A Canadian pension fund is buying the local real estate company that owns Houston's iconic Greenway Plaza in a $1.2 billion deal that analysts say validates the city's commercial property market and exhibits its resilience despite an uncertain energy industry.

"I think it's good recognition for Houston that the worst is over," said Jon Silberman, managing partner of commercial real estate firm NAI Partners in Houston. "I think it's going to look like a real good investment in a few years."

The Canada Pension Plan Investment Board, or CPPIB, and Houston-based Parkway announced the deal Friday. Parkway's portfolio also includes CityWest Place in Westchase, Phoenix Tower near Greenway, along with Post Oak Central and San Felipe Plaza inthe Galleria area. In all, the properties total 8.7 million square feet in 19 buildings.

Earlier this year, the Canadian pension board put down a significant investment in the Greenway property as Parkway sold nearly half of its interest in it to a joint venture that included the CPPIB.

The Greenway buildings, which make up the largest share of Parkway's portfolio, have been the subject of much focus over the past year as the company made strides to upgrade the aging development.

More Information Parkway's Houston assets Greenway Plaza CityWest Place Post Oak Central San Felipe Plaza Phoenix Tower

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The 1960s-era complex that spans more than 50 acres in the city's urban core has maintained a steady roster of office tenants, but there's been little to attract Houstonians to the complex beyond the hours of 9 to 5.

Parkway recently kicked off a series of renovations. There are new restaurants going in, and the owner inked a deal to replace the complex's longtime tennis club with a popular fitness chain.

The largest office tenants in Parkway's buildings include Occidental Oil & Gas Corp., Statoil Gulf Services, Apache Corp., Invesco Management Group and Transocean Offshore Deepwater Drilling. At the end of the first quarter, the entire portfolio was 87.6 percent leased.

The Toronto-based pension board declined to comment beyond Friday's announcement.

"Parkway fits well with CPPIB's long-term real estate strategy to hold stable, high-quality assets in large U.S. markets," Hilary Spann, managing director and head of U.S. real estate investments for CPPIB, said in a statement. "Through this investment, CPPIB gains additional scale in Houston."

CPPIB will acquire Parkway, a real estate investment trust, for $23.05 per share, including a $4 dividend to be paid before closing. Parkway stock closed up 12.3 percent, to $22.89 on Friday. The transaction is expected to close in the fourth quarter.

John Guinee, a managing director for equity research and REITs for Stifel Nicolaus, called the purchase price fair and one that Parkway may not have been able to attain for several years as Houston's market slowly recovered.

"Most people think the Houston office market will bounce along the bottom for years," Guinee said.

He said Parkway's primary shareholder, the Texas Pacific Group, or TPG Capital, looks for short-term investment opportunities.

'A quick exit'

"This was a very unique situation where the largest shareholder was interested in a quick exit which helped drive the deal," Guinee said.

TPG Capital and its affiliates, which collectively own about 9.8 percent of Parkway's outstanding common stock, have agreed to vote in favor of the transaction.

Analysts said Houston's office market has hit bottom, but that the recovery won't be quick.

Office vacancy ticked up to 17.4 percent midyear as several large sublease terms expired, according to mid-year data from CBRE, a commercial real estate firm. That added more than 600,000 square feet of so-called direct space to the market.

Even as subleases have expired, the overall availability of sublease space remains at more than 11 million square feet.

Offers by landlords

Some landlords are offering an average of 12 months free rent to attract tenants and generous allowances to build out their space.

It could take another five years for the office market to recover, CBRE said.

Scott Galloway, executive managing director of mortgage banking and property brokerage HFF, which has been involved in the recent transactions, said the deal is a "shot in the arm" for Houston.

"It's a great validation of a global investor's long-term view and confidence in the city of Houston," he said.

HFF Securities acted as financial adviser to Parkway, and Hogan Lovells US served as Parkway's legal counsel.