In Houston, Archon Group is busy transforming a down-in-the-heels suburban rental district into a 5,200-unit first-class apartment community. At home in Dallas, Archon is building the second phase of a speculative office complex near the airport. And in St. Louis, the investor has finished updating a '70s office building into a top-of-the market business address.

Not bad for a real estate operation that just a few years ago was running out of things to do.

Owned by Goldman, Sachs & Co., two-year-old Archon has parlayed Wall Street capital and expertise gained during the savings and loan shake-out into a fast-growing nationwide real estate investment and development firm.

"We currently control about $4.2 billion (cost) in real estate, and in value it's probably well over $6 billion," says Archon president James L. Lozier Jr. "We bought $1.4 billion in property last year and $1 billion so far this year. Our goal is to buy $1.6 billion in 1998."

Along with its acquisitions and development for Goldman Sach's Whitehall Street Real Estate Funds, Archon manages real estate loans through its retail offices in Washington, D.C., Fort Lauderdale, Houston and Los Angeles. The Dallas-based real estate service company has international operations in London and Mexico City.

"But investing in existing income properties is still the majority of our business," says Lozier. "That's what we have the most experience in, the acquisition and disposition of real estate assets."

Indeed, Archon Group started out in 1991 doing asset management and property sales for failed thrifts as a Dallas-area division of J.E. Robert Cos.

"We made the decision to try and acquire some other packages (of foreclosed property) being sold by the Resolution Trust Corp.," Lozier says. "In looking for capital, we teamed up with Goldman Sachs on the first portfolio we bought."

The Dallas group went on to purchase, in partnership with Goldman Sachs, several packages of apartments, office buildings and land from federal thrift and banking regulators.

"When the foreclosed property portfolio acquisitions were starting to wind down in late 1995, Goldman Sachs decided to acquire our group because they felt they could use our expertise for other real estate opportunities," Lozier says.

Archon Group got a separate identity so as to avoid conflicts. The big Wall Street firm still does a significant amount of real estate work with other companies and investors. "We are not Goldman Sachs," Lozier insists.

With about 650 employees and managing more than 95.5 million sq. ft. of real estate in 46 states, Archon Group is quickly achieving its own recognition in the real estate business.

About 40% of Archon Group's nationwide property portfolio is multifamily projects (more than 54,000 units), and another 40% (almost 22 million sq. ft.) is office buildings. The rest of the property mix is made up of industrial and retail buildings.

Despite increased competition from the big public companies, Archon Group is still adding to its cache of buildings.

"There are still a lot of good acquisition deals out there," Lozier says. "The redevelopment plays are something the REITs have not been that aggressive with. Repositioning assets is more difficult to sell people on. The returns are very nice, though."

In St. Louis, Archon acquired the 296,000 sq. ft. Clayton Center - an empty Class-C office building. Other investors had shunned the property because it had costly-to-remove toxic asbestos.

"We bought the building, remodeled it and have leased it up," says Archon Group's vice president and director of acquisitions Ernest "Rusty" Perry III. "At the end of the day, we are in it at less than replacement cost."

"A lot of the deals we are buying today are REIT quality, but either there is a low current return because the building is leased below market rent or we are doing the heavy turnaround deals," Perry says.

In Dallas' hot Las Colinas office market several potential buyers had backed off acquiring the 22-story Cigna Tower. The fear of sizable potential property tax hikes in the office district had put a cloud over the 509,000 sq. ft., 13-year-old highrise.

Still, Archon Group paid an estimated $75 million for the fully leased, Class-AA office tower. "We underwrote the (property tax increase) risk into our investment and, regardless of how it turns out, we think we bought it at a good number," Perry says.

In Houston's Greenspoint community, Archon has acquired more than 5,000 apartments from about two dozen different owners. The investor is working a renovation and redevelopment program expected to ultimately total $130 million.

"In the mid-1980s these properties went into lender hands and they had deteriorated," Perry says. "In order to turn the area around, we felt we had to gain a critical mass of properties. We've started the renovations now, which will be fairly extensive."

Archon Group is working on a similar-scale apartment renovation program in projects in several South Florida communities.

"Looking at other acquisitions on our plate, we've got deals with life companies and acquisitions from a couple of REITs that are trying to weed out things not in line with their strategy," Perry says. "We are looking for the value added opportunities - deals that maybe have a little bit of hair on them and that REITs and pension funds would find have a little higher risk."

Spec development certainly falls in that category.

Archon Group two years ago was one of the first to break ground for a 100% speculative office project in the Dallas area.

The six-story Las Colinas Corporate Center I leased up ahead of scheduled and at higher than expected rents. Archon has already started construction on a second, larger spec office project. "At the time we stated the first building, our 160,000 sq. ft. building was the biggest one coming along," says Archon Group senior vice president William G. Mundinger II. "We kicked the second building up in size from six to eight floors because it was inexpensive to do and it was the right response to the marketplace."

Mundinger, who oversees the company's nationwide development, estimates that Archon now has about $400 million in its building program. The company is working on almost a dozen projects around the country.

"The access to capital we have though the Whitehall Street Real Estate Funds allows us to focus on the implementation side of the business," he says. "A traditional developer spends half his time dialing for dollars."

Several of the projects in Archon's development pipeline are being built on sites adjacent to existing buildings. That's the case in suburban Nashville, Tenn., where Archon Group is building an 11-story, 215,000 sq. ft. second phase to its existing One American Center office projects.

"We will be developing several office buildings in other parts of the country this year," Mundinger says. "We plan to break ground on a couple of buildings totaling 220,000 sq. ft. in Boston within the next few months. We have another opportunity that we are evaluating in St. Louis, and we have some land in California and Atlanta. Where the deals make sense, we'll do them."

And that extends outside the United States. "We have purchased a small portfolio in Mexico that Archon Group has ownership in and does asset management for," Lozier says. "And we are doing a significant amount of other international work - principally in Europe."

"What we export is the back office expertise," he says. "We provide systems set up and all the real estate accounting and tax oversight. While development is growing as a percentage of our business, we are still doing most of our work with existing properties."