Master Planner David Craig welcomed us into his experience center which he built to sell the vision of his development to buyers, investors and city officials.
Click Play for Photos.
10 years in the making, this development is well on its way toward completion as a stand alone city, named after founder David Craig. Every site on the property is branded "the hospital at Craig Ranch", "the TPC at Craig Ranch" etc.
While the naming convention is a little off putting to some of the team, the development speaks for itself and the "Monuments" to mark the entrance to his project do serve the purpose of creating a sense of arrival. He had to accumulate a large amount of land to make this a viable development and has installed $500m worth of infrastructure into the project. This money will come out to him in a modified TIF called a 380 Tax incentive. It is basically the same as a TIF, but has far fewer restrictions on what the money gained can be used for.
The deal is that the City of Frisco does not charge him tax on the land, and will pay him back in the future from the proceeds of the 380 instrument. This I feel was a masterful piece of negotiation as he has basically bought the infrastructure from the city with their own future earnings. These earnings would of course not exist if the development did not go forward.
The development includes everything necessary for a traditional lifestyle, including hiking/biking paths, a medical district, an industrial/office district, a residential district and various amenities including health and lifestyle plus a golf course.
Mr. Craig is well connected with many different high profile sports players and has managed to brand off portions of the project as Olympic training grounds.
He has had a very hard time getting the zoning requirements for this "New Urbanism" concept wherein a downtown area is introduced into sub-urban areas. When he started there was no residential zoning at all, and now there is high density zoning that is flexible in areas to allow the city to change over time to match the market.
School districts are under Allen and Frisco Independent School Districts. McKinney, the city that this development falls in has made some deals with them to give ad-velorum tax benefits to those districts to ensure they don't drain the other cities.
The sum of it all is that this developer is trying very hard to create a place where you can enjoy the benefits of a CBD without any of the congestion, live and work in a place that is large, but small enough to seem like home and essentially never have to leave.
Mr. Craig and the City of McKinney are hopeful that this project will be a long term one and eventually turn into its own vibrant and successful city.
Friday, May 28, 2010
Aloft Apartments
This adaptive reuse in the CBD of Dallas is very interesting. They have applied for historical status on the building and have received tax credits through this process.
Click play for photos of the project
Their view was to "leave the historical things in their original condition while building in new and improved things where necessary. Bare concrete walls are a common theme in the building. An anecdote shared with us was of an older lady, not in the target demographic, who called the front desk asking why they had not finished the construction process on her room.
They have pretty good occupancy in their building but complained that the market is shopping around too much. They feel a lot of pressure with people asking for discounts ALL the time. This has driven their rental rates down to the $110 range. They would budgeted and planned to be in the $150 range on this $105k per room cost hotel. This is below their usual room cost of $135k per room, and one of the owners mentioned that they would be looking to reuse more buildings in other markets as the unique feel and lower costs make it an attractive prospect.
The hotel is designed as a loft-condo feel, with a broad range of features that appeal to 30'ish year old people. The i-Phone generation they jokingly called us. Ted, one of the owners, lived up to the name as he was poking around on his i-Phone a few times during the meeting.
They presented a short history of the building, and its usage, a highlight of which is a chute which used to run the entire way down the building to the train tracks that ran under the property. This is now a conversation piece and has been closed off despite the expression of interest in using it for a "fast escape fire safety device" by some of the team.
All in all, this project is well done and well positioned to take good advantage of the convention center and new market of younger executives.
Click play for photos of the project
Their view was to "leave the historical things in their original condition while building in new and improved things where necessary. Bare concrete walls are a common theme in the building. An anecdote shared with us was of an older lady, not in the target demographic, who called the front desk asking why they had not finished the construction process on her room.
They have pretty good occupancy in their building but complained that the market is shopping around too much. They feel a lot of pressure with people asking for discounts ALL the time. This has driven their rental rates down to the $110 range. They would budgeted and planned to be in the $150 range on this $105k per room cost hotel. This is below their usual room cost of $135k per room, and one of the owners mentioned that they would be looking to reuse more buildings in other markets as the unique feel and lower costs make it an attractive prospect.
The hotel is designed as a loft-condo feel, with a broad range of features that appeal to 30'ish year old people. The i-Phone generation they jokingly called us. Ted, one of the owners, lived up to the name as he was poking around on his i-Phone a few times during the meeting.
They presented a short history of the building, and its usage, a highlight of which is a chute which used to run the entire way down the building to the train tracks that ran under the property. This is now a conversation piece and has been closed off despite the expression of interest in using it for a "fast escape fire safety device" by some of the team.
All in all, this project is well done and well positioned to take good advantage of the convention center and new market of younger executives.
City of Dallas
Mr. Mayor and the group
It was interesting to meet with the City of Dallas. Firstly, we met with the director of the parks department, Paul Dyer, who wields much more power than you would initially think when considering the title he carries. His department is over the entire Dallas county parks, including white rock lake, all of the downtown parks and numerous other ones scattered throughout the city.
