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
www.REBusinessOnline.com Texas Real Estate Business • November 2015 • 47 you try anyway. TREB: Is a restaurant's 'street cred' their credit? The word of mouth buzz they create. Do you feel like that's true? Is it like a name brand? Gilliam: It can be, but at the end of the day, there are a lot of guys who operate great restaurants that have interesting food. We also try to repre- sent people who generate enough vol- ume that can aford today's rents. If there's a huge mismatch between the rents being 8 to 10 percent of the sales volume of the restaurant, and that's a proven track record, you're probably going to have an issue sooner or later. There are wonderful chefs here, but oftentimes they don't make a good match for landlords. Axelrad: There's plenty of demand for that space, and sorts itself out, also. If you have a space that's capable of taking that type of tenant, there's usually four or fve guys vying for it, so you get to pick between the hot chefs, or not as hot of a chef with more credit. Luther: I'd say from an investor standpoint, for deals that are inside the loop, these investors are not as concerned about the credit. We just sold a deal of of West Gray and it was just mom-and-pop tenants. It was a low six-cap deal, just because of the location. Maybe as you go out to some of the suburban submarkets, that sort of thing may play more of a role — certainly with a single tenant that can play a role — but there was a deal that we took to market that was right of of Memorial and it was a single-ten- ant chicken place. I can't remember the exact name of the tenant, but it was a great location of of Memorial. There were 15 ofers on this location. The tenant had about three or four years left on their lease, there wasn't much you could do there, but you're picking up a price point where, down the road, you're going to be able to do something with that building. The go- ing cap was maybe low 6s, but there's upside potential down the road. We're not seeing so much sensitivity to the credit worthiness for strong locations. TREB: What about multi-tenant? Luther: You're seeing a lot of the same thing. We just did a deal of of West Gray that was multi-tenant. We are seeing some demand for these multi-tenant retail with a good mix of credit from single-tenant because the yields become so compressed in single tenant. We're doing Auto Zones at 5.5 cap rates, and Starbucks Cofee at 5.25 percent cap rates, so with chase and yield, it's tough to fnd that in a single-tenant world. There's multi- tenant where you can have 50 to 60 percent of the tenants having some credit, and you can pick that up simi- lar to around 150 basis points higher than a single tenant. TREB: Jim, what are you seeing in the single tenant sector? Jim Gibson: On the retail side, it hasn't stopped. We hit a little bit of a speed bump on the industrial and the ofce side. The California buyers would not have dreamed of coming to Texas eight to 10 years ago, and now they're calling us every day to get into Texas. They're getting out of Califor- nia, and Texas is just a great place to be. The cap rates are just mindbog- gling on the retail side right now; 5 percent cap rates, ground leases are going sub-four caps. We've lost some deals on the ofce side. Oil and gas credits; everyone is taking them right now. It's not just domestic money coming in, the entire world has their eye on Texas right now, so it's a good place to be on the single-tenant side. Jason Gaines: We're seeing a lot on our merchant development projects, when we're developing these new fve, six, seven, eight, nine-tenants projects. We're not building in core urban markets, we're building in the green. We're building on a two-lane road, that's hopefully going to be a six-lane road in the next decade. We bank on Kroger coming in down the street. The market for that product is just insatiable, and the push back on credit is minimal. We've done things with great credit groups; a lot of our stuf is done with mom-and-pop retail with little to no balance sheet. The de- mand is there. A lot of the exit part- ners on our deals are from Canada and Mexico or a point man in LA from Chinese money. Coming from Mexico, there are a lot of stable assets here from an unstable environment. Com- ing from Canada, the exchange rate is attractive. We've seen a ton of activity in those sectors. What's really funny is that a lot of our buyers on these 100 percent leased up, brand new strip centers out in new roads, FM this and FM that, are Canadians coming from Calgary and Edmonton. They're com- ing from places that are highly vola- tile because of the oil market to buy in an oil town. They do a lot of business down here, naturally, they're just used to that Edmonton to Houston fight, and some of it comes from the fact that they do believe in the industry on a grander scale, and that it fxes it- self. They make comments to us about how Houston looks great to them, not just because of that monetary ex- change, but because they're coming to Houston because they know the oil business. TREB: Tell us more about your cen- ters. Is it a convenience type of center with fve or six tenants? Gaines: Yes. Our core products that we're putting developing are 10,000 to 25,000-square-foot centers, strip, and non-anchored. What we're trying to do is strategically put ourselves across the street from the anchored project, and convince a retailer that they're getting all the beneft of a Kroger or Walmart. For us, to ask 95 percent of what the grocery center is putting out there doesn't seem like an unrealistic proposition. Quite frankly, I do be- lieve that some of the retailers are see- ing that it's almost better to be across the street facing the Kroger than it is to be alongside the Kroger, sitting on one of the wings. TREB: Let's talk about the invest- ment market. What are you seeing in terms of buyers and sellers? What comes to market here and what even- tually sells? What's the supply like? And the demand? Luther: We've got product out there, but we could use more. Retail Available Land and Buildings 45 Miles East of Houston 45 Miles West of Beaumont City Owned Utilities Municipal Airport Trinity Valley Exposition Rodeo Arena and Fairgrounds Municipal Park with Sand Volleyball, Soccer, Softball/Baseball Fields, Playgrounds, and Water Park Magnolia Ridge Golf Course Cultural Center and Library Expedited Permitting and Zoning Foreign Trade Zone and Freeport Tax Exemption Liberty Community Development Corporation 1829 Sam Houston Liberty, TX 77575 936-336-3684 • 936-336-9846 (fax) agilliland@cityofiberty.org www.cityofiberty.org BEAUMONT HOUSTON Visit us at Booth #1633 ICSC Texas Conference The California buyers would not have dreamed of coming to Texas eight or 10 years ago, and now they're calling us every day to get into Texas. — Jim Gibson , regional director, Stan Johnson Co.