01/27/2012

PacLife Lands Loan on Houston Office Trophy

H&R REIT has tapped Pacific Life for a low-leverage $250 million mortgage on a Houston office tower that it bought for a record price.

The Canadian REIT paid $445 million last month for the 845,000-square-foot Hess Tower. The $527/sf price shattered the previous Houston office record of $306/sf, and the overall value eclipsed the previous mark of $367 million.

The eight-year loan has a fixed coupon of 4.5%. The loan-to-value ratio is 56%. H&R, which paid cash for the building, closed on the mortgage this week. CBRE brokered the sale for a partnership between Trammell Crow of Dallas and Principal Real Estate Investors of Des Moines, Iowa, and arranged the loan from PacLife, of Newport Beach, Calif.

The 29-story building, at 1501 McKinney Street, was completed in June 2011 and is fully leased to energy giant Hess Corp. until 2026. The combination of low leverage, a new trophy building and a marquee tenant made the lending assignment an ideal fit for an insurance company. PacLife, along with other insurers, has stepped up its commercial mortgage origination in the past year or so, taking advantage of relatively attractive yields and lagging origination activity by banks and securitization shops.

Hess Tower is among only seven Class-A towers built in Houstonís downtown since 2000. The property includes a 10-level garage with 1,500 spaces. Standing in the heart of the cityís entertainment district, it overlooks Discovery Green, a $122 million, 12-acre park completed in 2008. Roughly 1,200 Hess employees work in the building, one of the companyís four regional headquarters.

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