Canyon-Johnson Fund Makes $50M Bet on 361,886-SF MarqE Center

The Chicago-based ORIX owned 50% of the class A, 35-acre development at 7620 Katy Freeway and the balance belonged to PNL Commercial and Edwards Circuit Affiliated Group, both from Newport Beach, CA. The deal set up a market entry for the buy side and a market exit, albeit temporary, for the seller.

"We continue to like the Houston market and are actively seeking new development and acquisition opportunities," David Brown, ORIX president and CEO, tells GlobeSt.com. Likewise, so is the buyer.

Turner says Canyon-Johnson Urban Funds had Texas on its radar screen when Mayor Bill White started lobbying the investment group to buy the MarqE. ORIX had the property listed with Frank Sullivan, managing director for Rockwood Realty Associates LLC of New York City.

"As we look at the range of opportunities in the country, it's hard not to view Houston as a market that we should be deploying money in," Turner explains. The Los Angeles-based fund has $600 million of committed capital or enough to fuel $2.5 billion of real estate purchases that stand up to tests for density, diversity and demand, specifically multi-ethnic urban areas. The MarqE, an anticipated three- to five-year hold, "meets all of the three D's," he stresses. The JV between Canyon Capital Realty Advisors and Magic Johnson also is looking to pick up properties in San Antonio, Austin and Dallas/Fort Worth.

"When I was in Houston for the NBA All-Star game in February, Mayor White and city council members encouraged me to find some opportunities for investment," Magic Johnson says in a prepared statement. "Well, it's a month later and Canyon-Johnson is here." Since the launch in 2001, Canyon-Johnson has bought into Atlanta, Baltimore, Brooklyn, Chicago, Cleveland Heights, Las Vegas, Los Angeles, Miami, Milwaukee and San Diego.

Turner says the MarqE, which includes an 1,800-space parking garage, is primed for upside via expansion--vertically and horizontally. The deal closed with a 34,500-sf LA Fitness Center lease in hand for a long-vacant skate park and another 35,000 sf of empty inline space for additional upside. Fidelis Realty Partners of Houston, which has a minority interest in the deal, will lease and manage the holding, situated within 2.4 million sf of retail in the Galleria submarket.

Turner says talks also have begun with a grocer and drug store for out-parcel developments while the new owners eye a plan to top off the single-story lifestyle center with a second floor of affordable residential units. "We want to do residential," he says. "We think there's a great opportunity to create wealth for our investors." The new owner also has earmarked retail space for a police substation.

Meanwhile, Turner met yesterday with West Houston residents, who urged the newcomer to add more casual dining and family-oriented restaurants to the retail mix. The MarqE is anchored by a 24-screen Edwards Cinema, with the city's only IMAX screen; 67,500 sf shared by Jillian's and Dave & Buster's; and a 20,420-sf Drink Houston. The quartet effectively fills 80% of the 90%-leased lifestyle center. Turner says there are no lease rollovers on the horizon, with the weighted average term being 15 years in a center with quotes running from $12 per sf to $15 per sf for the empty space.