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Jackie Day is editorial director of Real Estate Media’s Newsletter Division.

HOUSTON-Now that the last of the Enron employees have abandoned thecompany’s former world headquarters at 1400 Smith St., brokers fromHenry S. Miller Commercial/TCN Worldwide are stepping up their effortsto lease the space, said to be the nation’s largest contiguous block of available class A office, weighing in at 1.3 million sf.They’re up against a depressed area office market, with 20.1% vacancy as of the first quarter 2004–the highest in almost 10 years, according to Grubb & Ellis’ local office. But the brokers are trotting out a leasing strategy geared to sign the 50-story tower’s lowest floors first to relatively small tenants as a means to prime the pump.

“Our strategy is to break up the low-rise section, floors three to 15, to smaller tenants,” broker Rollie Andre tells GlobeSt.com. Andre is marketing the space along with fellow locally based Henry S. Miller brokers Tim Crockett and Shirin Tetty in an exclusive arrangement. “We’ll offer substantial discounts for the first 100,000 to 150,000 sf just to get momentum,” says Andre. The published lease rate for the building is $20 to $23 per gross sf, he adds.But they will be lucky to get that, local sources say. “It’s going to be very difficult,” says a broker with a major firm’s Houston office, who asked to remain anonymous. “CBD space in Houston is struggling and fiercely competitive.”

The most likely tenants for 1400 Smith are existing metro-area companies, the broker says. “I know they’ll market it nationally and even internationally,” he notes. “But I don’t see any tenants coming from outside” the city.

On the other hand, he points out, even big local tenant possibilitieshave already gone elsewhere, citing Chevron-Texaco’s recent decision to buy and move into the other former Enron office building at 1500Louisiana St. That deal in turn vacated space in the 52-story ChevronTower at 1301 McKinney Ave. and 550,000 sf at Downtown’s Texaco Heritage Plaza.

To get that $20 to $23 sf gross rate, the anonymous broker says, HenryS. Miller will make considerable concessions such as free parking ortenant buildout and may have to accept a negative internal rate ofreturn just to get cash flow. “To ask 10% above market rates, I justdon’t see how they’re going to get that,” he says. Current market rates for Houston’s CBD office buildings are $21.83 per sf, according to locally based Grubb & Ellis broker Robert C. Kramp.

Andre acknowledges that tenants won’t shell out more than they have to. There will most likely be “some period of reasonable rental abatement” on the space, he says, and effective rents will indeed be “in line” with the rest of the market. Regarding the building’s IRR, he notes, there is no debt on 1400 Smith–which was purchased in December 2003 by a group of private investors for $55.5 million–which he says “puts us in an enviable position to make our deals work.”

He also contends that there are plenty of likely local users for the space. “There are three to four tenants in the 100,000-sf range in the Downtown market now, and a whole host of tenants in the 25,000-sf range” that are looking for space, Andre continues. “The market will tell us where to be.”

Ideally, a large tenant will come in and take 500,000 to 600,000 sf onthe building’s upper floors, says Andre, who is hoping the fact thatEnron left the building furnished and fully wired will be a plus. “If a tenant wanted to come in and plug and play, they could,” he says. “We have 6,500 workstations in place, all wired with cabling ready to go. There are a lot of things that could attract a large tenant with a lot of people.” At one time, Enron had 9,000 employees in the building, which would normally facilitate about 2,500, he notes. “It was supersized for that workforce. You could accommodate a lot of employees very economically in this building.”

Enron used to spend $28 million to $30 million every year on building and furniture improvements, says Andre–all of which remain in place now. “A tenant could come in and not have to jack up the rent to get those improvements.”

Still, in trying to fill that much contiguous space on the higherfloors, “they’re going after a big gorilla,” agrees Houston-based Grubb& Ellis broker Steve Rocher. One recent corporate relocation to theHouston area, Citgo Petroleum Corp., chose to go to the suburbs ratherthan downtown, when it shifted corporate offices from Tulsa, OK, to250,000 sf in west Houston.

However, some insiders see glimmers of hope for the city’s CBD that could benefit the former Enron building. A private property owner of a550,000-sf Downtown office building who’s currently trying tofill a 90,000-sf space says his inquiries are mounting, including those from out of town.

“Our oil and gas tenants are doing great,” he notes. “They’re smokingright now.”

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