HOUSTON—First-time partners Canyon-Johnson Urban Funds, based in Los Angeles, and local Midway Cos. joined forces to acquire Houston Pavilions, a 500,000-squarefoot-plus asset in the CBD. The JV bought the project from Transwestern, which took receivership of the property in 2011.

With dust from the closing of the mixeduse project settled, Canyon-Johnson managing director Neville Rhone says the next step is to develop upgrade plans for Houston Pavilions, at 1201 Fannin St. He didn't provide specifics, but did say plans would be unveiled and launched within months.

"Our strategy is to invest in diverse urban infill markets," Rhone says, explaining why Houston Pavilions fits with Canyon-Johnson's strategy. "Houston's at the top of the list; it's been a great engine of job growth."

When developer Houston Pavilions LP launched construction on the retail, office and entertainment property in 2007, it was believed that the project, which spans three blocks, would be an important cornerstone of the CBD's resurgence. Houston Pavilions was based on the very successful Denver Pavilions, which had been orchestrated by the same developers.

But the project delivered in 2008, when the economy began to tank, meaning few retailers were interested in expanding or taking new space. Though the office component of Houston Pavilions attracted tenants— most notably, NRG Texas, which took down 234,159 square feet in 2009—the remainder of the project struggled.

During this period, a maturing $120-million construction loan was extended. Ultimately, US Bank, which held the note on the project, inherited the loan in October 2009 from the Federal Deposit Insurance Corp., appointing Transwestern as receiver. Transwestern has also managed, leased and marketed the property for sale. Houston Pavilions was built at an estimated cost of $180 million.

Rhone, who oversees Texas investments, declined to discuss how much the Canyon-Johnson/Midway partnership paid for the asset, nor did he specify how much more would be invested on renovations and repositioning. He points out, however, that Houston's growth, Canyon-Johnson's commitment to urban infill a+nd Midway's reputation as a respected owner and operator of mixed-use assets, will be beneficial. "We felt that, with the right team and more capital, we could position this asset so it would become a more vibrant destination for Houston," Rhone adds.