Canyon-Johnson, Midway, Acquire MXU Houston Pavilions

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-square-foot-plus asset in the CBD. The JV acquired the project from receiver Transwestern, which was assigned to manage, lease and market the property in 2011.

With dust settled from the closing of the mixed-use project, Canyon-Johnson's managing director Neville Rhone says the next step is to develop upgrade plans for Houston Pavilions, located at 1201 Fannin St. Rhone didn't provide specific details, but did say the plans would be unveiled – and would be launched – in the coming months.

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

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. But the project delivered in 2008, when the economy began to tank, meaning few retailers were interested in expanding. 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. 

A $120 million construction loan matured and was extended. Ultimately, U.S. Bank, which held the note on the project, inherited the loan in October 2009 from the Federal Deposit Insurance Corp., and appointed 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. He points out, however, that Houston's growth, combined with Canyon-Johnson's commitment to urban infill projects and Midway's reputation as a well-respected owner and operator of mixed-use assets will be beneficial for the project. "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.