March 2015 ULI Case Studies Sponsored by BG Group Place QUICK FACTS Location Houston, Texas Project type Office building Site size 1.26 acres Land uses Office, retail Keywords/special features Green building, sustainable development, high-rise building, glass curtain wall, sky garden, LEED Platinum certified, transit-oriented development, green roof, redevelopment Websites www.bggroupplace.com www.mainplacehouston.com Project address 811 Main Street Houston, Texas 77002 Developer Hines 811 Main Street Suite 4100 JOE AKER Houston, Texas 77002 With extensive green and energy-efficient features, BG Group Place is a 960,000-square-foot office building that www.hines.com has helped revitalize a blighted part of downtown Houston. Development investor/owner PROJECT SUMMARY Hines CalPERS Green Development Fund BG Group Place is a 960,000-square-foot, 46-story office building on a Current investor/owner Invesco (BG Holdco LLC) 1.26-acre redevelopment site in the center of downtown Houston. The Dallas, Texas building has been certified Leadership in Energy and Environmental Design www.invesco.com Design architect (LEED) Platinum by the U.S. Green Building Council (USGBC) and incorpo- Pickard Chilton rates numerous green features, including sunshades on the facade to New Haven, Connecticut www.pickardchilton.com reduce heat loads in summer. The building of BG Group Place involved the Architect of record redevelopment of a blighted block, located at the intersection of Houston’s Kendall Heaton Houston, Texas two new light-rail lines, and has had a regenerative effect on the immediate www.kendallheaton.com neighborhood and the central part of downtown Houston. The building is known for its striking architecture and the sky garden near the top, which gives the structure a unique profile on the Houston skyline. Construction began in March 2008 and the building was completed in January 2011. As of February 2015, the building is 98 percent leased. www.uli.org/casestudies BG Group Place Case Study 1 Hines is known for developing iconic buildings in Houston—notably One Shell Plaza, Pennzoil Place, and the Houston Galleria—and around the world. But when the company first proposed developing a new office building on a blighted block in downtown Houston, many in the Houston real estate community scratched their heads. The block was a problem location for the city and lay at the center of a good deal of crimi- nal and unsavory behavior; many commercial real estate brokers said “don’t go there.” But the very negative image of the block and the immediate area was part of what compelled Hines executives to focus on the site. Notes Mark Cover, chief executive officer (CEO) of Hines Southwest region, “I felt that if this block could be rejuvenated in a really substantial way, that it would have a tremen- dous ripple effect on downtown.” He and his colleagues at Hines believed that it would be in the best interest of downtown Houston to remove the blight on this block; and that if they were successful, they could create value not only for Hines and its investment partner, but also for surrounding areas and the city as well. Despite the problems the site presented, it did offer several attractive features, the most compelling of which was a strategic location. The site lies very near the center of downtown Hous- ton, on Main Street, and offers direct access to a new light-rail line and stop along this street. Doubters aside, Hines proceeded with the development plans. With a focus on architecture and building quality, Hines not only developed a great new office building, but also stimulated a good deal of redevelopment and positive change in the surrounding blocks. The Site and the Idea Prior to its redevelopment, the site was consid- ered to be one of the worst blocks in downtown Houston, and featured a derelict hotel that attracted unsavory characters and behavior, in- cluding drug use, prostitution, and other criminal JOE AKER activities. Some of the buildings were boarded up Centrally located in downtown, the site lies adjacent to both the north–south and east–west lines of the Houston and in bad shape. In 2007, the Houston Chronicle light-rail system. referred to the block as “the most blighted block The block on which the building sits was owned being planned for a new use. This building was in all of downtown.” One structure that was a par- by six separate local and national owners, considered for acquisition but ultimately was not ticular problem was the old Cotton Hotel, a build- many of whom had held parcels for some time. acquired because 1) it was not actually needed ing with an interesting history that had devolved Hines was able to acquire five of the parcels to make the project work, 2) it had historic into a room-by-the-hour type of establishment. and left one. The latter was a mid-rise building, qualities and was worth preserving, and 3) it Hines began seriously considering the site on a quarter of the block, with historic quali- would have been considerably more expensive and planning for the project in December 2006. ties that had been partially renovated and was to acquire than the other parcels. 2 BG Group Place Case Study www.uli.org/casestudies Control of the 1.26-acre site was obtained Development Team and Background by Hines in August 2007. The site acquisition Hines is a privately owned real estate firm involved both long-term ground leases for two involved in real estate investment, development, of the parcels (with the ability to get to the fee and property management worldwide. The ownership if needed) and fee-simple purchases firm’s historical and current portfolio—of proj- for three parcels. Hines worked closely with one ects that are underway, completed, acquired, of the owners, who knew the other owners and managed for third parties—includes 1,126 well, to negotiate a deal that was acceptable properties representing more than 459 million to all. Site acquisition costs generally fell in the square feet of office, residential, mixed-use, in- $350- to $400-per-square-foot range. Cover dustrial, hotel, medical, and sports facilities, as comments, “It was an expensive purchase well as large, master-planned communities and at the time.” Hines actually had the option to land developments. With offices in 106 cities develop on another site two blocks away, and in 17 countries, and controlled assets valued at was prepared to move forward on either. This approximately $23.7 billion, Hines is one of the was an important factor in the negotiation with largest real estate organizations in the world. the landowners. In fact, as of winter 2015 When they started planning the project Hines is under construction on a new building in 2006, notes John Mooz, senior managing on that second site, called 609 Main. director with Hines, “there probably were 75 The site lies on a block bounded by Main blocks in downtown that someone could put a Street on the west, Rusk Street on the north, million-square-foot building on, but in reality Fannin Street on the east, and Walker Street on there were about four or five blocks that were the south. Main Street has traditionally been one appropriate to put a million-square-foot building of most important streets in Houston, and the The original site was one of the most blighted blocks in on. It needed to check many boxes.” A central north–south light-rail line now runs along this downtown Houston. location and direct proximity to transit were two street with a stop—Central Station—directly of these boxes. Even in car-centric Houston, ac- adjacent to the building. The alignment of the cess to mass transit is very important for large second light-rail line, the east–west line, was tenants. Upon surveying potential tenants, Hines not yet in place when the site was acquired, found that some of them had as much as 70 but today this line is in place along Rusk Street, percent of their employees using mass transit of directly in front of the building, and will begin some sort, especially the city park-and-ride sys- operating in the near future. As a result, the cor- tem. Observes Philip Croker, managing director ner of Main and Rusk is now the most important at Hines, “We felt it was important to be adjacent location in the emerging light-rail transit system to the light-rail system and the park-and-ride in Houston, which means it will be one of the bus stops.” A good connection to the pedestrian most central locations in the city’s future. tunnel system was also essential. Being cen- Across the street at the corner of Main and trally located also was a major consideration. Rusk stands the historic 1929 Gulf Building, The city was supportive of the redevelop- now known as the JPMorgan Chase Building. ment, as the block had been a problem for Pennzoil Place, one of the early signature mod- some time. No zoning or other major approval ern buildings designed by Philip Johnson and issues needed to be addressed. developed by Hines in 1976, is located approxi- In March 2008, the time construction began, mately two blocks north and west of the site. the vacancy rate in downtown Houston was very The main corridor where much of the energy low, but the U.S. economy was already in recession industry has been traditionally headquartered and the Bear Stearns collapse and sale to J.P. Mor- in downtown —Louisiana Street—lies three gan, also in March 2008, the first major event in blocks to the northwest, and the new Discovery the financial crisis, was happening almost simulta- Green, next to the George R.