OZK's $165.9M Houston loan splits apartments and office

Bank OZK is carrying a $165.9 million construction loan for a Houston mixed-use project whose risk splits cleanly down the middle between a 38-story apartment tower and a 10-story office block, two markets cycling at different speeds. Connect CRE, citing the Houston Business Journal, reports that the loan backs Southern Land Co.'s 2811 Kirby development in Upper Kirby, a 953,000-square-foot project on a two-acre site near Kirby Drive and Kipling Street that broke ground in April and expects delivery in 2028.

The residential component does the obvious heavy lifting. Lily River Oaks will rise 38 stories with 331 apartments, including 18 penthouses, above roughly 15,000 square feet of ground-floor restaurant space small enough to function as an amenity for the apartments rather than a revenue driver of its own. The separate commercial tower adds 107,000 square feet of Class AA office, with Stream Realty Partners leading leasing; Andres Construction is the general contractor and Solomon Cordwell Buenz the architect and interior designer.

The office block is where the underwrite gets interesting. A day earlier OZK made a related wager at Merritt 7 in Norwalk, where a $75.5 million OZK construction loan is backing 286 apartments planned for two office buildings; in that deal the office was the feedstock for apartments, while the Houston block is a new Class AA product that has to lease into a market still sorting out trophy-versus-commodity pricing. The two loans suggest OZK is comfortable treating office as either feedstock or finished goods, depending on the market. The $165.9 million mortgage against 953,000 square feet works out to roughly $174 a foot, meaning the bank's loan covers only part of the total capital stack; the office component is the swing factor in the recovery, and the apartments are the income-producing anchor.

The loan also runs against the bank-retreat narrative this publication has tracked, in which Nuveen's $1 billion C-PACE close, with cumulative commitments past $3 billion, has become replacement capital for construction borrowers. OZK is still willing to write a nine-figure construction ticket, and this one leans on the apartment income stream rather than the office lease-up, effectively pricing two assets on one mortgage: a multifamily tower carrying its own income stream and an office block that has to find its clearing price. With delivery not expected until 2028, the office market has time to reset but the construction budget has time to drift as well; whether the office floor plates find tenants before delivery will determine if the structure holds.