2 Real Estate Vets Launch Own Firm In Houston
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Two experienced real estate brokers are placing a bet on themselves.
Nate Newman and Logan Kelly, formerly of Marcus & Millichap, have launched their own brokerage firm, Newman Kelly Real Estate Investment Services. The duo will specialize in the sale and development of retail, office and industrial property in Houston.
"You get to a point where you want to be a part of building something from the ground up that reflects your own DNA," Newman said.
Establishing his own firm has been the ultimate goal for Newman since he got into the business over a decade ago. In 2014, he began Newman Development Corp., which has developed three retail build-to-suits, one medical office building and one large-scale mixed-use development of 107 acres.
"Real estate is generational wealth because you can pass it on from generation to generation," Newman said. "It is just a great way to to be able to preserve wealth."
Newman's career started at the beginning of the Great Recession in 2007. He said that period taught him valuable lessons in humility, determination and hustle. He joined Marcus & Millichap in 2013 and opened The Woodlands office. He sold more than $300M in property value with an average final price of 96.37% of list price.
Kelly served as an investment analyst at LMI Capital. He closed over $150M in debt from conduit, agency and bank lenders. In 2015, Kelly went to work with Newman at Marcus & Millichap. Together, they closed on $50M of retail, office and industrial assets.
"It was a good time to pull the rip cord and go out on our own," Kelly said. "The market has been great so far. We know a lot of people: buyers and sellers. And, we built up enough relationships throughout the city."
Since venturing out earlier this year, Newman Kelly has sold over 600K SF of investment property totaling $52K in value. The team expects to transact $100M in asset value, comprising over 1M SF, by 2020.
Newman Kelly recently sold a Class-B, 50K SF office building in Northwest Houston.
The landlord has owned the asset for about 30 years and it needs to be renovated, Kelly said. However, the lower price-per-foot and the higher yield made the deal more attractive.
Kelly said he received three offers in a month and closed within 90 days of the listing, selling to a local investor.
It is hard to sell older office product in a soft market, Kelly said. He made a lot of cold calls and walked investors through their concerns.
Houston’s office market has been slow to recover from the 2014 energy downturn. Citywide availability was at 25.9% for Q2 and the Northwest submarket posted 25.4% availability, according to NAI Partners data.
"It is really a down office market right now, especially in the Houston suburbs," Kelly said. "Investors are less excited about that asset class."
Other than the sluggish office market, all property types are in high performance mode.
Faced with rising land and development costs, developers are paying top dollar for in-demand land sites and then asking for top-of-market rents. Newman is being cautious about deal selection amid this froth.
"You don't leave yourself a lot of wiggle room if the market moves," Newman said. "I have the ability to pass on deals because development is not our primary source of revenue."
Newman is interested in nabbing larger tracts of land.
In 2017, he acquired 105 acres adjacent to a soon-to-be H-E-B in Magnolia, an emerging town in Montgomery County.
He said he has been incrementally adding value through site engineering and the creation of a Municipal Utility District, which can authorize a tax to provide water, sewage, drainage and other utility-related services within the MUD boundaries.
Newman plans to develop a mix of uses on the site. He plans to sell 100 acres to a homebuilder to develop 134 single-family residences and use the remainder for multifamily and retail development. He didn't disclose the construction timeline.
Newman Development Corp. is also underway on a 150K SF industrial building on a 7.5-acre tract in The Woodlands. The mature submarket lacked product for service-oriented businesses that required both office and warehouse space, Newman said.
Woodlands Ridge Business Park will be geared to smaller companies, averaging 10K SF. Newman said ideal tenants include HVAC, plumbers and distribution, as well as experiential retail concepts such as gymnastics, karate and cheerleading. Construction will start in September and the project will deliver in a year.
Newman said he is willing to pass on a development project if there is too much risk. He puts down his own cash and relies on equity partners for Newman Development Corp.
"It is disingenuous to raise 100% equity," he said. "I have always been the type of person to have skin in the game."