Eminent domain is one of the tools that he uses to construct new parks according to the master plan that they have invested in. There is a plan for the CBD and another for the city in general. A recent anomaly in the process is a park off of main street where the city has forced the sale of a parking site. The problem comes in where they have delayed the development to coincide with the planting season for the trees in the park. They have managed to gain $40k per month in revenues off the site in the mean time as it continues to operate. The city is not supposed to use eminent domain to raise funds so this is a source of concern for the prior owner.
If your property is too expensive for the city to afford, they will not be able to take it, an incentive to invest in more affluent areas if ever I heard one.
One project that has been launched to raise the value of the land adjacent to the parks is the new bridge park over Woodall Rodgers, a massive, one of a kind park that will span 6 acres of space, and include soil that is 4ft deep, allowing trees and larger plants to thrive. This will be a true park, the real impact of which will be to connect uptown and downtown into one larger area.
Mayor Tom Leppart was kind enough to pose for a photo with us after the time spent in the board room. He is very positive about Dallas's position in the nation with regards to growth, and green building standards. He also mentioned opportunities in the south of Dallas in areas that have traditionally been in the affordable housing price range.
Dallas is a changing city with the new trinity river project; a new bridge connecting the west side of Dallas with the CBD, the Calatrava Bridge; the University of North Texas building a new campus in the south, creating opportunity for a college town; and a growing population.
The Mayor is very progressive with these incentive and other development programs as he was the CEO of one of the larger building companies in the U.S. prior to his current office. He has an intimate understanding of the process and challenges that developers face day to day, and has taken steps to make the process easier and faster.
He was whisked away after his photo op, off to change the city for the better.
Teresa O'Donald, the director of sustainable development and construction came with many interesting ideas about the city's homeless, the economic future of the northern parts of Dallas and the contrast between responsible owners and irresponsible ones.
She mentioned the concept of "regional fair share" something which she feels the other cities' are lagging on. Many of the other cities solution to the homeless in their area is to send them to Dallas. This approach has been used recently in Hawaii with a controversial decision to provide one way air tickets to homeless people to Los Angeles. The cities around Dallas's approach to this is to limit low cost public transportation to their areas, thereby making it very hard for homeless to move around.
The future for Dallas is in redevelopment. The City has encouraged owners of vacant buildings to sell through a vigorous process of code enforcement, which typically carries a high cost. There are 40 vacant buildings downtown, 3 of which have sold under this policy. They hope to have these buildings redeveloped and offer numerous incentives.
These incentives include, Tax Increment Financing districts, Municipal Management Districts, Historic Tax Credits, Tax Abatement and others.
One innovative method of raising funds in the current economic climate is the introduction of EB-5 visa process. Traditionally this visa was one where an investor could invest $1m dollars and gain a green card. Requirements include creating 10 sustainable American jobs within 2 1/2 years. They now have reduced the investment rate to $500k per family, and have appointed a fund manager to expedite the process.
Karl Zavitkovsky is the director over this process and travels to Asia often seeking new investors for the program. The program pays back the $500k to the investor over 7 years, and is flexible in how the money is used, as equity, debt, secondary debt etc.
David Whitley is a city designer who is helping execute the new paradigm of "good design paves the way for the future." The City has shifted its focus toward design as an attraction to both commercial and residential owners and tenants in the CBD.
The City have a grand view of Dallas, and believe that we are the best city in the region, the most forward thinking in terms of green development and the best designed city. Holding 5 of the 10 top cites after the recession, this view is understandable.
Paul Dyer
David Whitley
Ms. Theresa O’Donnell
City Hall
It was interesting to meet with the City of Dallas. Firstly, we met with the director of the parks department, Paul Dyer, who wields much more power than you would initially think when considering the title he carries. His department is over the entire Dallas county parks, including white rock lake, all of the downtown parks and numerous other ones scattered throughout the city.
Eminent domain is one of the tools that he uses to construct new parks according to the master plan that they have invested in. There is a plan for the CBD and another for the city in general. A recent anomaly in the process is a park off of main street where the city has forced the sale of a parking site. The problem comes in where they have delayed the development to coincide with the planting season for the trees in the park. They have managed to gain $40k per month in revenues off the site in the mean time as it continues to operate. The city is not supposed to use eminent domain to raise funds so this is a source of concern for the prior owner.
If your property is too expensive for the city to afford, they will not be able to take it, an incentive to invest in more affluent areas if ever I heard one.
One project that has been launched to raise the value of the land adjacent to the parks is the new bridge park over Woodall Rodgers, a massive, one of a kind park that will span 6 acres of space, and include soil that is 4ft deep, allowing trees and larger plants to thrive. This will be a true park, the real impact of which will be to connect uptown and downtown into one larger area.
Mayor Tom Leppart was kind enough to pose for a photo with us after the time spent in the board room. He is very positive about Dallas's position in the nation with regards to growth, and green building standards. He also mentioned opportunities in the south of Dallas in areas that have traditionally been in the affordable housing price range.
Dallas is a changing city with the new trinity river project; a new bridge connecting the west side of Dallas with the CBD, the Calatrava Bridge; the University of North Texas building a new campus in the south, creating opportunity for a college town; and a growing population.
