Rouse Co. finally bags its prey in Texas

REIT buying 52.5% of planned community

November 13, 2003|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

The Rouse Co. yesterday added a huge holding to its presence in the Houston area by agreeing to buy a majority stake in a 27,000-acre planned community that has been developing since 1974 and was heavily influenced by Rouse's Columbia.

The real estate investment trust will pay $387 million, most of it by transferring 1.1 million square feet of office buildings in Las Vegas to the current majority owner of The Woodlands, north of Houston.

Rouse will get Crescent Real Estate Equities Limited Partnership's 52.5 percent interest in the mixed-use community. Affiliates of Morgan Stanley Real Estate Fund II will retain the rest.

Anthony W. Deering, chairman and chief executive, said Rouse has been interested in The Woodlands for more than a decade and unsuccessfully bid on it when its founder, George Mitchell, sold it in 1997. Deering is delighted to get it on the second try.

"A number of Rouse alumni went to do the initial development of The Woodlands, so there's a shared tradition," he said.

"We knew the design was impeccable and the location's terrific - the market's very strong - and our view of Houston in the next 20 years is that it will be higher growth than most other regions in the country."

The deal also fits into Rouse's strategy of narrowing its office portfolio to focus on community development and retail, Deering said.

The Woodlands is an unincorporated city in a forest, perched 27 miles north of Houston and 20 miles east of 8,000 undeveloped acres Rouse bought in June. About 75,000 people live there, while 30,000 people work in the offices, industrial buildings, shops and hotel that together total 19 million square feet. There's a large mall as well, though it's separately owned.

Thomas J. D'Alesandro IV, president and CEO of the community's developer, The Woodlands Operating Co., said he's pleased and excited that Rouse is buying the town.

It seems appropriate to him because the Woodlands' founder was so intent on trying the Rouse model in Texas. There's a town center, just like Columbia has, and eight villages - with the ninth soon to begin.

"The Rouse Co. had an influence on The Woodlands from its very inception," said D'Alesandro, who knows the purchaser well because his father and grandfather were former mayors of Baltimore. "They have tremendous understanding of master planned communities and [experience] with town centers. At the Woodlands we're getting ready to launch our final village. ... It's great to get their input as we finalize that design."

Rouse expects that the transaction will close by the end of the year. The eight office buildings it's putting toward the cost are worth $233 million. Rouse officials say they'll have to contribute only $80.3 million in cash because the difference will be covered by partnership distributions.

Deering expects to see "material" benefits by 2005.

The deal will give Rouse 8,400 acres of undeveloped land, about 4,300 acres of which are set aside for about 12,500 single-family homes.

It will also get about 1,200 acres of commercial land, seven office buildings totaling 520,000 square feet, three golf course complexes, a resort conference center, the Marriott Waterway Hotel and five office buildings that are being marketed for sale.

D'Alesandro said it will be about 10 years before the development is built out.

The first lots in the 8,000 acres Rouse purchased earlier in the year are to be ready for sale to builders in 2005. The still-unnamed community is to have 17,000 single-family homes, with about 900 acres set aside for apartments and commercial uses.

"We should be fairly dominant in the market," Deering said.

Bruce Tough, president of The Woodlands Community Association, an elected governing body that's similar to the Columbia Council, said he considers Rouse a great developer and hopes it will maintain the standards in town.

He said the community last month won second place in its population category in a worldwide competition for livable cities, called Nations in Bloom.

"I think the new owners should be very proud of their purchase," Tough said. "We're a city living in a forest. ... That's what makes us exceptional and different from everyone else."

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