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Suburban Houston Office Building for Sale

Thursday, July 13, 2017

Holliday Fenoglio Fowler, L.P. (HFF), on behalf of the owner, is marketing Sugar Creek on The Lake, a 515,152-square-foot, suburban, headquarters-quality office building in one of the fastest-growing micro-economies in the country, Sugar Land, Texas. Developed in 1982 and most recently renovated in 2014, Sugar Creek on The Lake represents one of the premier office addresses in Sugar Land due to its location at the epicenter of the Sugar Land office market with highway frontage and exceptional visibility on Interstate 69 (U.S. Highway 59).

Suburban office property for saleSugar Creek on The Lake, originally a build-to-suit project for Kaneb Services in the early 1980s, has continually served as a corporate or regional headquarters location for its tenants. Since 2012, current ownership has invested more than $15.8 million of non-leasing capital into the property, further cementing its status as an institutional-quality asset. Currently 88.9 percent leased with a weighted average remaining term of 6.7 years, Sugar Creek on The Lake serves as the corporate headquarters for Money Management International and Wholesome Sweeteners, as well as the location of a significant corporate presence for United HealthCare, First Data Corporation and ABM. The suburban office property for sale offers current cash flow along with a full-floor vacancy on the top floor, providing near-term upside as there is only one other full floor currently available on a direct basis in the submarket. With a full floor available, Sugar Creek on The Lake presents investors with a compelling opportunity to add an additional tenant looking to establish its headquarters in the area’s premier office environment with an excellent location, unrivaled amenities and floor-to-ceiling glass on every floor.

Long recognized as a great place to live, the city of Sugar Land has also gained a well-deserved reputation as one of the top locales in the United States for business relocation and expansion, in part because of its workforce talent, aggressive incentive program and one of the lowest city property tax rates in Texas. Within a five-mile radius of Sugar Creek on The Lake are 3.8 million square feet of Class A office space and 16.7 million square feet of retail space, placing the office building for sale at the commercial epicenter of the region’s commercial trade.

Suburban Office Building for Sale Investment Highlights

  • Foundation of Contractual Income Growth:  Sugar Creek on The Lake benefits from in-place leases that provide long-term, escalating contractual income growth exceeding $1.1 million over the term of the existing leases. A significant portion of this contractual income growth (88 percent) can be attributed to the long-term leases, including United HealthCare Services, First Data and ABM. The United HealthCare lease, which has $0.50 annual rent steps, provides an excellent hedge against inflation with an effective annual rate increase of 2.9 percent over the lease term. Excluding escalation income from the United HealthCare lease, all other in-place leases will generate contractual escalation income in excess of $580,000 over the 6.7 years of average remaining term.
  • Significant Mark-to-Market Upside:  Significant embedded upside exists as in-place rental rates are below market. The average in-place, triple-net-lease Sugar Creek on the Lakerent for the suburban office property for sale is 4.5 percent below rental rates currently being achieved among similar Class A office properties in the Eastern Fort Bend County/Sugar Land submarket and are projected to be 11.7 percent below market on average at lease expiration. With an average remaining lease term of 6.7 years, the property offers a stable, in-place cash flow stream that allows investors to pursue additional value enhancement over a long-term hold until they can capture value by rolling rents to market prior to their exit.
  • Excellent Remaining Vacancy in the Fully Renovated Top Floor:  The office property’s 37,410 square feet of vacancy is an extremely valuable commodity in a submarket where Class A office space is 90.6 percent leased as of Q1 2017. Fifty-four percent of the remaining vacancy, or 20,082 square feet, is located on the top floor of the building. The full-floor vacancy features outstanding views and is in excellent physical condition and move-in ready.
  • Discount to Replacement Cost and Limited New Construction:  With the increase in construction costs over the last few years, Sugar Creek on The Lake offers the rare opportunity to acquire Class A office product at a discount to current replacement cost, which is estimated to be $275-$325 per square foot. With the recent completion of the owner-occupied Texas Instruments facility in Telfair, there is no new construction currently underway. Limited supply growth over the next couple of years should allow rental rates to continue to increase at a healthy rate.

For more information on Sugar Creek on The Lake or other Houston-area office properties for sale, please contact Dan Miller or Martin Hogan in HFF’s Houston office. For information on acquisition financing for this property, please contact Susan Hill. To view current real estate investment sales listings, please click here to view HFF’s property search page.

Holliday Fenoglio Fowler, L.P. acting by and through Holliday GP Corp, a Texas licensed real estate broker.

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