The Mayor is very progressive with these incentive and other development programs as he was the CEO of one of the larger building companies in the U.S. prior to his current office. He has an intimate understanding of the process and challenges that developers face day to day, and has taken steps to make the process easier and faster.
He was whisked away after his photo op, off to change the city for the better.
Teresa O'Donald, the director of sustainable development and construction came with many interesting ideas about the city's homeless, the economic future of the northern parts of Dallas and the contrast between responsible owners and irresponsible ones.
She mentioned the concept of "regional fair share" something which she feels the other cities' are lagging on. Many of the other cities solution to the homeless in their area is to send them to Dallas. This approach has been used recently in Hawaii with a controversial decision to provide one way air tickets to homeless people to Los Angeles. The cities around Dallas's approach to this is to limit low cost public transportation to their areas, thereby making it very hard for homeless to move around.
The future for Dallas is in redevelopment. The City has encouraged owners of vacant buildings to sell through a vigorous process of code enforcement, which typically carries a high cost. There are 40 vacant buildings downtown, 3 of which have sold under this policy. They hope to have these buildings redeveloped and offer numerous incentives.
These incentives include, Tax Increment Financing districts, Municipal Management Districts, Historic Tax Credits, Tax Abatement and others.
One innovative method of raising funds in the current economic climate is the introduction of EB-5 visa process. Traditionally this visa was one where an investor could invest $1m dollars and gain a green card. Requirements include creating 10 sustainable American jobs within 2 1/2 years. They now have reduced the investment rate to $500k per family, and have appointed a fund manager to expedite the process.
Karl Zavitkovsky is the director over this process and travels to Asia often seeking new investors for the program. The program pays back the $500k to the investor over 7 years, and is flexible in how the money is used, as equity, debt, secondary debt etc.
David Whitley is a city designer who is helping execute the new paradigm of "good design paves the way for the future." The City has shifted its focus toward design as an attraction to both commercial and residential owners and tenants in the CBD.
The City have a grand view of Dallas, and believe that we are the best city in the region, the most forward thinking in terms of green development and the best designed city. Holding 5 of the 10 top cites after the recession, this view is understandable.
Paul Dyer
David Whitley
Ms. Theresa O’Donnell
City Hall
CityCenter Project Houston
This project was presented to us by Brandon Houston, the 4th great grandson of Sam Houston.
Please click the link for photos of the site.
The project was developed by the midway company, he is a project manager for midway, a position of many responsibilities withing the company. The view is that they expect the project manager to lead a project from beginning through completion through, capital raising, architecture, leasing and construction. He has personally built many different project types. The only type he has not managed is hotel construction.
Midway, a company that started in Dallas has consolidated its operations to Houston, selling off assets in the height of the recent bubble. Their focus in now on development.
They act as general partner on behalf of investors, raise traditional capital from banks and pension funds among others, earn fees on the development, but take the lions share of the construction risk. They have a preferential return structure wherein the investors gain the first percentage of the upside before Midway earns.
He has noticed that it is usually the second generation of tenants that really begins to bring in the income for the investor, as the fist set are simply at pro forma levels.
Midway is not an emergent developer, they do not sell the assets that they have invested in, they build to hold and generate annual income. As such, they do not have an exit cap, but underwrite to a 10 year period.
Project
This master planned mixed use community is the first of its kind within the immediate area, is very large, spanning an apartment building, 2 office buildings, a hotel, and interspersed retail. The site was originally a mall, and came with 2 parking garages, a major boon to the development as the cost for creating this parking, around $10,000 per space was not carried by Midway. They instead designed around the existing parking structures.
Midway believes in pre-leasing a building before construction starts to lower the risk of the project. This extends the time-line for construction, but the trade off is worth it as the developer has managed to survive the recent down turn in the markets.
They have innovated with one of their tenants, Life time Athletic, a fitness facility. Midway asked them to create a new arm for their brand, one aimed at urban living instead of inserting the traditional brand, one that Midway feels is more aimed at the Sub-urban market. Life Time fitness agreed and renamed their brand to Lifetime Athletic, and changed the layout and mix of fitness equipment to more accurately reflect the market.
Another interesting innovation in the project is the usage of economies of scale in a way. The hotel and apartments share facilities with the conference space and athletic facility being shared. Hotel guests receive a day pass to Life Time Athletic when they check in.
Midway avoided the city as much as possible with regard to public money. They also decided to keep the street private to ensure that they had the ability to close the roads and host large scale events, that cover the entire 28 acres of development.
There is however a TIRZ (Tax Increment Reinvestment Zone) district that affects this site. They hope to join with another developer to lobby the city to create pedestrian linkages between the 2 sites.
The recession has a large impact on projects like this one. For instance their Debt Service Coverage Ratio (DSCR) will jump from 1.15 to 1.4 when their loan is renewed. They are confident that they can achieve this jump as leasing is going well. Their policy of pre-leasing also helps to cover this possibility.
Their market is driven by the energy corridor, with many executives from those companies staying in the hotel. Companies include: Exxon, Bp, Shell,and Haliburton.
Local executives live in the area where the average home price is $900k. This development is comparable to the Shops at Legacy or South Lake Town Center.
