December 2, 2020
Triten Real Estate Partners’ Nov. 30 announcement that it had acquired the 428,629-square-foot office building at 1111 Fannin Street came as a surprise many in Houston’s commercial real estate world.
Not only was the deal to buy the 17-story downtown tower one of the most high-profile office acquisitions of the year, it also came at a time when the Covid-19 coronavirus pandemic has only added to the challenges facing the city’s already struggling office market.
But Triten Real Estate Partners founder Scott Arnoldy said it was a deal too good to pass up.
For one thing, the property is located at the corner of Fannin and Dallas streets, a prime location in the city’s central business district, and also has direct access to the downtown tunnel system. For another, its previous occupant, JPMorgan Chase, had invested in significant upgrades to the building's technological infrastructure before deciding to vacate the space.
The Houston Business Journal previously reported that JPMorgan Chase is believed to be planning to move into 250,000 square feet of space in the 75-story office tower at 600 Travis St., where the bank used to have offices.
Arnoldy told the HBJ in an interview that his company was also able to acquire the building at a “very attractive” price, though he declined to disclose how much Triten and its financial partner, New York-based Taconic Capital Advisors, paid for 1111 Fannin.
Arnoldy did say, however, that the cost to tear down the existing building, which was built in 1971, and replace it with something new would be “10 to 15 times what we paid for it."
As of Jan. 1, the Harris County Appraisal District valued the property and improvements at $56.7 million.
“We thought it was a great opportunity to offer the kind of property that could be used for a headquarters at a great location that will compete with new Class A offerings at a more deferential price,” Arnoldy said. “The bones of the building are fantastic. It’s clad in stone, has tall ceilings and floor-to-ceiling windows. But because the previous owner hadn’t invested a ton of money into the building, it came at a great price and has a lot of different options for how it could be repurposed.”
Triten Real Estate Partners has already brought on Chicago-based HPA Architecture to design the remodel of the property. Arnoldy said he got to know HPA Architecture while working in real estate in Chicago.
“They do great work and are developing a design that will cater to the changing needs of the market,” Arnoldy said. “Yes, there’s a lot of office space on the market. But there aren’t a large number of locations with this amount of contiguous space.”
Houston’s office market has struggled under a surplus of space for the past several years as a number of large oil and gas companies ditched their downtown offices to build their own campuses in the suburbs and other parts of Houston proper.
The city’s 20.5% vacancy rate has shifted the market heavily in tenants’ favor. However, amid Covid-19, new leases have become few and far between. Many tenants that had been considering a move have opted to sign short-term leases in an attempt to wait out the uncertainty caused by the pandemic.
Arnoldy said he remains optimistic about the prospects for 1111 Fannin, despite the current challenges facing property owners.
“We are a patient company. We’re going to take our time, do it right and will be ready for the opportunities once they come along,” he said.
Triten Real Estate Partners and HPA Architecture are still assessing the property to determine the best course of action when it comes to the remodel, Arnoldy said. At a minimum, the plan will include a new food-and-coffee shop, which will serve the building’s new tenants. The plan also might include a mixed-use element catering to the public, he said.
“We definitely want to activate the ground floor to make it more welcoming to the employees working at 1111 Fannin,” he said. “But we’re still getting into the nooks and crannies to see what the best use of all the spaces will be.”
Arnoldy hopes to announce the company's plans for 1111 Fannin in early 2021.
If the two firms do decide to go the mixed-use route, it wouldn’t be Triten Real Estate Partners’ first foray into a project that aims to serve multiple purposes.
In addition to the planned remodel of 1111 Fannin, Triten Real Estate Partners has a number of other development projects underway in Houston.
The company was recently granted a variance allowing it to move ahead with plans for a mixed-use development near Houston’s East Downtown area.
According to documents filed with the city’s Planning Commission, Triten plans to build a two-phase development, which will include office, multifamily, restaurant and retail spaces in six buildings. The project’s name is listed as Navigation Mill on the company’s filings with the city.
“We’re very excited about the EaDo project,” Arnoldy said. “It’s a growing area, and we think a mixed-use development there will fit nicely with the other activity going on.”
Triten’s EaDo property at 2219 Canal St. is bordered by Runnels and Canal streets, as well as Navigation Boulevard and the Missouri Pacific Railroad line.
The first phase of the project will involve the construction of three new buildings and a parking lot, as well as the conversion of an existing warehouse space built in the 1950s into a mixed-use space.
Triten Real Estate Partners is also nearing completion on the development of M-K-T Heights, a 200,000-square-foot mixed-use development at 600 N. Shepherd Drive. That project is a joint venture between Triten, Houston-based Radom Capital LLC and Boston-based Long Wharf Capital.
‘That project has been going extremely well,” Arnoldy said. “Even with the pandemic, we’ve signed 14 leases for about 52,000 square feet of space. We wanted to build the kind of place that caters to the community — the kind of place where when your friends come to town, you can check the schedule to see what’s going on at M-K-T and go check it out.”