BMC finally sells office campus to acquisitive California investor

Houston Business Journal - June 9, 2006

by Jennifer Dawson

Houston Business Journal

BMC Software Inc.has finally found a buyer for its sprawling four-building, west Houston office complex, which has been on and off the market over the last few years.

Thomas Properties Group Inc. announced this week that it has entered into a definitive agreement with BMC to buy the 1.5 million-square-foot campus and 24 acres of adjacent land for $295 million. The California State Teachers' Retirement System is putting up $72.4 million of the purchase price.

BMC will continue to operate its corporate headquarters at the campus, which is located near the intersection of Briar Forest and Beltway 8 in the Westchase District. The firm will lease back 622,000 square feet, or 42 percent of the entire campus.

The deal is expected to close this month.

This will be the second major acquisition in Houston for Thomas within the last year. The Los Angeles-based real estate company and the California State Teachers' Retirement System bought more than 2.5 million square feet of local office space from Equity Office Properties Trust for $280.5 million in August 2005. That transaction represented Thomas' entrance into the Houston market, and marked an exit for Equity.

The BMC transaction will give Thomas a total of 4 million square feet of Class A office space in Houston , as well as a large presence in the Westchase District. That suburban submarket, which straddles the West Belt between Interstate 10 and U.S. Highway 59, is also home to Thomas' 2500 CityWest building. That 25-story, 574,000-square-foot building is currently 88 percent leased to such tenants as Invensys Systems Inc., Horizon Offshore and Aspentech Inc.

"We are very bullish on Houston and the Westchase submarket," says Todd Merkle, a vice president with Thomas. "This is a market that is recovering. It's going to be an opportune time to have that kind of space as a landlord."

Indeed, Thomas may construct additional office space on the 24 acres it is buying from BMC and on a six-acre tract next to 2500 CityWest. The full-service real estate firm has its own development operation and will handle the expansion in-house.

Once the acquisition is complete, Thomas will own almost half of the Class A office space within Westchase, says Westchase District President Jim Murphy, who speculates that close to $21 million of the $295 million purchase price went toward the 24 acres.

"That is topnotch office building property," Murphy says. "We don't have a lot of that left."

Ups and downs

The BMC campus was developed in phases between 1993 and 2001. Two of the Class A office buildings -- which combined total 850,000 square feet -- went under construction in late 1999, during a boom time in the technology industry.

But it wasn't too long before BMC realized it did not need that much office space. A downward spiral in the economy coupled with a huge hit to the technology sector prompted the company to lay off hundreds of employees at that time.

BMC tried to cut its losses by subleasing some of the Westchase office space to Halliburton Energy Services and Landmark Graphics Corp.

But by 2003, the decision was made to sell two of the buildings, which totaled 700,000 square feet combined.

When BMC had no takers by February 2004, the company pulled the office buildings back off the market. The plan was to fill the empty space with outside tenants through subleasing.

In 2005, rumors in the real estate community pointed toward another possible sales attempt.

And in February 2006, BMC spokeswoman Julie Dearing confirmed that the company was exploring its options, including the possible sale of the buildings.

Scott Wegmann, Ken Page and David Chuoke of Cushman & Wakefield of Texas Inc. are representing BMC in the sale.

Chip Colvill, president of Colvill Office Properties, represented BMC on its new lease-back agreement. Colvill handles leasing and marketing for Thomas' local portfolio, and will take on those responsibilities at the BMC campus. Thomas will provide property management services for the buildings.

Colvill says strong leasing at 2500 CityWest was one reason Thomas was interested in the BMC properties.

"We've seen incredible leasing activity out there," he says. "It's irreplaceable real estate."

jdawson@bizjournals.com • 713-960-5935