Texas Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in Texas.
Issue link: https://texasrealestatebusiness.epubxp.com/i/591312
50 • November 2015 • Texas Real Estate Business www.REBusinessOnline.com for the foreseeable future if you do an incredible job of leasing it up. You go to sell the shopping center that is fully leased at $35-36 a foot and you sell it at a low cap rate and it comes out to be $400 per square foot or more, I don't understand the upside in that. Is there? Luther: That creates a challenge, and that brings up a good point, be- cause buyers are looking for price per square foot too. If I look back at the last one that we had, a lot of develop- ers were basing their rents on their construction costs, not necessarily what the tenant could aford on the rent-to-sales ratio. They're going to be looking at that underwriting a lot deeper. So, if there's minimal upside, we're factoring that into our pricing of that asset. Gaines: We see most of the buyers that ft that profle you just described there as guys who otherwise might be a single tenant buyer who are dis- enchanted by 3.5 percent to 4 percent cap stuf. They see a 7.25 percent cap rate multi-tenant mix, even with accel- erated rents, as a more sporting mans version of a single-tenant deal. If these guys are putting some level of lever- age out there, then you've got 250 ba- sis points of diference here because they're willing to take on a little more risk. I think they're up to the chal- lenge and they see it as, at least with the product we put on the ground and most smaller multi-tenant develop- ers, they're creating less than $5 mil- lion assets. We're going through some pretty heavy growing pains of deal- ing with the Johnson Developments and the Howard Hughes Corporation type guidelines. We're putting a prod- uct on the ground that's building into these master-planned communities where there are ways to limit future competition for new product. The cost of putting that new product on the ground is probably not going to mar- ginalize itself much; it's probably go- ing to become a bigger number. TREB: They also see that as a barrier to entry for those markets? Gaines: Absolutely, barriers to en- try is one of our president's favor- ite things to say morning, noon and night. That's a huge factor for these guys. They know that if they're buy- ing into a deal that's in the greater Bridgeland area or something like that, they know that there's only so many tracts along these roads that can be perceivably put down as a strip center, and everything that is outside of that is going to become an inferior product. The idea is that most of these tenants that are going out there are a little more seasoned mom-and-pop or credit groups, and that they're going into these areas, it just fundamentally makes sense for what they do. TREB: Kurt, do you want to talk about capital a little bit and availabil- ity? What do you see? Who is borrow- ing? Kurt Dennis: I think over the course of the year with the supply concerns on multifamily and ofce, all that new supply, and so many investors chas- ing that product, I think there's been a real shift towards retail from the lenders as well. I think lenders are still very gung-ho and bullish on the re- tail sector in Texas, and in Houston in particular. Despite what oil is doing, there's still a lot of CMBS lender appe- tite to lend on retail product here and were still seeing aggressive leverage. Interest rates have gone up over the course of the year, especially towards the end of the summer with all of the market volatility. Spreads widened as a result of that. There was a backlog of CMBS product hitting the market this month, so we're anticipating that spreads hopefully will settle back in a little bit. TREB: Let's go around the room for a second and just see what everyone is active with right now. Jon, if you want to start. Jon Spears: At TNRG, we're actu- ally just looking at getting into the retail market a bit. We've got several tracts in the Katy area and one up on Hollister that we're looking at doing some smaller 15,000-square-foot strip centers. Corey Ferguson: I will speak on an inner loop deal that actually a couple of the guys in the room helped me out with. We built a 7,000-square-foot re- tail, actually ripped down a two-story ofce building. We flled the center up and turned it around and sold it fairly quickly. It was a small space and it was hard to work with when I frst started to build it. At the same time, there are not that many retail tracts there. Now you see Whole Foods Market going in on the North side not to far from there, so it's a pretty interesting play. What we're working on now is a little bit further out west at Grand Parkway and Westpark Toll Road where we have a 100-acre mixed-use project. We just sold fve acres to Kelsey-Seybold, they're building around 40,000 square feet. We've got a theater coming that's actually increased its square footage from 42 to 49; kind of the dinner-and- a-movie type situation with leather seats. We've got lots of medical. With Kelsey coming in, Springstone just did a behavioral hospital there with 82-beds. We've got a 210-bed memory care Alzheimer's facility not too far of Bellaire. Dennis: LMI Capital, we're a mort- gage brokerage; we're a boutique shop here in Houston. We fnance deals across Texas, all property types including retail. We also do equity placement as well. We're seeing a lot of lender appetite for retail in particu- lar. I think on the equity side as well, lots of appetite for that group. People are taking a shift away from the other sectors and really looking at the fun- damentals of retail right now. Crump: At Weingarten, over the last several years, we've really worked on transforming our portfolio, which is mostly done. We're focused on grow- ing our core portfolio in the major metros. Urban infll type develop- ment is still a focus. Redevelopment in the REIT space has been one thing that most REITs have been focused on is where can we improve our existing, and redevelop some property and improving the existing metrics in our portfolios. George Weatherall: I run the Hous- ton ofce. We're a general brokerage, and do some development. We focus on MOBs, multifamily projects in ter- tiary markets, like in all places, Port- land, Texas. It's kind of the Baytown of Corpus Christi. And retail, I focus a lot on strip center retail in the subur- ban markets and some inner city op- portunities. Jim Murphy: We have not a lot, just a couple million feet in the Westchase District. It's kind of funny, because Westchase is known as an ofce mar- ket, and a big multifamily market, but we really do have a couple mil- lion feet of retail. We recognize that it's some older properties, so we need to bring in redevelopment as kind of our challenge right now. We're get- ting ready to put a bunch of money into Westheimer. Westheimer is Hous- ton's retail street, and we're going to put tens of millions of dollars into curb improvements to really gussy up and make Westheimer look better and work better so that we can attract some of that redevelopment efort. We see things like Whole Foods Market, which we're really delighted about, decide not just to stay in the area but to double the size of their store, which is key. One of the things that they paid attention to, and I would be interested ACQUISITION-EXPANSION • DEBT T0 EQUITY SBA - USDA - CMBS LaSalle BNS Capital Markets of Chicago 35 East Wacker Drive Suite 900 Chicago, Illinois 60601 CHARLOTTE CHICAGO ATLANTA 844-238-8538 844-238-8539 708-996-4416 People are taking a shift away from the other sectors and really looking at the fundamentals of retail right now. — Kurt Dennis, director, LMI Capital