17404 Katy Freeway Youtube Investment Summary
Capital Commercial Investments, Inc. (“CCI”) closed in the purchase of 17404 Katy Freeway (the “Property”) for $13,700,000 ($54/SF) on July 21st. This asset is a five-story, 253,065 SF office building with a 1,070-car parking garage. The building offers a very well-appointed interior with a Class A appearance. The estimated $310/SF+ reproduction cost of the building is well over 2.5 times CCI’s acquisition basis. The 6.2 acre property was developed by The Opus Group 17 years ago in 2006.
To de-risk this investment, this property was structured with a low initial loan of $4,500,000 and $13,500,000 of equity. Once we have leasing momentum we may increase the initial loan to $7,500,000 on the property. This property was purchased for 29% of the last transaction price from 12 years ago and at 17% of replacement cost estimated to be $310/SF. The current Harris County tax value is $39.499 million of which the land value is $6.757 million.
The property has been a stable, cash-flowing asset for more than 16 years, until around Q4, of 2022, and unlike some properties that are vacant or nearly vacant, this asset has had outstanding institutional ownership, and has not been affected by issues such as deferred maintenance or physical deficiencies. A negotiated amendment with the long-term tenant was placed on hold by the tenant at an advanced stage of the amendment’s execution, as the tenant was quietly evaluating space needs. A subsequent decision was made to consolidate space needs at another nearby building which housed a large part of the tenant’s operations, and as a result, the building became 100% vacant.
This property has outstanding floor plate configurations, and fronts on the iconic Interstate 10 West…a 26-lane traffic juggernaut that serves as the main west side traffic mover in the City of Houston. The TXDOT traffic counts are currently 230,318 for this section of Interstate 10. This stretch of freeway is reported to be one of the widest in the world. This office complex is only 17 years old, and its aesthetic appeal and easily identifiable marque location in Houston’s Energy Corridor, make this building one of the most desirable and easily identifiable properties in this submarket today. CCI also intends to update physical plant items components that will make this property one of the premier choices for big block users seeking space in the marketplace today.
- Competitive Leasing Set (Dropbox Link to PDF )
- Competitive Set Maps (Dropbox Link to PDF )
In its simplest form, CCI intends to benefit from its favorable acquisition basis in the property, to become the “moderately-priced provider” of high-quality space within this dynamic office and flex corridor. More specifically, CCI intends to target larger corporate users, who might find the potential of this single large block of space, as the perfect opportunity to consolidate their entire operations into a moderately-priced, aesthetically beautiful alternative. There is no new construction in the submarket and few large block Class A spaces available in the submarket. There is market demand from engineering companies relocating into the Energy corridor and 10 large leases totaling over 3 million square feet have been signed in the last few months.
To bolster leasing velocity, CCI intends to initially offer its space at $13.75/SF, increasing to $16.75/SF by the last lease signed which is considered $7.25/SF or 65% below competing nearby properties with an average asking rate of $21.00/SF. Once leasing momentum has been established, CCI will then return to higher asking rent levels as occupancy increases.
CCI expects the re-positioning and lease-up to stabilization to take approximately 36 months to complete.
CCI is seeking total capital commitments for the CCI-17404 Katy partnership of $17,000,000. The $17 million of equity will be available as Class A LP shares. The partnership is structured with an 10% preferred return, 75/25 to 15% and a 50/50 LP/GP split thereafter. This investment is anticipated to be extremely profitable with an estimated 1.84x or more return on the original investment.
INVESTEMENT OPTION – Class A LP Shares $50,000 Minimum with 10% preferred return. ($8,000,000 Available)
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- Investors who purchase Class “A” Units will become Class “A” Limited Partners in the Partnership. Class “A” Limited Partners will receive a ten percent (10%) per annum Preferred Return on Unrecovered Capital, then 75/25 to 15%, then 50/50 LP/GP split of remainder profits.
- Available as full shares of $100,000, half shares of $50,000 and quarter shares of $25,000. Minimum investment is $50,000.
- CCI anticipates accruing the 10% preferred return to the limited partners until the property is sold.
INVESTMENT OPTION 2 – Collateralized Notes $25,000 Minimum with 10% yield. (Up to $2,000,000 Available)
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- Investors who purchase notes will be collateralized against Class “A” Units in the Partnership. Note investors will receive a ten percent (10%) per annum Interest Return on Unrecovered Capital. This note is guaranteed by Doug Agarwal.
- Available as any increment of $25,000. Minimum investment is $25,000.
- CCI anticipates paying current the 10% interest yield to the note investors through monthly distributions until the property is sold.