Occupancy is good with the offices 100% leased in one building, 70% in another both above the market rate, retail is 60% leased and residential is 72%. There are some co-tenancy clauses that are undermining the profitability of the project at the moment, but as the retail climbs above 70% occupancy, the cash-flow will be much better. They also have some rental concessions, 5 month free rent for instance. They seek a net effective base rent of $22 per square foot. They are willing to offer TI's but tend to charge this against the rent. For instance, the rent will increase if they expect to pay large TI's to a certain tenant.
This project is larger than a typical Midway project, which is in the $10m range. This project is in the $50m range. Individual investors contributed large portions of the equity. Their reputation is what he attributes their ability to raise capital too.
Sustainability
None of the buildings are LEED certified but are built to the same standards. They are a green builder but could not justify the cost from an operations saving perspective. They have found that tenants are happy to accept their word rather than a certification in most cases.
The bottom line is that this project is doing well, will in all likelihood be able to continue to meet debt service and has managed to lease up in a market where other spaces are not. This in my opinion is due to the synergistic effect of the mixed use environment working well for them. They are also able to lease above market rates as a result of this effect.
Please click the link for photos of the site.
The project was developed by the midway company, he is a project manager for midway, a position of many responsibilities withing the company. The view is that they expect the project manager to lead a project from beginning through completion through, capital raising, architecture, leasing and construction. He has personally built many different project types. The only type he has not managed is hotel construction.
Midway, a company that started in Dallas has consolidated its operations to Houston, selling off assets in the height of the recent bubble. Their focus in now on development.
They act as general partner on behalf of investors, raise traditional capital from banks and pension funds among others, earn fees on the development, but take the lions share of the construction risk. They have a preferential return structure wherein the investors gain the first percentage of the upside before Midway earns.
He has noticed that it is usually the second generation of tenants that really begins to bring in the income for the investor, as the fist set are simply at pro forma levels.
Midway is not an emergent developer, they do not sell the assets that they have invested in, they build to hold and generate annual income. As such, they do not have an exit cap, but underwrite to a 10 year period.
Project
This master planned mixed use community is the first of its kind within the immediate area, is very large, spanning an apartment building, 2 office buildings, a hotel, and interspersed retail. The site was originally a mall, and came with 2 parking garages, a major boon to the development as the cost for creating this parking, around $10,000 per space was not carried by Midway. They instead designed around the existing parking structures.
Midway believes in pre-leasing a building before construction starts to lower the risk of the project. This extends the time-line for construction, but the trade off is worth it as the developer has managed to survive the recent down turn in the markets.
They have innovated with one of their tenants, Life time Athletic, a fitness facility. Midway asked them to create a new arm for their brand, one aimed at urban living instead of inserting the traditional brand, one that Midway feels is more aimed at the Sub-urban market. Life Time fitness agreed and renamed their brand to Lifetime Athletic, and changed the layout and mix of fitness equipment to more accurately reflect the market.
Another interesting innovation in the project is the usage of economies of scale in a way. The hotel and apartments share facilities with the conference space and athletic facility being shared. Hotel guests receive a day pass to Life Time Athletic when they check in.
Midway avoided the city as much as possible with regard to public money. They also decided to keep the street private to ensure that they had the ability to close the roads and host large scale events, that cover the entire 28 acres of development.
There is however a TIRZ (Tax Increment Reinvestment Zone) district that affects this site. They hope to join with another developer to lobby the city to create pedestrian linkages between the 2 sites.
The recession has a large impact on projects like this one. For instance their Debt Service Coverage Ratio (DSCR) will jump from 1.15 to 1.4 when their loan is renewed. They are confident that they can achieve this jump as leasing is going well. Their policy of pre-leasing also helps to cover this possibility.
Their market is driven by the energy corridor, with many executives from those companies staying in the hotel. Companies include: Exxon, Bp, Shell,and Haliburton.
Local executives live in the area where the average home price is $900k. This development is comparable to the Shops at Legacy or South Lake Town Center.
Occupancy is good with the offices 100% leased in one building, 70% in another both above the market rate, retail is 60% leased and residential is 72%. There are some co-tenancy clauses that are undermining the profitability of the project at the moment, but as the retail climbs above 70% occupancy, the cash-flow will be much better. They also have some rental concessions, 5 month free rent for instance. They seek a net effective base rent of $22 per square foot. They are willing to offer TI's but tend to charge this against the rent. For instance, the rent will increase if they expect to pay large TI's to a certain tenant.
This project is larger than a typical Midway project, which is in the $10m range. This project is in the $50m range. Individual investors contributed large portions of the equity. Their reputation is what he attributes their ability to raise capital too.
Sustainability
None of the buildings are LEED certified but are built to the same standards. They are a green builder but could not justify the cost from an operations saving perspective. They have found that tenants are happy to accept their word rather than a certification in most cases.
The bottom line is that this project is doing well, will in all likelihood be able to continue to meet debt service and has managed to lease up in a market where other spaces are not. This in my opinion is due to the synergistic effect of the mixed use environment working well for them. They are also able to lease above market rates as a result of this effect.
