Houston Project Invests
In Urban Retailing

HOUSTON -- For the past decade, as this city has invested heavily in its downtown, one element has been missing: retail.

Now a $200 million project spearheaded by two veteran developers promises to transform three city blocks into an open-air shopping-and-entertainment mall, complete with offices and condominiums. When it opens in 2007, economic-development officials say, the project could draw enough of a critical mass to reinvigorate downtown.

Houston Pavilions LP, a joint venture led by Geoffrey Jones and William Denton, is expected today to announce House of Blues Entertainment Inc. as its first major tenant. The roots-based live music outfit, which operates in a handful of other U.S. cities, will feature a performance hall, restaurant and retail shop, totaling 43,000 square feet.

Mr. Jones and Mr. Denton have yet to name other retail tenants for the nearly 700,000-square-foot project, about half of which will be retail space. They say they are securing financing for construction but have an adequate number of agreements with retail clients to move ahead.

The Pavilions project underscores a growing push by developers into heartland downtowns, many of which are seeing a sort of renaissance after being rendered nearly lifeless for decades by the automobile, highways and cheap suburban land. In Houston, the oil crash of the 1980s exacerbated the demise of the city's downtown.

Houston Pavilions boasts an enviable location, between the newly revitalized Main Street on one side and the George R. Brown Convention Center on the other. It would also occupy a space near Foley's, a downtown department store, and a mall of about 200,000 square feet called The Shops at Houston Center, creating something of a retail district. In addition to the retail space, plans include a 134,000-square-foot condominium tower and 200,000 square feet of loft-office space.

The project isn't without risks. Mr. Jones and Mr. Denton are betting they can attract Houstonians who already have an array of shopping and entertainment options, most notably in the Galleria area west of downtown. Perhaps more significantly, they are counting on locals to choose an outdoor urban experience instead of the indoor suburban sort.

"The question is whether Houstonians will come downtown," says Bob Eury, president of Central Houston Inc., an urban-planning and economic-development group, who nonetheless calls the project a "turning point for the evolution of downtown."

The Houston project is particularly noteworthy because, in a city that is among the most automobile-dependent in the country, it is being built alongside a light-rail line.

"Cities are changing," says Mr. Denton. "It's a great backdrop for this development."

Using a similar playbook, Mr. Denton developed Denver Pavilions, an outdoor mall that opened in 1998 in downtown Denver. Officials there say the project has been a considerable success.

While the Houston project is expected to attract locals from around the city and conventioneers, development officials say Houston Pavilions could also tap into the downtown residential market. In fact, they see retail development as a way to boost the number of people who live downtown from 3,700 to 10,000, a number they contend could launch a self-propelling economy.

Still, Messrs. Jones and Denton face challenges. They are adding more office and residential space at a time when Houston is still recovering from a crash in its energy-trading industry. Downtown office occupancy is at only 80%, and some of the city's newly renovated downtown residential lofts are struggling to find takers.

But the developers intend to capitalize on $4 billion of investment in downtown Houston in the past decade, during which the city has added a baseball stadium for the Major League Baseball Astros and an arena for its National Basketball Association Rockets as well as the $324 million 7.5-mile light-rail line.

Houston Pavilions bought the downtown land late last year for $21 million from Central Parking Corp. of Nashville, Tenn. Investment partners include BlackRock Realty Tower Fund and Houston Catalyst LP.

Mr. Denton, chief executive of Entertainment Development Group Inc., and Mr. Jones, chief executive of the Texas Real Estate Fund, have developed a number of Houston-area residential and commercial projects. For the Pavilions, they won considerable concessions from Houston and Harris County, including an $8.8 million development grant from the city and $4.4 million from the county. Local officials also redrew the boundaries of a tax increment reinvestment zone to include the project.

Email your comments to rjeditor@dowjones.com.