Thursday, Nov. 13, 2003 | 11:12 a.m.
An ownership change at the Hughes Center office park in midtown Las Vegas will likely result in more first-class office construction at the park and brings back to Las Vegas a company already known in the city because of a failed gaming merger in the 1990s.
The Rouse Co. said Wednesday it agreed in principle to sell Hughes Center, a 1.1 million-square-foot high-end office complex just east of the Las Vegas Strip, for $233 million including $137.5 million of debt.
Columbia, Md.-based Rouse is selling the property -- which includes eight office buildings, nine ground leases with tenants including popular restaurants, and 13 acres of undeveloped land -- to Crescent Real Estate Equities as part of a deal for Rouse to acquire a 52.5 percent interest in The Woodlands, a planned community north of Houston.
Rouse, parent company of Las Vegas-based Howard Hughes Corp., is the developer of the Summerlin planned community and the Fashion Show mall on the Strip.
The Hughes Center is anchored by the 17-story, 259,000-square-foot Wells Fargo tower at 3800 Howard Hughes Parkway.
Crescent is no stranger to Las Vegas. In 1998 the company agreed to buy locals' casino operator Station Casinos Inc. for $1.5 billion -- but that deal fell apart when Crescent shareholders criticized the Texas company's move into what they called a crowded, financially risky industry.
This morning, Crescent officials said they have no intention of entering any more gaming industry deals.
Crescent officials also said during a conference call that they will manage the Las Vegas center from Crescent's Houston office and will hire some Howard Hughes employees from Hughes' property and engineering groups.
Information on how many people and who would be hired was not immediately available from either Rouse or Crescent officials.
Bob Rubenkonig, communications director for Rouse, said the sale of the Hughes Center and purchase of a 52.5 percent interest in The Woodlands is part of the company's strategy to narrow its office portfolio and focus on community development and retail development.
"We are always looking to refine our portfolio," he said.
The Hughes Center was on the market about two years ago, but was then pulled back, Rubenkonig said.
Rumors have been circulating for a while that something new was in the works with the Hughes Center, said Randy Broadhead, senior vice president of office properties at commercial real estate brokerage CB Richard Ellis in Las Vegas.
"I think this will be good. Crescent is a developer used to office parks, and they can finish off the parks and sites that have been waiting to be built for years," he said. "I am very optimistic and excited about the prospects."
Rouse, which took on the Hughes Center when it acquired the Howard Hughes Corp. in 1996, is focused more on retail and planned community development nationwide than on office properties.
Over the last few years, Rouse has sold some Las Vegas assets while aggressively developing Summerlin and Fashion Show.
In 2000, the Hughes Airport and Cheyenne centers -- complexes of office, industrial and "flex" buildings -- were sold to Stoltz Bros Ltd. for $85 million, narrowing Rouse's exposure in the Las Vegas market.
Despite the sale of the Hughes Center, Rouse intends to keep its office properties in Summerlin and will build more offices there, Rubenkonig said.
Rubenkonig said when the opportunity came along for Rouse to invest in the 8,400-acre The Woodlands, the sale of the Las Vegas office center made sense.
This is not the first investment Rouse has made in Houston.
In June, Rouse bought 8,060 acres of land in northwest Houston for a proposed planned community.
"Houston is a very strong market and over the next 20 years we expect it to really start growing and we are happy to be a part of a growing community," Rubenkonig said.
John C. Goff, vice chairman and chief executive of Fort Worth-based Crescent, said the purchase of Hughes Center is an important part of the company's strategy to purchase "outstanding core office investments" and focus on increasing its office portfolio.
Among its investments, Crescent owns and manages through its subsidiaries and partners a portfolio of 75 office buildings totaling more than 30 million square feet, primarily located in the southwestern United States.
Goff said during today's conference call that rental rates in Las Vegas have been stable, and have ticked up slightly over the last six years. In the Hughes Center, rents range from $26 to $28 per square foot a year, up 5 percent from last year, he said. There are 140 tenants in the center, Goff said.
He said the deal is attractive because it allows Crescent to become a big player immediately in a high-growth market. In the valley's office market, Crescent will compete against several established local players including Thomas & Mack Co., Marnell Properties, American Nevada Company and the Hughes properties in Summerlin.
"This is the first time we've pushed hard to enter the (Las Vegas) office market," he said. "This is a market we like and we will continue to grow our presence there."
Denny Alberts, president and chief operating officer, said that the vacant land at Hughes Center will allow the company to build more office space in two phases.
"(New buildings) will come before you think, there is only 95,000 square feet of Class A being built and nothing has been built in the last three or four years," Albert said. "What we're seeing in Hughes Center, is the quality of the customer there and there seems to be a real expansion need for that group of customers."
"We are very anxious to get proper preleases on new buildings as soon as we (can)."
Class A office product is often defined as a building made of steel framing and glass, in a good location and surrounded by amenities such as restaurants, hotels and shopping.
Jeremy Aguero, a principal at research firm Applied Analysis, said the purchases are part of a continuing trend of development companies looking outside their current markets to expand.
He said Crescent will now have to look at the remaining property at Hughes Center and decide if office is what really should be built.
"If I'm in their shoes, I'd look at what's left and whether it should be developed as high-rise condominiums or office space," Aguero said. "I'd be surprised if it were to lay vacant for a very long time now."
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