Younan Starts Houston Shopping Spree With $22M Class A Purchase

Zaya S. Younan, chairman and CEO of the Woodland Hills, CA-based investment group, tells GlobeSt.com that he's about to go under contract on several other buildings in the city. "We are very happy with our progress," he says. This year's first closing has rolled the deed to 2211 Norfolk St., which holds a 24-year-old building that's in line, beginning next week, for a retooling that will cost $1 million to $3 million to complete.

Younan says ING Clarion Partners came to him after a contract fell out when the highest bidder wanted to re-trade the deal. "We weren't the highest, but we were the best qualified," he says. "We were confident with our price. We knew that with due diligence they'd would realize the pricing wasn't right and institutions don't re-trade." Younan says he made the close within 60 days of ING knocking on his door, securing the deal with 78% loan-to-cost financing at a floating interest rate through Bank of America in Los Angeles.

The New York City-based ING sold the Norfolk Tower with a 75% occupancy and more than 50 tenants. During the escrow, Younan says five tenants renewed, of which four expanded. "We feel confident because of the location of the building and the amenities if not all, most will renew," he says. The office space is quoted at $18.50 per sf, full service. Frost Bank is the lead tenant for a roster that includes Houston Medical Records Inc., Groundwater Services, Global Search Consulting LP and TranSystems Corp.

Larry Blankenship, Younan's top exec in the state, is seating a team to manage the building while PM Realty Group in Houston will continue to lease it for awhile. "It's a class A building in a class A submarket, but it's tired and the age shows," Younan says, citing a plan to keep the same name yet create "a new image" with common-area renovations and more amenities.

ING acquired the 11-story office building, positioned on 2.36 acres near Rice University and Texas Medical Center, in September 2001. John S. Dailey, executive vice president and managing director for PM Realty Group, represented the seller.

"Houston has been oversold for four years," Younan says, adding its absorption in past year clearly shows it's hit a recovery stage. "We think the recovery will continue for the next few years." Younan says the positive absorption, coupled with rising construction costs, validates the hard push to acquire class A space this year in the metro.

Since 2002, Younan has bought three other buildings in the city, selling all but the 68,000-sf Wilcrest Executive Building in West Houston's Energy Corridor. For the past year, Younan has focused on swapping all class B space for class A. The national portfolio now contains 21 class A office properties totaling 4.8 million sf. This year, he plans to buy another five million sf in Texas, Florida, Illinois and other high-growth markets throughout the Southwest.