GlobeSt.com EXCLUSIVE: Takeover Weighs Heavily on CBD Space

HOUSTON-Construction on Enron Center South, a 1.2 million-sf office tower, remains in full swing despite an imminent takeover by Dynegy Inc. of its CBD neighbor Enron Corp. An Enron source tells GlobeSt.com that the commitment runs deep to the 40-story high-rise that was to serve as the energy giant’s headquarters.

The takeover surfaced last week and decisions have yet to reach a stage where officials can predict which of the CBD structures will stay and which will go when the deal closes. Dynegy’s corporate offices are in a 230,000-sf structure at 1000 Louisiana while Enron has its hierarchy in about 1.3 million sf at 1400 Smith St. Right across the street is the under-construction 1.2 million-sf Enron Center South, being built on a full city block.

Sources at Houston-based Hines, project developer, say the work is on track to deliver in January 2002. Enron already has moved some operations into the building. The Enron source stresses that the commitment is deep, but also admits that the high-rise’s role in the “future company” is uncertain.

A closed deal comes with the Dynegy moniker and the right to apply its name to Enron Field, a downtown baseball stadium and the Hines project. An Astros source says Dynegy most likely would be assigned the right to rename the high-profile projects and have the final say on such a decision. In April 1999, Enron signed a 30-year deal and paid $100 million for the naming rights and energy contracts for the stadium. Plus Enron Energy Services snagged the overseer’s job for electrical and mechanical equipment maintenance. Enron also agreed to build a parking garage adjacent to the ballpark.

Enron Center South has a distinct advantage when it comes to the final decision by the energy merchants. It is designed with a four-story bank of transaction floors totaling 220,000 sf. The trading floors, featuring 14-foot ceiling heights, can accommodate up to 500 desks and are in use now by Enron. The high-rise project also calls for 11,500 sf of street-level retail and the 33-floor balance dedicated to office space.

Enron Center South broke ground in July 1999, when every Houston’s energy player was riding the high road. Enron chairman and CEO Kenneth Lay said that project was needed to meet the firm’s projected growth. But times change. Cesar Pelli & Associates Inc., an international firm based in New Haven, CT, designed the high-rise being built in a CBD that has 3.3 million sf of class A office product under construction. Projections now, sans a Dynegy decision, are still calling for some 2.5 million sf to be vacant over the course of the next three years due to the up and coming projects. Any streamlining resulting from the takeover is sure to weigh heavily on the CBD.