SUGAR CREEK ON THE LAKE EXECUTIVE SUMMARY | SUGAR LAND, TX Sugar Creek on the Lake // HFF // 1 2 // HFF // Sugar Creek on the Lake Investment The Opportunity Highlights HFF, as exclusive advisor, is pleased to present the opportunity to acquire the 100% fee simple interest in Sugar Creek on 88.9% Leased with 6.7 Years Average Remaining The Lake (the “Property”), a suburban, 515,152 square foot, headquarters quality office building in one of the fastest growing Lease Term - In-Place Rents 4.5% Below Market micro-economies in the country. Developed in 1982 and later renovated in 2008 and substantially renovated in 2014, Sugar Foundation of Contractual Income Growth Creek on The Lake represents one of the premier office addresses in Sugar Land, Texas, due to its location at the epicenter of the Sugar Land office market with highway frontage and exceptional visibility on U.S. Highway 59. Currently 88.9% leased Significant Mark-to-Market Upside with a weighted average remaining term of 6.7 years, Sugar Creek on The Lake serves as the corporate headquarters for Excellent Remaining Vacancy - Fully Renovated Money Management International and Wholesome Sweeteners, as well as the location of a significant corporate presence Top Floor for United HealthCare, First Data Corporation and ABM. The Property offers current cash flow along with a full-floor vacancy on the top floor providing near-term upside as there is only one other full floor currently available on a direct basis in Discount to Replacement Cost, Limited New Construction the submarket. Headquarters Quality Asset Exceptional Physical Condition & Limited Future CapEx Exposure Sugar Land: A Growing Corporate Hub Property Summary 14141 Southwest Freeway, Address: Sugar Land, TX 77478 Distance from Houston CBD: 19.6 Miles Net Rentable Area: 515,152 Number of Stories: 10 Year Built : 1982 Years Renovated: 2008 / 2014 Parking Ratio: 4.83 per 1,000 SF Occupancy: 88.9% Avg. Remaining Lease Term: 6.7 Years Site Area: 8.9820 acres (Bldg. & Attached Garage) 14.7233 acres (Surface Parking & Detached Garage) 23.7053 acres (Total) SugarSugar CreekCreek onon thethe Lake Lake // HFF // 1 Investment Highlights Foundation of Contractual Income Growth Sugar Creek on The Lake benefits from in-place leases that provide long-term, escalating contractual income growth exceeding $1.1 million over the term of the existing leases. A significant portion of this contractual income growth (88%) can be attributed to the long-term leases including United HealthCare Services (50%), First Data (26%) and ABM (12%). The United HealthCare lease, which has $0.50 annual rent steps, provides an excellent hedge against inflation with an effective annual rate increase of 2.9% over the lease term. Excluding escalation income from the United HealthCare lease, all other in-place leases will generate contractual escalation income in excess of $580,000 over the 6.7 years of average remaining term. Significant Mark-to-Market Upside Significant embedded upside exists as in-place rental rates are below market. The average in-place NNN rent for the Property is 4.5% below rental rates currently being achieved among similar Class A office properties in the E. Fort Bend County / Sugar Land submarket and are projected to be 11.7% below market on average at lease expiration. With an average remaining lease term of 6.7 years, the Property offers a stable, in-place cash flow stream that allows investors to pursue additional value enhancement over a long-term hold until they can capture value by rolling rents to market prior to their exit. Discount to Replacement Cost, Limited New Construction Excellent Remaining Vacancy – With the increase in construction costs over the last few years, Fully Renovated Top Floor Sugar Creek on The Lake offers the rare opportunity to acquire The Property’s 37,410 square feet of vacancy is an extremely Class A office product at a discount to current replacement cost, valuable commodity in a submarket where Class A office space which is estimated to be $275-$325 per square foot. With the is 90.6% leased as of Q1 2017. 54% of the remaining vacancy, or recent completion of the owner-occupied Texas Instruments facility 20,082 square feet, is located on the top floor of the building. The in Telfair, there is no new construction currently underway. Limited full-floor vacancy features outstanding views and is in excellent supply growth over the next couple of years should allow rental physical condition and move-in ready. rates to continue to increase at a healthy rate. 2 // HFF // Sugar Creek on the Lake Sugar Creek on the Lake // HFF // 3 Headquarters Quality Asset Sugar Creek on The Lake, originally a build-to-suit project for Kaneb Services in the early 1980s, has continually served as a corporate or regional headquarters location for its tenants until the present day. Following Kaneb Services, the Property served as the regional headquarters