Thursday, May 27, 2010
New Hope Housing Inc.
This not for profit organization provides permanent rental accommodation for rehabilitated homeless and destitute individuals. They do not have any debt on their properties, building in a certain robustness and immunity to market conditions, a key to their ability to provide their service in good times and bad.
Click the video to view images
Brays Crossing
The Project at Brays Crossing, owned and operated by New Hope is one such facility.
The site is located along a major highway, Gulf Freeway, and violates one of their rules. They typically look for cheap land, but in this case ended up paying more for it than they would have liked. The city asked them to rehabilitate the existing property that was in a state of disrepair and had passed its valuable economic life. However the owner ended up getting a better deal than they would have liked, but with some assistance from the city, it went ahead anyway.
The site was extremely dangerous with violent crime, drug abuse and trafficking occurring on the property.
Originally the property was used by NASA while the Johnson space center was being constructed. This private use, without handicap access has created some interesting changes to the different levels of the property. There where steps coming down from each room to a lower passage way, forcing New Hope to entertain a large cost to raise a new deck, essentially making the entire site one level.
Another challenge was the creation of a sound-wall to separate the property from the traffic on the freeway. This serves a dual function as a security control device as well. An artistic theme has also been applied to it for aesthetic purposes.
They have $6.1m in low income housing tax credits on the property. National equity fund syndicated the credits to Chase on behalf of New Hope. Many private donors have made up the shortfall in financing the rest of the $11m project.
Criminal Background Check
They do a criminal background check on everyone who comes to rent from the property, including, no arsonists, no drug trafficking, no sex offenders or violent ex-criminals are allowed to rent and live in the property.
Lease Terms
The average rental term is 27 months, with a 6 month initial agreement and monthly rates thereafter. Longer terms will be entertained if a tenant requests it. Their tenants typically do not give notice when they leave and New Hope has made the decision not to go after them for non payment as they feel it would not be worth the time spent. They have never kicked a tenant out for an inability to pay rent, but rather for other more serious reasons, of which an inability to pay rent is a symptom.
Hospice service are provided from an off site company.
CHDCO
The Community Housing Development Corp that they have is an entity registered with the Federal Government to accept funds from their home partnership investment program. This money is repaid with interest.
2821 Canal Street
This property is also under the New Hope umbrella, and has been operated for 5 years. Its design is more open, and was another redevelopment that they undertook. It has an award winning Japanese garden in the internal space that was donated to the project. Many of the decisions made regarding this site where done with regard to the future. For instance, the windows facing the neighboring property are fire glass, which was more expensive than simply building a wall between the properties, but Joy felt that there may be a chance to purchase that property in the future.
Joy, the manager of New Hope mentioned that they are currently doing around 3 project like these per year, depending on the availability of Federal financing and the turn around times of the projects. They have built 1200 housing units in Houston to date, and have plans to continue toward the 8000 units identified as necessary by a recent study.
Click the video to view images
Brays Crossing
The Project at Brays Crossing, owned and operated by New Hope is one such facility.
The site is located along a major highway, Gulf Freeway, and violates one of their rules. They typically look for cheap land, but in this case ended up paying more for it than they would have liked. The city asked them to rehabilitate the existing property that was in a state of disrepair and had passed its valuable economic life. However the owner ended up getting a better deal than they would have liked, but with some assistance from the city, it went ahead anyway.
The site was extremely dangerous with violent crime, drug abuse and trafficking occurring on the property.
Originally the property was used by NASA while the Johnson space center was being constructed. This private use, without handicap access has created some interesting changes to the different levels of the property. There where steps coming down from each room to a lower passage way, forcing New Hope to entertain a large cost to raise a new deck, essentially making the entire site one level.
Another challenge was the creation of a sound-wall to separate the property from the traffic on the freeway. This serves a dual function as a security control device as well. An artistic theme has also been applied to it for aesthetic purposes.
They have $6.1m in low income housing tax credits on the property. National equity fund syndicated the credits to Chase on behalf of New Hope. Many private donors have made up the shortfall in financing the rest of the $11m project.
Criminal Background Check
They do a criminal background check on everyone who comes to rent from the property, including, no arsonists, no drug trafficking, no sex offenders or violent ex-criminals are allowed to rent and live in the property.
Lease Terms
The average rental term is 27 months, with a 6 month initial agreement and monthly rates thereafter. Longer terms will be entertained if a tenant requests it. Their tenants typically do not give notice when they leave and New Hope has made the decision not to go after them for non payment as they feel it would not be worth the time spent. They have never kicked a tenant out for an inability to pay rent, but rather for other more serious reasons, of which an inability to pay rent is a symptom.
Hospice service are provided from an off site company.
CHDCO
The Community Housing Development Corp that they have is an entity registered with the Federal Government to accept funds from their home partnership investment program. This money is repaid with interest.
2821 Canal Street
This property is also under the New Hope umbrella, and has been operated for 5 years. Its design is more open, and was another redevelopment that they undertook. It has an award winning Japanese garden in the internal space that was donated to the project. Many of the decisions made regarding this site where done with regard to the future. For instance, the windows facing the neighboring property are fire glass, which was more expensive than simply building a wall between the properties, but Joy felt that there may be a chance to purchase that property in the future.
