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Popularity Pushing Rents And Land Prices In EaDo, Developers Warn Of The Real Estate Implications

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The popularity of East Downtown is sharply increasing the price to do business in the popular arts and entertainment district. Many business and property owners worry that the rising cost will price businesses out, stifle real estate expansion and reduce the cultural and artistic flair of the neighborhood.    

"EaDo is a lot like Houston," Method Architecture Managing Partner Jake Donaldson said during the Future of EaDo and East End District event in Houston. "It has an underdog reputation. People don't really get it until they get here. It grows on you over time."

East Downtown Houston
East Downtown Houston

More than a decade ago, a new crop of property developers and owners began to step into EaDo, a neighborhood stacked with streets of dated industrial buildings. In 2011, Houston announced the construction of the BBVA Compass Stadium in EaDo, which cemented it as an emerging commercial district.

Many of the best professional sports brands spur economic development and transform their local communities, said Houston Dynamo President John Walker, who is also the former president of the NBA Memphis Grizzlies. The Memphis Grizzlies' stadium anchors that city's Beale Street. 

Walker said the fan experience starts and ends outside: Fans patronize nearby restaurants and retail and grab dinner or drinks at the local establishments. He pointed to Boston and Chicago as cities that have capitalized on sports entertainment to revamp neighborhoods. 

The plan for EaDo is the same. 

Popularity Pushing Rents And Land Prices In EaDo, Developers Warn Of The Real Estate Implications
GSD Construction's Emily Arbuckle, Agricole Hospitality's Ryan Pera, American Institute of Steel Construction's Alex Morales, METHODarchitecture's Jake Donaldson, Houston Dynamo's John Walker, 8th Wonder Brewery & Distillery's Ryan Soroka and Lovett Commercial's Kirby Liu discuss trends at the Future of EaDo and East End event in Houston.

Over the last few years, developers have transformed abandoned warehouses into new creative uses, including breweries, entertainment ventures, restaurants, creative office and residential communities.

Lower land prices and rental rates made EaDo appealing to many, 8th Wonder Brewery President and co-founder Ryan Soroka said. A few months before the BBVA Compass announcement in 2011, the brewery agreed to a five-year lease for a 1940s warehouse at Polk and Hutchins streets. It opened two years later. 

"We were convinced to sign the scariest piece of paper in our lives," he said. "There was no one around us. We were in the shadow of the skyline. We knew there was an opportunity in this neighborhood. But, no one was hanging out over here."   

The move was "blind, dumb luck," Soroka said. Today, 8th Wonder is bursting at the seams, operating 50K SF across four buildings in EaDo. A future plan is to get under one roof and stay in EaDo, he said. 

Skyrocketing prices can suppress longtime business owners and halt commercial development, Soroka said. The future viability and expansion of EaDo will depend on pricing. 

Popularity Pushing Rents And Land Prices In EaDo, Developers Warn Of The Real Estate Implications
Munsch Hardt's Bob Hancock, Denenburg Interests' David Denenburg, Metropolitan Transit Authority of Harris County's Carrin Patman, Marquette Cos.' Darren Sloniger, Midway's David Hightower, Dakota Enterprises' Rick Guttman and Kaldis Development Interests' Andrew Kaldis

Soroka said new nearby businesses pay three times what he pays in rent. Those price hikes are not sustainable for businesses and a community to thrive, he said. 

"As soon as you start to price us out, we lose the charm and character of the neighborhood," Soroka said. "To plant seeds of long-term health and sustainability ... moderate rent rates would help keep a broad spectrum of people, retail and businesses in the neighborhood."   

This trend is happening across the U.S., Lovett Commercial Director Kirby Lu said. Many owners on Austin's Sixth Street, a downtown nightlife district, have been forced to shutter their businesses due to rising rents, he said. A number of those Austin business owners are considering EaDo as their next stop. 

Lovett Commercial has a slow-moving infill redevelopment on Polk Street and Emancipation Avenue. The former Houston Post building will feature a convenience store and an entertainment component, Lu told Bisnow. 

Previously released marketing material suggested the project would include a grocery store, a pharmacy and a café. After three years of discussion, the retailer pulled out of the deal, saying the area needed more residents, Lu said.  

Densification is like the chicken-and-egg phenomenon: each project needs residents or customers, but no one is coming if there is nothing to come to. The future expansion for EaDo must include more residential developments, a full-service grocery store, multilevel parking and creative office within a pedestrian-friendly environment, the panelists said. 

"That is the price of success," Walker said. "When you have something that people want, it becomes so attractive that there is pricing pressure."