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
54 • November 2015 • Texas Real Estate Business www.REBusinessOnline.com enced that, or for the landlords, is that your position as well? It's been dif- fcult for some of the upscale casual, where it takes them eight years to pay back, to deal with that term. Vondrak: I can speak for InvenTrust. We're okay with giving the 10-year initial terms but we limit the number of options available because the op- tions only help the tenant. We think the value of the shopping center down the road is going warrant a higher rent than what the option would be. Lestin: For me, it is new for land- lords to tell us we will give you a 10- year term with no options, or we'll give you a fve-year with only one or two options. For soft goods, it's not as big of a problem. For restaurants, it's huge. Axelrad: Speaking from experience, what we've seen is we'd opt in and give a host of options then we'll opt in to start getting exercise here in a mar- ket that is dramatically diferent, so in essence, your client is asking for a free infation hitch and not paying for any. Lestin: Even if the option is market as opposed to the pre-established. Weatherall: I think it is a symptom of the landlord market. There was a day when there used to be key fees; if you wanted to sit down and ne- gotiate, you had to write a check for $5,000 just to negotiate. We've come full circle, and it's a landlord's mar- ket, so the tenants are getting less control over real estate, unlike the old days where these power centers, the developer didn't control his own real estate. There were co-tenancy clauses, and early kick outs and occupancy. So I think that's what you've seen; it's a symptom of a landlord's market. Gaines: I think that what he is talk- ing about is symptomatic of the big REIT guys. When you hear the dia- logue in entrepreneurial circles, ver- sus REIT guys, they're talking about thinking forward. The world we live in, it's a very impulsive world. I'm doing a restaurant deal. We have so much value creation; the merchant developer model of getting the deal done with a certain restaurant from the Chicago area. The options are so far down the road; the entrepreneurial business doesn't really care about that. If we're getting a market term on term growth factor into an option, within reason, if they come in as a creditwor- thy tenant, and they say it takes three options to make our 10-year lease go for a 25-year period here, fantastic. If they say that's going to come with a 7 percent term on term rent growth, it's probably not going to work. Then we need to work on that. TREB: You have seen the market change over the last few years. Are there submarkets now that are gar- nering more interest than a few years ago? Luther: We're seeing an increase near League City. You've got a lot of heavy industrial markets out there, and then the areas that have rooftops, retail around that is going to beneft. Someone mentioned planned com- munities and land use where you can control the barriers to entry — those are desirable, as are some of the mar- kets like I mentioned before, like The Woodlands and Magnolia, for in- stance. We've been doing deals up in Conroe. Gardner: A lot of the markets he's talking about are markets that retail- ers have not been in. For them to be able to grow and capture more sales, they're having to go into these mar- kets that haven't been the sexiest, or the fullest tier ones, but there's a void for them in the market, and there are sales to be had there. There are dual income, working families, so we're seeing growth everywhere. I don't think it's any booming market, one place or the other. The Woodlands is still hot, Katy is still hot, La Porte is still hot, and Lake City is hot. It just depends on which tenant specifcally is looking to be there and who has not been there. Crump: Grand Parkway has been a game changer too. We've made some new retail notes out in the suburban markets, 59 and Grand Parkway and all the way from The Woodlands around to Katy, it's created some new territory for retailers. With that, we need some residential growth in a lot of those areas, but it will come. Weatherall: Even past that, we're in a robust market single family-wise. I think there is a three to four month supply of housing, and so the single- family developers are very active right now. I'm talking Fulshear; I'm talking Brenham. It's moving out. It's not going to be any power centers out there, but the grocers will come where the houses are there. Gaines: I think to Gerald's point on Grand Parkway, on the north side specifcally has made the northeast Houston markets come alive. King- wood, Humble and Atascocita have been sitting out on an island for a long time, and their biggest issue has always been east west mobility. You don't live in Kingwood, and get to The Woodlands easily, and the Grand Parkway is a big time game changer on that front. We have a lot of people that are talking about those places. We don't have any developments there, but Kingwood has really kind of taken a second life specifcally. TREB: Tell us a little bit about West- chase and what the eforts are there? Murphy: When you look at West- chase, you've got product that was built 30 to 40 years ago, unanchored centers along Westheimer. Wes- theimer is Houston's retail street, and you've got the Galleria on it. Huge trafc counts, great demographics, a hodge podge of retail centers, and we think there's really an opportunity to class up the public spaces, specifcally Westheimer. We think we can attract some of that new stuf in. That's go- ing to mean playing with our deed re- strictions for our mixed-use products, and our owners are eager to do that. I think you're going to see us really re- position that retail corridor. TREB: Tell us a little bit about the Westchase District. Murphy: We're a unit of govern- ment established and controlled by owners. Assessment is nine cents per square foot. It's been nine cents since 1995. We use that money for every- thing from police protection, to beau- tifcation, to marketing. Recently, we established an agreement with the city of Houston, the frst one of it's kind for an area, that will give us access to about $100 million for parks, trails and road improvements. We're already le- veraging that with some grant appli- cations that will give us some tools to really modernize everything from our infrastructure system, to our ameni- ties package. n WE ARE HERE Beaumont, TX Lead Locally, Think Globally Whether you're an owner, tenant, developer or investor with local or cross-market needs, call NAI Wheeler. You'll receive custom solutions from a market leader with deep local experience and relationships; and access to a world of market-leading NAI firms working in seamless partnership with a singular focus: You. There is a tremendous demand for retail in the Houston market right now, says David Luther of Marcus & Millichap.