for Unocal Corp. for more than 20 years before the company was acquired by Chevron in 2005. When Chevron relocated its employees to downtown, Fluor occupied several floors in the building before moving to its current headquarters in May of 2010. In October of 2010, Money Management International took residence, and since then several other firms have selected Sugar Creek on The Lake as the site of their corporate headquarters, including Wholesome Sweeteners, while United HealthCare Services and ABM leased 194,000 and 63,000 square feet, respectively. Since 2012, the building has undergone substantial renovations, further cementing this Property’s status as an institutional quality asset. With a full floor available,Sugar Creek on The Lake presents investors with a compelling opportunity to add an additional tenant looking to establish its headquarters in the area’s premier office environments with an excellent location, unrivaled amenities and floor to ceiling glass on every floor. Exceptional Physical Condition & Limited Future CapEx Exposure Since 2012, current ownership has invested over $15.8 million Sugar Land: A Growing Corporate Hub of non-leasing capital into the Property. The recent extensive Long recognized as a great place to live, the City of Sugar Land upgrades to the building systems coupled with full code compliance has also gained well-deserved reputation as one of the top locales mitigate a buyer’s exposure to future capital outlays, and allows in the United States for business relocation and expansion, in part a new owner to focus on the execution of its leasing strategy because of its workforce talent, aggressive incentive program, and and business plan. In addition to the capital outlays noted below, one of the lowest city property tax rates in Texas. Within a 5 mile previous ownership invested over $4.0 million improving the front radius of Sugar Creek on the Lake are 3.8 million square feet of entrance, lobby and common areas, restrooms and elevators. Class A office space and 16.7 million square feet of retail space, Recent updates over the last couple years are summarized in the placing the Property at the commercial epicenter of the region’s adjacent chart. commercial trade. 4 // HFF // Sugar Creek on the Lake SUGAR CREEK ON THE LAKE CONFERENCE FACILITY Sugar Creek on the Lake // HFF // 5 THE GALLERIA GREENWAY CBD TEXAS PLAZA MEDICAL CENTER WEST SAM HOUSTON TOLLWAY HIGHWAY 90 SOUTH DAIRY ASHFORD Sugar Creek on the Lake US 59 | SOUTHWEST FREEWAY CENTRAL DRIVE 6 // HFF // Sugar Creek on the Lake THE GALLERIA GREENWAY CBD TEXAS PLAZA MEDICAL CENTER der Constructio Grand Pkwy Un n 69 LIBERTY Location Maps Lake COUNTY WEST SAM HOUSTON TOLLWAY The Woodlands Houston State Park struction MONTGOMERY on C er ExxonMobil d COUNTY n Corporate Headquarters U y w k Eastex Frwy P nd ra G HIGHWAY 90 HARRIS COUNTY Proposed George Bush Intercontinental Airport Grand Pkwy Sam Houston Pkwy Lake SOUTH DAIRY ASHFORD Houston 69 Hardy Toll Road Sugar Creek on the Lake Northwest Frwy North Frwy Sheldon Reservoir Beaumont Hwy North Loop Baytown East Frwy Katy Frwy Energy Corridor Downtown George Bush Park Westheimer Rd San The Galleria East Loop Jacinto Bay Westpark Tollway Pasadena Frwy US 59 | SOUTHWEST FREEWAY Texas Medical West Loop West Center Southwest Frwy South Loop Barbour’s Cut Terminal FORT BEND 69 Sugar Creek on the Lake William COUNTY P. Hobby Galveston CENTRAL DRIVE Pkwy Airport Bay Sam Houston Tollway Bayport Bend Terminal Gulf Frwy Armand Bayou Park Fort South Frwy Clear Lake Smithers Lake Sugar Creek on the Lake // HFF // 7 GALVESTON COUNTY BRAZORIA Proposed Grand Pkwy COUNTY GREATWOOD NEW TERRITORY FIRST COLONY MALL TELFAIR H I G H W A Y 6 SUGAR LAND TOWN SQUARE 6 FIRST COLONY PARADISE POINT US 59 | SOUTHWEST FREEWAY Sugar Creek on the Lake SUGAR CREEK CENTER BLVD 8 // HFF // Sugar Creek on the Lake GREATWOOD Site Plan NEW TERRITORY FIRST COLONY MALL TELFAIR H I G H W A Y 6 SUGAR LAND TOWN SQUARE 6 d FIRST COLONY detention 59 p ond PARADISE POINT US 59 | SOUTHWEST FREEWAY ) South Parkway Boulevar O ne Sugar Creek Boulevar PARKING GARAGE U.S. Highway 59 (Southwest Freeway d SUGAR CREEK PARKING GARAGE Sugar Creek on the Lake ON THE LAKE SUGAR CREEK CENTER BLVD e Central Driv Sugar Creek on the Lake // HFF // 9 HOUSTON 9 Greenway Plaza, Suite 700 Houston, Texas 77046 Phone (713) 852-3500 Fax (713) 524-7334 hfflp.com H. DAN MILLER, CCIM, SIOR MARTIN T. HOGAN Senior Managing Director Director Phone (713) 852-3576 Phone (713) 852-3557 [email protected] [email protected] TRENT AGNEW DANE PETERSEN Director Real Estate Analyst Phone (713) 852-3431 Phone (713) 852-3436 [email protected] [email protected] CAPITAL MARKETS INQUIRIES CAN BE DIRECTED TO SUSAN HILL Senior Managing Director Phone (713) 852-3564 [email protected] This Offering Memorandum has been prepared by HFF for use by a limited number of parties and has been obtained from sources believed reliable.