APF Properties zeroed in on the Houston market for investment in 2012 due to the area’s status as one of the leading population and employment growth cities in the U.S.
In August 2013 the firm acquired, for approximately $37 million, a 200,000 SF Class A office building — 2200 West Loop South in Houston. The building is in the best location of the very desirable Galleria submarket, and sits on 4.2 acres with ample landscaping. The land alone had a market value of about 90% of the total purchase price making this an unbelievable opportunity. The asset also had a 8.3% going-in cap rate and was perfectly positioned for future growth with half of the leases at 45% below 2013 market rates and over 75% of its leases set to expire by the end of 2017.
The only drawback to this unbelievable value deal was an existing long-term $21 million mortgage that could not be prepaid due to its prohibitive defeasance costs. This financing scared off most potential buyers. APF Properties partnered with an institutional provider of a mezzanine loan to acquire this incredible value play.
APF Properties’ investment thesis for the property was right on target. Only one year after the acquisition, the firm has sold the property for approximately $47 million to the building’s anchor office tenant, Tenaris, a leading energy sector supplier. In the process, the firm earned a 60% return on its equity investment.