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June 22, 2010
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LEADING THE WAY
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| Thank you, Houston. It was great to see so many of you at our event this morning. More on that tomorrow. If you have suggestions of future topics and panelists, feel free to ping Michael@Bisnow.com. |
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| The 33-story Royalton at River Oaks is aptly named—the 461k SF condo property is capitalizing on nearby commercial development and claiming a king’s share of the market. |
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| Cotton Properties owned by Stefanie Cotton sold 13 of the building’s 253 units in Q1, representing 25% of the mid- to high-rise condo market share in Houston over that period. The property has gone through a number of ownership transfers in the past five years, the last of which was in March ’07, Stefanie tells us. The owner at that point was given the option to refinance or give the property back to the bank. Although no foreclosure took place, a Canadian bank now owns the facility. Stefanie has a history with the property—she was a sales agent in 2006 when the Royalton converted from apartments to condos. She left in ’08, started Cotton Properties, and, when she got the inside scoop about the bank takeover, jumped in and requested to handle exclusive sales and marketing. |
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| The Royalton was completed in Dec ’02 on the 2.7-acre site of the historic Gulf Publishing Building. Architects Steinberg Design Collaborative, Ambrose McEnany and House Architects preserved the original porte-cochere. Stefanie says her prices are steadily rising, from $219/SF in ’09 to $230/SF a couple months ago. When she took over the property, there were 88 available condos with a total value of $37M. Her goal: sell $20M this year. At the end of June, she’ll be close to $10M. Stefanie is involved in other commercial development, two restaurants in Midtown, and is negotiating a building for a hotel downtown. |
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| Stefanie thinks planned commercial development nearby is a major selling point. Whole Foods broke ground one block away on a 40k SF facility in May, and GID Urban Development has planned a mixed-use development called Regent Square, which is marketing office space now but is likely on hold until tenants are secured, she says. We chatted with market expert BoyarMiller chairman Bill Boyar about the significance of this development. He tells us typically residential development drives commercial, but there is often a period of infill after a recession, which leads to the reverse. Bill thinks the situation at the Royalton is a prime example of post-recession infill and says the Whole Foods is acting as a catalyst to push the area ahead of the curve (he agrees Stefanie’s strong sales and increased pricing are unseen anywhere else in Houston). |
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| Bill believes Whole Foods is creating a neighborhood and driving up sales at the condos. He thinks the company is so confident in its brand that it can build anywhere (unlike most retailers that go to specific demographics/areas) and create a community around it. Bill saw Whole Foods do the same thing in Austin; the area around 6th and Lamar exploded after the grocery opened. He says Stefanie’s increase in price is indicative that values have bottomed out, prime time for an infill explosion. His prediction: Growth will slow in the suburbs (Katy, The Woodlands, etc.) in upcoming months as people take advantage of low pricing near downtown. |
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| TWO'S A CROWD, BUT ONE'S A PROFIT |
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| In the retail investment sales world, single-tenant properties have been tops, according to Marcus & Millichap’s Retail Market Update. Single-tenant sales velocity climbed 11% last year; the majority of investors were local players. The median price jumped 28% to $239/SF in the most recent 12-month period, largely because of a shift in buyer focus. Sales of fast-food restaurants, which typically trade at elevated PSF prices, tripled last year. Although overall cap rates compressed to the high-7% range as more fast-food restaurants changed hands, first-year yields across most property types have inched higher in the last year. Currently, cap rates average in the low-8% range. Look for less single-tenant deals this year since (people started asking what's in a McRib?) owners remain hesitant to list assets due to the dearth of 1031-exchange opportunities and the volatility in other investment arenas. |
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| THIS MORNING'S EVENT |
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| Though there's a full write-up coming tomorrow, we wanted to share a quick pic from the Breakfast & Schmooze this morning at the JW Marriott, featuring local honchos dishing on capital markets. All these people standing may look like it was the schmooze part of the program, but actually it was just the crowded standing room situation on the perimeter as panelists talked. We now believe NCAA is the only 4-letter word more popular than CMBS. |
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| Please send story ideas to Catie Brubaker, catie@bisnow.com. |
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This newsletter is a journalistic news source which accepts no payment for featured interviews. It is supported by conventional advertisers clearly identified in the right hand column. You have been selected to receive it either through prior contact or professional association. If you have received it in error, please accept our apologies and unsubscribe at bottom of the newsletter. © 2010, Bisnow on Business, Inc., 1323 Connecticut Avenue, NW Washington, DC 20036. All rights reserved.
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