H.P. Puts campus up FOR SALE

Hewlett-Packard continues to whittle down its real estate holdings at the former Compaq Computer Corp. campus in Northwest Houston -- this time through an effort to sell more than 2 million square feet of excess space.
The Palo Alto, Calif.-based computer company -- which purchased Houston-based Compaq for $19 billion in 2002 -- is consolidating employees into certain parts of its Northwest Houston campus so it can market 2.09 million square feet of space for sale, although HP will first have to lease out some of the space to better position the property.
The entire package -- which has an estimated replacement cost of $527 million -- consists of 2 million square feet of office space; a 900-seat cafeteria; a fitness center; a conference center; and parking garages with nearly 6,000 spaces. All of the buildings are connected by an air-conditioned walkway.
The 103-acre site also includes 20 acres of undeveloped land and five acres that could be redeveloped.
"It's a self-contained campus," says Stewart Robinson of Hines Interests LP who was tapped by HP's brokers to help market the property, located at State Highway 249 and Louetta.
HP plans to sell the eight buildings and four parking garages, but will first have to find tenants to lease a portion of the facilities. A lack of historical office leasing data in the FM 1960 submarket means it is difficult to place a value on the properties, brokers say, making it challenging for potential buyers to analyze the investment.
"They were grossly under-valuing the benefits of the asset and its location," says Ken Gilbert of Liberty-Greenfield Real Estate Advisors who was hired along with colleague Michael Raney in San Francisco to market the HP real estate. "That's what drove HP to decide to lease, and prove up the benefits of this particular submarket."
An asking price has not been placed on the buildings, which Gilbert estimates would cost $527 million to build today.
Gilbert says that once 15 percent to 25 percent of the square footage is leased, institutional buyers will have the data they need to properly assess the campus.
In the meantime, HP is moving forward as though a buyer will eventually be found.
HP employees are already relocating to the southern-most parts of the campus to free up what has been deemed as unneeded real estate. Most will be in their new work spaces by September, with all moves completed by October 2009.
Ed Woodward, an HP spokesman, says there has not been a reduction in the employee work force in conjunction with the corporate decision to sell this piece of Houston real estate. The company will not reveal how many employees work on the Houston campus.
"Houston will remain a very large facility for HP," Woodward says. "It's a very large facility, from both a physical and employee perspective."
At its peak, Compaq housed more than 16,000 employees in more than 5 million square feet and owned close to 1,000 acres of land in Northwest Houston.
Since HP acquired Compaq, the company has laid off an undisclosed number of workers; implemented plans to use facilities more efficiently; and divested under-utilized land and buildings.
HP will not disclose how much square footage it will occupy once the newest consolidation is completed, but according to a corporate map it appears to be less than half of Compaq's original main campus.
Previous HP divestitures were met with a flurry of bids from multiple would-be buyers.
The company sold a total of 632 acres of vacant land a few years ago to V&W Partners, which is developing the acreage as The Vintage -- a high-end neighborhood with homes, luxury apartments and Vintage Park, an upscale lifestyle center developed by the Interfin Cos.
Another divestiture came in 2006 when HP sold three office buildings and a manufacturing facility on 45 acres of its main campus grounds. The tract has since changed hands again, with the new owner marketing the property as 630,000 square feet of Class A office space for lease called Centre at Cypress Creek.
Room for more?
Jones Lang LaSalle data for fourth quarter 2007 shows that the FM 1960 submarket only has 589,000 square feet of Class A office space -- the smallest Class A inventory among Houston's submarkets, except Conroe. FM 1960 had a 5.8 percent direct vacancy rate and gross rental rates of $23.63 per square foot in the fourth quarter, the real estate firm reports.
"It's a large block of space," Gilbert says of HP's site. "The submarket it's in has never had a large block of Class A space before."
It's a large block of space," Gilbert says of HP's site. "The submarket it's in has never had a large block of Class A space before."
An office leasing track record may not be available, but HP contends that the location and amenities are strong tools in recruiting and retaining employees.
Robinson says the site is unique in that it has 1 million square feet of office space that's ready for immediate move-in.
"We have very little space available for current occupancy in our marketplace today," he says. "Most of the companies that have a campus now have had to construct it."
Todd Edmonds, a principal with Colliers International, says engineering firms may be likely tenants for the properties, but not other technology companies.
Compaq's vendors and suppliers likely would have been interested in the space back in the computer company's heyday.
HP's buildings will now be competing for tenants with the former HP facilities -- Centre at Cypress Creek -- which are right across the street.
HP will soon have even more competition, according the Jones Lang LaSalle report, which shows that 435,000 square feet of Class A office space is currently under construction in the FM 1960 submarket.
While the HP buildings were primarily constructed from 1989 to 1991, Gilbert says they are up for the challenge.
"The buildings are in excellent condition," he says. "HP has maintained them very well."
For more information see: www.houstonrealtyadavisors.com or www.houstonrealtyadvoisors.net