Hughes Center cuts rent, steps up marketing

By Buck Wargo

Friday, May 21, 2010 | 3 a.m.

One of the most prestigious office complexes in Las Vegas hasn’t been immune to the recession. The Hughes Center has lowered rents by up to 20 percent and has undertaken a campaign to aggressively market itself.

The Hughes Center at Flamingo and Paradise roads has long been a hot address in Las Vegas when it comes to high-end office towers and the place for financial and legal firms. It opened in 1987 with the 18-story Wells Fargo Tower and has grown to 10 office buildings on the 115-acre campus that features several high-end restaurants.

A change of ownership in November, when Barclays Capital took over Texas-based Crescent Real Estate Equities from Morgan Stanley, has caused executives to address rising vacancy rates.

When Crescent was acquired by Morgan Stanley in August 2007, the Hughes Center had a 4 percent vacancy rate, but that has since grown to 18 percent of the 1.35 million square feet, officials said.

The vacancy rate started rising in 2008 and continued into 2009 because the former ownership had rental rates too high and missed some opportunities to retain tenants, said Robert Boykin Jr., Crescent’s managing director of leasing.

“If they had gotten right on the rate and gotten ahead of the curve, we would be in a better position with higher occupancy,” Boykin said. “We have made a commitment that we are not going to lose anybody as long as they can pay their rent and have a viable business plan.”

The Hughes Center vacancy rate epitomizes the effect of the recession that has seen tenants downsize and move to more affordable space. At the end of the first quarter, Colliers International reported that high-end Class A space, which is reflective of complexes such as the Hughes Center, had a vacancy rate of 31.8 percent in Las Vegas, the highest of any category and well above the 23 percent vacancy rate for the entire office market in Las Vegas.

The Hughes Center rental rates ranged from $3 to $4 per square foot per month at the end of Morgan Stanley’s tenure, but have been lowered to $2.65 to $3.45 per square foot.

Boykin said the Hughes Center is “treading water” and occupancy rates have stabilized as some tenants have extended leases but given back space. In 2010, 40,000 square feet in lease deals have been completed and 27 deals are in the proposal stage, letter of intent or being negotiated.

“We have some momentum, but I am afraid some brokerage companies have the Hughes Center on drive-by status,” said Boykin, who spoke May 12 to members of the Society of Industrial and Office Realtors. “They didn’t feel it was in the market — there was a perception that our rates were too high.”

In addition to the reduction in rents, the Hughes Center has increased the amount of allowances it provides tenants to improve space by $5 to $15 per square foot to as high as $45, Boykin said.

The complex is also offering leases as low as one year compared to the three-year leases that were the minimum in the past.

“We are committed to our property and favorable financing allows us to get through this challenging time and make deals,” Boykin said.

The Hughes Center is also investing about $1 million to improve corridors and restrooms in two of its buildings and plans to upgrade another two buildings by the end of 2010 and into 2011, Boykin said.

The company is giving the older towers a more modern look in hope of attracting tenants, Boykin said.

“Some owners would say ‘let’s wait to the rates come back, but we don’t want to lose our Class A status,’” Boykin said.

Boykin spread that message to the brokerage community at the luncheon and the Hughes Center plans to market the campus in an advertising campaign featuring existing tenants telling their story about the center.

“We are feeling good,” Boykin said. “The rates could be higher and occupancy could be up, but we are making inroads, and we feel like things might be turning back.”

Crescent has no plans to construct any more towers at this time but its master plan includes a tower at the southwest corner of the campus where retail would also be included, Boykin said.

The Hughes Center was developed by the Howard Hughes Corp., which was acquired by the Rouse Co. in 1996. The Hughes Center was sold to Crescent in 2003.