Joy, the manager of New Hope mentioned that they are currently doing around 3 project like these per year, depending on the availability of Federal financing and the turn around times of the projects. They have built 1200 housing units in Houston to date, and have plans to continue toward the 8000 units identified as necessary by a recent study.
The Core Apartments
Michael Morgan presented this apartment complex in Houston to us, along with Clark (Kent I had to wonder) and the leasing manager, Crissy.
Please click the video for project images.
The Core sits on a street that has a vibrant night life with many clubs and bars up and down the street. It meets a demographic of people who are just out of college and typically have not started families yet. This is not to say that there are no families in the complex, but the majority of the renters are younger, singles who appreciate the nightlife.
Personal story
He shared some of his personal story with us. His father was the only member of his family to survive the holocaust, and came to america with a 5th grade education, but still managed to build a large real estate portfolio for himself. His favorite quote is “there is no substitute for hard work and common sense.”
Michael started his first development when he was 32, with an 11 million dollar project, of which he had to front around $1 million in personal equity. Things have changed since then as he has built good relationships with his investors, a pension fund, Archstone Smith has contributed the lions share of equity for many of his deals. On this project he only had to contribute $170k for a $42m project. A good track record and reliable name is very key to Mr Morgan.
He has a view that the real estate market is cyclical, and will always be so. Thus a developer must be defensive, plan for the worst or suffer in the down cycle. Michael feels that many developers made just this mistake in the recent bust.
Vertical Integration
His company is vertically integrated which allows him some more room to exercise his considerable construction, management and leasing experience.
He takes a project all the way from construction, through initial leasing toward stabilization and into property management. His fees on the construction side and development are all set aside to cover the personal guarantees that exist on the property. This structure is carefully negotiated with the bank to risk only specific assets against the loan on the new one.
Partnership and financing structure
Michael uses a limited partnership to hold the assets that he develops. He offers a preferred return to his equity investors, above which they are 50/50 partners. this presents a balancing act for this project under the current market, as the appraised value is at break even to proved the pref return, but no upside for the developer. The asset will therefore be held and managed for a period longer, until it stabilizes and values increase to the point where a sale will generate some equity return for Michael.
Archstone Smith is only asking for 2% pref return on this project.
As a side note, it turns out that Lehman brothers bought Archstone Smith, paid 2008 level pricing for the assets in their portfolio and subsequently this deal of $22b contributed to Lehman’s downfall.
Leasing
Michael is a strong believer in getting the property in a position where drive-by traffic volumes are high. He does not invest in projects on side roads. This has helped him lease this project to its current level of occupancy at 98%.
The rooms are designed to lease, based on Michael’s experience in the market. He dictates what size rooms and how they should be laid out to his architects while leaving them some room in other areas to express creativity.
Brownfield
This site was a brownfield, and required some remediation. The clean bill of health was necessary to secure insurance for the project. The site has some wells on it that will need continued monitoring for the next decade to ensure the site does not become contaminated again. Insurance covers this unlikely event.
Market
Michael has noticed Cap rates starting to decline, a positive indicator for the market. This is only true of residential apartments, the best of class asset to have owned during the down cycle. As always, he recommends grabbing every penny you can out of your property as real estate according to his view, is flashy and sexy on the outside, but inside, every dollar of additional income counts.
Please click the video for project images.
The Core sits on a street that has a vibrant night life with many clubs and bars up and down the street. It meets a demographic of people who are just out of college and typically have not started families yet. This is not to say that there are no families in the complex, but the majority of the renters are younger, singles who appreciate the nightlife.
Personal story
He shared some of his personal story with us. His father was the only member of his family to survive the holocaust, and came to america with a 5th grade education, but still managed to build a large real estate portfolio for himself. His favorite quote is “there is no substitute for hard work and common sense.”
Michael started his first development when he was 32, with an 11 million dollar project, of which he had to front around $1 million in personal equity. Things have changed since then as he has built good relationships with his investors, a pension fund, Archstone Smith has contributed the lions share of equity for many of his deals. On this project he only had to contribute $170k for a $42m project. A good track record and reliable name is very key to Mr Morgan.
He has a view that the real estate market is cyclical, and will always be so. Thus a developer must be defensive, plan for the worst or suffer in the down cycle. Michael feels that many developers made just this mistake in the recent bust.
Vertical Integration
His company is vertically integrated which allows him some more room to exercise his considerable construction, management and leasing experience.
He takes a project all the way from construction, through initial leasing toward stabilization and into property management. His fees on the construction side and development are all set aside to cover the personal guarantees that exist on the property. This structure is carefully negotiated with the bank to risk only specific assets against the loan on the new one.
Partnership and financing structure
Michael uses a limited partnership to hold the assets that he develops. He offers a preferred return to his equity investors, above which they are 50/50 partners. this presents a balancing act for this project under the current market, as the appraised value is at break even to proved the pref return, but no upside for the developer. The asset will therefore be held and managed for a period longer, until it stabilizes and values increase to the point where a sale will generate some equity return for Michael.
