'Cheaper If We Don't Have A Building': Demolition In Demand In Houston

Grant Mackay Demolition Co. is tearing down a five-story office building at 5100 Westheimer Road after demolishing a neighboring office building last year.

The jobs at 5100 and 5050 Westheimer, the four-story office building formerly known as the Stanford Financial Building, are representative of the steady demand for private demolition services in the Houston area in recent years, Grant Mackay Demolition estimator Braden Keith said. But there is seemingly more demand than capital available for demolition jobs.

“There's tons of buildings like that in the city of Houston that need to be torn down that haven't been torn down,” Keith said. 

Houston has one of the highest office vacancy rates in the country, at 26.8% in the first quarter of this year, according to JLL. This is often attributed to consistently vacant space largely concentrated in older, outdated, not well-located — or obsolete — office buildings.

There are numerous vacant buildings throughout Houston for which demolition isn’t an option because of outstanding debt and lenders with no desire to take ownership, Evtex Cos. CEO Joe Evans said. Evans manages 5100 Westheimer on behalf of its Hong Kong-based owner, who has owned the property for more than 30 years. 

The building, also known as the Halbouty Center, was an ideal candidate for demolition because it is debt-free and in a prime location, Evans said. 

“I finally told my owner, ‘We can do this cheaper if we don't have a building on here,’” he said. “‘I don't have any cost, and all we're doing is paying taxes on the land. It's a lot cheaper than trying to maintain this building.’” 

That conversation followed years of plans to sell the property. Built in 1973, the 109K SF building gradually became less valuable than the land it sat on, which is directly across Westheimer from The Galleria. 

The current appraised value of the property is $9.3M, with the land value accounting for $7M of that. The land value has exceeded the building value since at least 2017, according to records from the Harris Central Appraisal District. 

The owner explored selling the property to a developer, and they reviewed design plans for high-rise buildings, Evans said. In the meantime, they nonrenewed tenants to reduce occupancy. 

Then, the market “fell apart” and sale plans fell through. When they tried to lease the building back up to build cash flow, the pandemic came along and fundamentally changed demand for office space.

“Covid is probably the one that really put the nail in the coffin,” Evans said.

Keeping the building up to code became a financial burden. Demolishing the building costs about the same as one year of maintaining it, he said. 

The owner has no immediate plans to sell and no interest in redeveloping the property, but it’s cheaper and easier to maintain an empty lot until the ideal sale opportunity comes along, Evans said.

“We'll have a vacant property, and when the market's right, we’ll sell it,” he said.

Plans for the lot across McCue Road at 5050 Westheimer remain unclear, as Bisnow's attempts to reach the property owner were unsuccessful. On the other side of 5050 is the former Grand Lux Cafe, a 21-year Houston staple that permanently closed in January.

That 13K SF restaurant is available for lease, according to Kimco Realty's website. In the same shopping center, Kimco is redeveloping a two-story furniture store for an Eataly restaurant.

Along with 5050 and 5100 Westheimer, Grant Mackay Demolition also demolished the 1M SF former Fluor office campus in Sugar Land over the past year and is demolishing a parking structure for the George R. Brown Convention Center renovation project, Keith said.

Public sector work keeps the company busy when private demand is limited. High interest rates make some demolition jobs hard to pencil. 

“People always want to know, ‘I love this property, I hate this building. What's it going to cost to get rid of it?’” Keith said. “We’ll give them some sort of quick-plug budget number. Sometimes it helps them make a decision to purchase, sometimes they go, ‘No way.’” 

Keith sees a high concentration of near-vacant or empty buildings, mainly Class-B and Class-C offices off Westheimer and in Sharpstown, that could come down. But as a demolition guy, he doesn't question the motivations behind the jobs. 

“Buildings that you see empty, most of them have either gone back to a lender or the lenders don't really want them back,” Evans said. “So they're in trouble in this city, and they don't have that option.”