Chevron Corp. is expected to close today on its purchase of the 50-story office tower the oil giant leases at 1400 Smith downtown, according to a person with knowledge of the situation.
The San Ramon, Calif.-based oil giant is buying the 1.3 million-square-foot property — formerly the Enron building – from Brookfield Office Properties for what could be a record price.
The deal would expand Chevron’s small empire in the downtown office market.
The company already owns 1500 Louisiana, the other former Enron building. The sleek, oval-shaped skyscrapers connected by a pedestrian sky ring have been pictured in countless news photos and videos.
Chevron also owns a parking lot and a small building across from 1500 Louisiana, and it’s planning to buy the site of the former YMCA.
The 70-year-old building is being demolished, and the sale is to close by the end of the year, said Trazanna Moreno, a spokeswoman for the YMCA of Greater Houston.
Chevron spokesman Mickey Driver declined to comment on the 1400 Smith acquisition. Paul Layne, executive vice president of Brookfield in Houston, also would not comment.
Reports have pegged the sale at $380 million.
If that is the price, the transaction would be one of the highest prices paid for a Houston office building in terms of price per square foot and total value, according to research from New York-based Real Capital Analytics dating back 10 years.
Dan Fasulo, managing director of the real estate research firm, said Houston will also benefit as buyers of offices move from high-cost markets like Manhattan and Washington to secondary markets like Houston.
It’s already started.
ING Clarion, on behalf of New York State Common Retirement Fund, is acquiring a 50 percent interest in downtown’s Wells Fargo Plaza from MetLife for $255 million, according to a source familiar with that deal.
And earlier this year, an affiliate of KBS bought the 17-story WestLake Park Two in the Energy Corridor from Younan Properties.
Last month, Brookfield said it was considering the sale of 500 Jefferson, along with its stake in KBR Tower at 601 Jefferson.
KBR leases nearly 1.3 million square feet and occupies the majority of the space in the two buildings. Last year the engineering and construction firm renewed and expanded its lease for 20 years.
Fasulo said property values in Houston are starting to increase as the capital markets recover.
Chevron may have different motives for buying its buildings.
Pending changes in accounting rules that apply to public companies are driving some corporations to buy their offices rather than rent them. A proposal by the Financial Accounting Standards Board would require companies essentially to expense the full value of their leases upfront instead of annually.
That could ultimately drive up commercial real estate values.
“If these proposed changes really encourage corporate users to buy their properties versus lease, it could be a significant source of new capital for the commercial real estate market, and it certainly could help drive prices much higher than they are today,” Fasulo said.