Archstone Smith is only asking for 2% pref return on this project.
As a side note, it turns out that Lehman brothers bought Archstone Smith, paid 2008 level pricing for the assets in their portfolio and subsequently this deal of $22b contributed to Lehman’s downfall.
Leasing
Michael is a strong believer in getting the property in a position where drive-by traffic volumes are high. He does not invest in projects on side roads. This has helped him lease this project to its current level of occupancy at 98%.
The rooms are designed to lease, based on Michael’s experience in the market. He dictates what size rooms and how they should be laid out to his architects while leaving them some room in other areas to express creativity.
Brownfield
This site was a brownfield, and required some remediation. The clean bill of health was necessary to secure insurance for the project. The site has some wells on it that will need continued monitoring for the next decade to ensure the site does not become contaminated again. Insurance covers this unlikely event.
Market
Michael has noticed Cap rates starting to decline, a positive indicator for the market. This is only true of residential apartments, the best of class asset to have owned during the down cycle. As always, he recommends grabbing every penny you can out of your property as real estate according to his view, is flashy and sexy on the outside, but inside, every dollar of additional income counts.
West End
The Gables Development Group is behind this very large mixed use development in Houston, under Ben Peaceglock.
Please play the video for the photos of the project.
The project has a ground floor of retail; second floor flexible space, currently outfitted for retail and apartments above. The amenities include a rooftop pool, entertainment area, theater and fitness room. It is targeted toward young up and coming professionals with "adventurous shopping, distinctive dining and entertainment and luxury living"
There is quite a lot of art scattered through the property to give a sense of place as the site is simply so large. The developer made clever use of changing textures and colors to elevate this effect further.
The group managed to dodge the real estate crash with some fancy foot work. At the height of the boom, they had 15 unsolicited offers on their property. A bidding war ensued with IMG Clarion and Lehman coming out on top. They had equity from IMG and debt from Lehman. They where fortunate to sell off these assets before the crash.
There are 397 apartments with an average size of 1080 SQFT. The current market rental rate is $1.98 per square foot, making around $2138 rental income per room. They are 89% leased at the moment.
The retail is not faring so well, as they have a majority of restaurants interested but are also seeking soft good sellers for that area. The partners insisted on having a graduated risk view for the flexible space on the second floor. It goes as follows:
1) retail
2) restaurants
3) furniture stores
4) medical offices
5) offices
6) apartments
As they are unable to lease the space, they will slide down the scale from 1 to 6 until they end at apartments which he said was not desirable due to the permanent nature of the usage.
Please play the video for the photos of the project.
The project has a ground floor of retail; second floor flexible space, currently outfitted for retail and apartments above. The amenities include a rooftop pool, entertainment area, theater and fitness room. It is targeted toward young up and coming professionals with "adventurous shopping, distinctive dining and entertainment and luxury living"
There is quite a lot of art scattered through the property to give a sense of place as the site is simply so large. The developer made clever use of changing textures and colors to elevate this effect further.
The group managed to dodge the real estate crash with some fancy foot work. At the height of the boom, they had 15 unsolicited offers on their property. A bidding war ensued with IMG Clarion and Lehman coming out on top. They had equity from IMG and debt from Lehman. They where fortunate to sell off these assets before the crash.
There are 397 apartments with an average size of 1080 SQFT. The current market rental rate is $1.98 per square foot, making around $2138 rental income per room. They are 89% leased at the moment.
The retail is not faring so well, as they have a majority of restaurants interested but are also seeking soft good sellers for that area. The partners insisted on having a graduated risk view for the flexible space on the second floor. It goes as follows:
1) retail
2) restaurants
3) furniture stores
4) medical offices
5) offices
6) apartments
As they are unable to lease the space, they will slide down the scale from 1 to 6 until they end at apartments which he said was not desirable due to the permanent nature of the usage.
City of Houston
City of Houston
We met with:
Richmond Coward, Planner
Brian Crimmins, Planner variances and landscape ordinances
Ryan Albright, Planning issues and development
Marlene Gafrick, Director, New construction
Zoning
This city has a very different take on real estate to other cities. They do not have any zoning, but rather choose to control their market through building codes. This makes for a faster development environment, and allows the market to dictate where something will work instead of city planners.
For example, a sub-urban area in Houston will often end up with grocery stores popping up in their neighborhood, something that creates some concern among the residents. In this specific case, the city was approached to help the area with congestion and to ensure that the grocery store did not ignore the residents. The city simply asked the store to speak to the residents with regard to facade and some other issues and left them to it. At the end, the neighborhood was happy as they could walk to the store, and the grocery store had good access to their client base.
They have a one size fits all ordinance. An unintended consequence of this is that a drive through restaurant will still have to provide parking as if it where a traditional restaurant. They are seeking some ordinance changes to remedy this.
There are some parking code violations that have come up with this, shared driveways for instance. Often the owners will build a deck above the driveway, and end up not having enough space to allow a fire truck into the site.
An important code change is the recent adoption of area designation in the code, a variation from the one size fits all approach. The CBD is one such area.
