed the building for Santa Ana, CA-based Triple Net Properties LLC, which bought it in April 2004 for $12.67 million through G REIT Inc. The G REIT's nationwide portfolio is being liquidated.

Yesterday's closing put the second deed in two weeks into Younan's Houston portfolio. Another closing will be held in three weeks and one more in 40 days. By year's end, Younan plans to own five million sf in Greater Houston.

Younan's upper hand in winning Northbelt Corporate Center was the offer for a 20-day due diligence and 30-day close. "We were able to get it because we moved faster," Younan says. Northbelt Corporate Center was financed with a five-year CMBS loan from Bank of America, using an 80% leverage ratio.

"We competed aggressively for it, but every building in Houston we've competed aggressively, both with people who live in Houston and out-of-state buyers," Younan says. "Everybody wants to be in Houston."

Younan predicts the market's class A office vacancy will be in the single digits by second quarter 2008. In the past year, the office market absorbed seven million sf and three million sf to date this year. "Combined with increasing valuations, rising rental rates, decreasing vacancy rates and a projected absorption of more than eight million square feet for 2007, this makes Houston one of the most attractive recovering office markets for investors today," he says.