HOUSTON-Fuller Realty Partners LLC has partnered with PCCP LLCto acquire a two-building, class B office portfolio in the Galleriasubmarket through a lender-facilitated short-sale. The JV boughtthe 503,930-square-foot portfolio from The Ellman Companies for$33.5 million.

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Phoenix-based Ellman bought the buildings, located at 2425 WestLoop and 1001 West Loop, from Fuller Realty in 2007, paying morethan $60 million for the 30-year-old assets. Fuller Realty owned2425 West Loop, which totals 281,590 square feet, from 1997 to2007, and 1001 West Loop, which totals 222,340 square feet, from2003 to 2007.

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The acquisition marks the first time Fuller Realty and LosAngeles-based PCCP have partnered, according to Jed Lassere, seniorvice president with PCCP. The firm has two lines of business –bridge loans and equity investments.

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Lassere tells GlobeSt.com that PCCP, which was initiallyinterested in providing debt for the buildings. He explains thatEllman hired HFF investment sales team of Dan Miller and MartyHogan to market the properties, and Fuller Realty had already madea bid for them. At the same time, the lender offered potentialbuyers the opportunity to obtain very attractive debt.

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“We had been thinking about the portfolio for a potential debtopportunity, and we sat down with the guys at Fuller and reallyliked them,” Lassere says. “When the existing lender offered debtat better-than-market terms – and considering how much we likedFuller – we raised our hand to invest with Fuller on the equityside.”

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Both Fuller and PCCP put equity into the deal. “We’reeffectively buying both the buildings for about what they paid forone of them more than a decade ago,” Lassere says.

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Fuller will handle the day-to-day building operations.Presently, 2425 West Loop is 58.5% occupied, and 1001 West Loop is43.4% occupied compared to the submarket occupancy of87.5%. Major tenants in the portfolio include Blue Cross BlueShield and Xerox. The current large blocks of contiguous space ineach building provide a unique tenant opportunity in the Galleriasubmarket.

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It’s likely the buildings suffer from high vacancies becauseEllman was unable to make market-rate deals given its high basis inthe building. “By resetting the basis in the buildings, we canpotentially do deals that are better than market,” Lassere says.“We think the Fuller guys are the right guys to turn thesebuildings around; they have a history of successful ownership.”

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Lassere adds: “This is clearly a value-add opportunity becauseof our ability to lease up the space. At the same time, theunderlying story of job growth here means that we can actuallyunderwrite positive net absorption.”

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Lassere says PCCP has been targeting Houston for investmentopportunities for the past 12 months. He points to the city’spopulation, which grew at 2.2% through May 2010, more than doublethe national average, and the current unemployment rate of 8.3%, askey reasons to invest in the Bayou City.

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“We love the story of Houston,” Lassere says, adding that thefirm has bought multifamily, industrial, office and retail assetshere.

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Acquisition financing was arranged by HFF senior managingdirector Wally Reid and provided by NexBank as agent for a group oflenders managed by Highland Capital Management LP. HFFmanaging director Tucker Knight arranged the joint venture equityfor the acquisition with PCCP.

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