Condo conversion play in Houston

Real Estate Alert, June 2, 2004

A developer is shopping a new luxury apartment tower in Houston that is being pitched as suitable for conversion into condominiums.

The 253-unit property, at 3333 Mien Parkway, is valued at about $100 million. If the units are kept as is, the buyer's stabilized yield would be 6%. To a conversion specialist, the high-rise would offer a yield of at least 15%.

The 32-story property was completed last year by Simmons Vedder of Austin, Texas, with backing from O'Connor Capital Partners, an opportunity-fund operator. The building, still in its initial leasing phase, is 55% occupied. Units rent for an average of $3,450. There is a large swimming pool and a 509-car garage.

The apartment tower sits on a 2.7-acre site in a tony sub-market of the Museum/Montrose District, one mile west of downtown. The district's average occupancy rate is 87.4%.

There are no other comparable offerings currently in the market. Two similar properties were completed recently by local developers. But one--the 356-unit building at 1200 Post Oak Boulevard--was sold for $80 million in March to Sentinel Real Estate by Hanover Co. And the 187-unit Museum Tower, at 4899 Montrose Boulevard, is considered unlikely to trade, because owner Marvy Finger recently arranged a long-term mortgage.

Condominium conversions have caught on only recently in Houston. Chicago-based American Invsco recently completed the successful conversion of the 228-unit Renaissance at River Oaks. Since 2002, Atlanta-based Choice Condominiums has converted three properties: City Plaza (246 units), Oaks at West University (84 units) and Reata (159 units). Reata, at 3231 Allen Parkway, neighbors 3333 Allen.

CB Richard Ellis has the listing. For more information, call Craig LaFollette at 713-840-6535.