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HOUSTON-Ending a near 10-year hold, KBS Realty Advisors has disposed of the 224,630-sf Kirkwood Atrium II in West Houston’s Energy Corridor submarket. BGK Group of Santa Fe, NM has bought the office building for its upside advantages, which include below-market rents and a hefty lease roll in the coming two years.

Located at 11767 Katy Freeway, the class B building is 90% leased. Harris Central Appraisal District assesses the asset at $17.7 million. Area sources say similar quality assets are trading for slightly north of $100 per sf, which would put the sale in the neighborhood of $22.5 million.

H. Dan Miller, senior managing director of Holliday Fenoglio Fowler LP in Houston, says the Newport Beach, CA-based KBS opted to sell the 11-story building because it had met all leasing goals. “They put close to $1.5 million in renovations into the building over the past several years and stabilized the building. Given the very positive market fundamentals in Houston, KBS felt it was a good time to sell,” says Miller, who partnered with HFF managing director Robert Williamson and associate director Martin Hogan for the building sale.

Miller tells GlobeSt.com that the building attracted a dozen offers, mostly from private capital groups. BGK, though, had acquired other assets from the seller. “KBS was comfortable with the certainty of close,” Miller explains. BGK, which represented itself in the transaction, has in-house teams to lease and manage its portfolio.

Miller points out current returns on Kirkwood II are fairly thin, given the fact that in-place rents are at least $5 per sf below market rates. But, he says, 50% of the leases are expected to roll before 2010 so BGK should be able to increase returns quickly. “Typically, BGK doesn’t like a lot of leasing risk, but they don’t mind buying a building with skinny returns as long as it’s leased and they know they can roll rents up to the market rate,” he adds.

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