New Hughes Center owner announces expansion plan

Jennifer Shubinski

Friday, March 26, 2004 | 11:05 a.m.

Crescent Real Estate Equities Co., which bought the Hughes Center office park in midtown Las Vegas last year, announced Thursday that it plans to build two new mid-rise office buildings at the complex.

John C. Goff, chief executive and vice chairman of Fort Worth, Texas-based Crescent, one of the nation's largest Real Estate Investment Trusts (REIT), said the company plans to break ground "as soon as possible" on two buildings totaling almost 400,000 square feet at the center at Flamingo and Paradise roads.

Plans for the site's build-out total 700,000 square feet to 800,000 square feet, although only the two buildings are on the drawing board, Goff said.

Goff was in town Thursday to meet with the chief executives of tenants housed at the Hughes Center. The Hughes Center is anchored by the 17-story, 259,000-square-foot Wells Fargo tower at 3800 Howard Hughes Parkway.

"These are going to be really cool attractive buildings that will add to the appeal of that as an office location. This is going to add value to every single existing office building (in Hughes Center)," he said. "These (buildings) are going to be cutting edge, really nice looking, blend themselves well with what's already there but at the same time they're going to be the next generation."

Crescent bought the Hughes Center from The Rouse Co., parent of Las Vegas-based Howard Hughes Corp., late last year. The deal allowed Crescent to purchase seven office properties totaling 1 million square feet and nine leased restaurant parcels for a gross purchase price of $214 million -- $119 million in cash and $95 million in assumed debt.

Crescent did not purchase an eighth smaller building within Hughes Center because it was a joint venture between Rouse and a partner, and that partner exercised its right not to sell the property.

Crescent also is scheduled to close on 13 acres of vacant land within Hughes Center by the end of the month. The purchase price is $10 million, $2.5 million of which is to be paid in cash with the remaining $7.5 million to be financed in the form of a note due December 2005.

Rouse, in turn, purchased Crescent's 52.5 percent interest in The Woodlands, a planned community just north of Houston.

It is on half of the vacant land in Hughes Center where Crescent plans to build an 11-story 250,000-square-foot building and a seven-story 150,000-square-foot building.

Commercial real estate analyst and Hughes Center tenant John Restrepo said plans for the two new buildings come at a time when the local office market is in an upswing.

"There is good office construction right now," said Restrepo, principal of Restrepo Consulting. "The office market is a little slower than retail and industrial, but it's coming back and they're building now and there's an upswing in the market."

Restrepo said it is good timing to announce plans for future phases of Hughes Center, as the office complex receives increasing competition from newer suburban office complexes in Summerlin, Green Valley, the southwest Las Vegas Valley and around McCarran International Airport.

"None will ever have a Wells Fargo tower, but what they will have is Class A suburban with technology," he said. "The main issue is they have received more competition from Class A than they used to have, but you can't beat (Hughes Center's) location."

Class A office space is generally the highest quality in a market.

Restrepo said Hughes Center averages an 8 to 9 percent total vacancy, while valley wide the office market at the end of the year was at a 13.5 percent vacancy rate.

In its other markets, Crescent generally preleases 60 to 70 percent of the office space in a new office building before beginning construction. Those thresholds probably won't hold in Las Vegas because of its market size, said Jane B. Page, senior vice president, asset management and leasing. Page's region includes Las Vegas.

Goff said it ends up being a judgment call as to when to begin construction.

"If you know you have enough demand out there, you may not have signed deals that total that, but you have a sense you will be there in short order, we will break ground," he said. "It would be different if you were building a million-square-foot office tower; these are bite size."

Goff said while there are no firm commitments yet, there are companies interested in the two new buildings and existing tenants who are looking to expand. Renderings for the two towers show very modern buildings with angles and different elevations. Page said the architecture and floor designs will be state of the art.

"We look at really building an efficient, state of the art floor plate so that the customer can get the most efficient layout of their space," she said. "That was one charge we gave the architects, we really want this to be a great looking building, but we want it extremely workable and efficient for the customer."