HOUSTON - After delays caused by last year's capital-market crunch and months of speculation, Chicago-based Walton Street Capital LLC has acquired the Houston Galleria from locally-based Hines, for a reported $550 million. The Galleria complex is Walton Street Capital's first Houston acquisition.

The Galleria is comprised of three office towers totaling 1.1 million sq. ft.; two Westin Hotels with 891 rooms; and 1.6 million sq. ft. of retail space, with 750,000 sq. ft. of new retail development planned. Hines completed development of the retail segment of the Galleria in 1969, while initial office and hotel developments were completed in 1973. Hines has renovated the landmark Houston complex several times since its inception.

An increasingly diversified local economy and greater overall capital markets discipline made the Galleria and Houston attractive, according to Walton Street Capital principal Ira Schulman. Walton Street plans to fully lease the Galleria's office segment, which currently is 90% occupied, while Westin will renovate the hotels' rooms and common areas. In a venture with Chicago-based Urban Shopping Centers, two anchors totaling about 450,000 sq. ft. will be part of the Galleria's 750,000 sq. ft. retail expansion.

"It's a high-quality, world-class project that's dominant," says Schulman. "The office and hotel have always performed at or above their peers in the market place. Our objective is to deliver leveraged returns in excess of 20% to our investors, and we believe we'll be able to meet or exceed that objective with this property."