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July 18, 2014
Net Leased Sales to Accelerate?
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Net leased properties have been wildly popular with investors lately, with double digit increases in investment sales. (Net leased and tightly-tailored suits are all the rage right now.) And yet there are still transactions waiting on the sidelines.
J. Gaut, who just joined Stan Johnson Co as director, tells us his firm's net leased investment sales business is up 21% from 2013. And that was already a record year, with $3B in sales compared to $8B total in SJC's previous 20 years. (You need to write in these record books with a light pencil at this point.) He tells us lots of buyers are drawn to the sector's return on investment, absence of landlord responsibility, and long-term leases (which means no future TI, lease fees, etc). REITs, in particular, have been snapping up packages of NNN deals; they like the ability to underwrite the tenants' operations and credit standing on multiple properties. J specializes in 1031 exchanges, which he says are still the go-to vehicle for private investors. (And he's targeting O&G investors who want to exchange into net leased investments.)
Cap rates are at an all-time low, making it a perfect time to sell. And yet, J says some sellers are reluctant to pull the trigger, as they don't know what they'd do with the cash. (It's hard to give up 5% to 7% income stream, and buying a 1% CD has no appeal.) His answer: Buy another property and get more term and a new depreciation schedule. SJC just closed a big deal on three FedExproperties for nearly $50M and has several properties for sale in the $1.5M to $3M range. You should probably go introduce yourself to J—although he's a fourth-generation real estate pro with 30 years in the biz, he's a newbie to Houston.
Westchase Construction Update
We're continuing our construction overview series with Westchase, a booming submarket with 3M SF of office space and 400 luxury apartment and hotel suites underway. The largest is Phillips 66's new HQ. Five tower cranes are working hard on its 14-acre parcel on the Sam Houston Tollway north of Westheimer. The 1.1M SF complex broke ground in November and will include several office, garage, amenities, and conference buildings. It's slated to deliver in 2016.
Just across the way, BMS's Millennium Tower II is in its early stages. A second tower crane has been erected, and the 417k SF building is now three floors above ground. Its design team includes Gensler, DE Harvey, and Oakmont Group. The building will deliver in early 2016, 34 years after Millennium Tower I. (Weird coincidence note: That crane you saw out J. Gaul's window was this one.)
Two BriarLake Plaza (left) is already substantially completed, and tenants (including Samsung Engineering, which preleased the top six floors) are moving in this December. The 19-story, 332k SF structure wraps up development of that two-building campus, decades after the first asset was built. Owner TIER REIT brought back the same design team, many of whom happen to HQ in the Westchase District (Brown & Gay, Cardno Haynes Whaley, Datavox, and DE Harvey Builders).
Clarion Partners has two projects underway in Westchase. Westchase Park II has topped out and is on schedule to open this December, wrapping up development of this campus. The six-story structure designed by Ziegler Cooper will connect to existing Westchase Park I via an 8,000 SF amenities building. Clarion's also building Two Oak Park, which will be occupied by CGG Veritas. That 108k SF building joins One Oak Park to complete a two-building campus totaling 310k SF. (Is anyone else noticing a trend here?) It's nearly done—CGG gets to move in late September.
TownePlace Suites by Marriott is gearing up to open the first week of August, two weeks ahead of schedule. The 121-room hotel, near the intersection of Sam Houston and Westpark tollways, is aimed at extended-stay biz travelers. It's owned and managed by Propel Management. For more permanent stays, The Heights at Westchase has broken ground on the Sam just south of Richmond. It'll deliver 265 one- and two-bedroom apartments in June 2015. It's being developed by Worthing Companies and is a wrap or “Texas donut” design (units wrap around an interior garage) to increase density.
Chambers Street Expands Building
Here's one way to accommodate an expanding tenant—build an addition. Chambers Street Properties COO Philip Kianka says his firm is building two stories (47k SF) onto its 90k SF building on Colonial Parkway in Katy for tenant Det Norske Veritas. It's also adding a new four-story parking deck adjacent. Upon completion next summer, DNV will consolidate its operations, bringing 300 more employees to the Katy property. (It'll roll into a 10-year lease there for the total 137k SF.) Like the existing space, the expansion floors will be LEED Gold. Chambers Street will oversee the GC services itself. DNV was repped by Jackson Cooksey's Andy Iversen, Sheryl Crutchfield, and Audrey Ausburn.
Don't Miss Our Seniors Housing Summit!
As the population ages, demand for seniors housing is skyrocketing. That's playing out in a flurry of development in Houston. Thinking of getting in the game? Check out Bisnow'sHoustonSeniors Housing Summit on July 22, where expert panelists will discuss how new health insurance mandates are impacting property values and seniors housing investments, how to find new financing, and other hot button issues. (Like just how many noodles your community pool will need.) Register now and we'll see you there!
Do Developers Charge Development Fees?
Bisnow's exclusive, new 150-page Executive Research Report on Capital Structures tells all. It finds that, in addition to promotes, 40% of developers earn an acquisition fee as part of their deals. In the slide here, you can see what percentage of developers take on average on all kinds of fees, from property management to leasing. To see over 100 slides of analysis illustrating how investors and developers are investing and raising capital, we invite you to purchase our exceptional new research report here.
Vidalia onions throughout the world are grown solely in Georgia. Is that what Scarlett meant when she said she'd never go hungry again? Send your thoughts to Catie Dixon, firstname.lastname@example.org.