Some interesting artifacts of not having zoning are:
Few planners can control a large area, they manage the a very large area with only 12 planners; No height restriction on Multi Family Housing other than the FAA within the urban areas, inside the loop highway 610.
This city also wants to limit the sprawl problem insofar as this is possible. They have promoted infill development in the city core by allowing maximum density.
An interesting side effect of the lack of zoning is that a place of worship might be very close to a sexually oriented business, but it generally works out as establishments that serves alcohol must be at least 1000ft from the next land use that does not.
TERS District
The city has a TIRZ district implemented to help target redevelopment into the downtown area. This is similar to a Tax Increment Financing district.
Mission
Their stated mission is to: to ensure the city remains a vibrant and growing economy. This goal is being sought after with various incentives and economic development to drive the downtown areas. The city feels that use determines lifespan for real estate, and cite a local project where a low density garden apartment was on the table for demolition only 10 years after it was constructed to raise the density.
Transit Lines
Transit core ordinance allows the same density allowances to be built along the transit lines, both existing and up coming. They have allowed the code to preempt the actual development.
Ownership
Most people "inside the loop", the area just outside of the CBD running up to the ring shaped highway that runs a full circle around the city, are renting. This student sees a future where development has been stimulated so far that people do not own their own homes, as there are only rental apartments within the city limits.
Urban Sprawl
The city seeks to reduce utility costs by keep sprawl to a minimum through increased density in the city center.
Connectivity
They are a multi-centric city. We want to promote connectivity between different areas.
Impact Fees
The city limits its fees insofar as possible to keep the cost of development low. They will typically charge extra fees for areas outside the urban area, without adequate infrastructure. For instance they charge the extra amount that the water line would have to be extended for the new development.
Deed restrictions and land ETJ
They have a very large ETJ, the area under their authority, with few areas under 2 authorities as in other cities. This speeds the development process as the developer needs to only meet one city group.
Deed restrictions can be set on a property will usually by the developer, on an at will basis.
The city is bound by law to enforce the deed restrictions. there are only 2 ways around this, finding the original deed writer and convincing him to change his mind, and state involvement. Many land owners have run afoul of this law, and the city recommends caution when purchasing property and a thorough title research before committing.
Incentives
There are numerous incentives underway, and some new ones coming, all the usual kind, historic preservation, TIFs and brown field incentives. They have extended the incentives along the rail lines to spur development along this important linkage.
on an ending note, they offered the following advice for doing business in Houston,
Always check the deed restriction, assume the worst, do an thorough due diligence, look at the flood plane, and ask the planning department for as much information as possible.
We met with:
Richmond Coward, Planner
Brian Crimmins, Planner variances and landscape ordinances
Ryan Albright, Planning issues and development
Marlene Gafrick, Director, New construction
Zoning
This city has a very different take on real estate to other cities. They do not have any zoning, but rather choose to control their market through building codes. This makes for a faster development environment, and allows the market to dictate where something will work instead of city planners.
For example, a sub-urban area in Houston will often end up with grocery stores popping up in their neighborhood, something that creates some concern among the residents. In this specific case, the city was approached to help the area with congestion and to ensure that the grocery store did not ignore the residents. The city simply asked the store to speak to the residents with regard to facade and some other issues and left them to it. At the end, the neighborhood was happy as they could walk to the store, and the grocery store had good access to their client base.
They have a one size fits all ordinance. An unintended consequence of this is that a drive through restaurant will still have to provide parking as if it where a traditional restaurant. They are seeking some ordinance changes to remedy this.
There are some parking code violations that have come up with this, shared driveways for instance. Often the owners will build a deck above the driveway, and end up not having enough space to allow a fire truck into the site.
An important code change is the recent adoption of area designation in the code, a variation from the one size fits all approach. The CBD is one such area.
Some interesting artifacts of not having zoning are:
Few planners can control a large area, they manage the a very large area with only 12 planners; No height restriction on Multi Family Housing other than the FAA within the urban areas, inside the loop highway 610.
This city also wants to limit the sprawl problem insofar as this is possible. They have promoted infill development in the city core by allowing maximum density.
An interesting side effect of the lack of zoning is that a place of worship might be very close to a sexually oriented business, but it generally works out as establishments that serves alcohol must be at least 1000ft from the next land use that does not.
TERS District
The city has a TIRZ district implemented to help target redevelopment into the downtown area. This is similar to a Tax Increment Financing district.
Mission
Their stated mission is to: to ensure the city remains a vibrant and growing economy. This goal is being sought after with various incentives and economic development to drive the downtown areas. The city feels that use determines lifespan for real estate, and cite a local project where a low density garden apartment was on the table for demolition only 10 years after it was constructed to raise the density.
Transit Lines
Transit core ordinance allows the same density allowances to be built along the transit lines, both existing and up coming. They have allowed the code to preempt the actual development.
Ownership
Most people "inside the loop", the area just outside of the CBD running up to the ring shaped highway that runs a full circle around the city, are renting. This student sees a future where development has been stimulated so far that people do not own their own homes, as there are only rental apartments within the city limits.
Urban Sprawl
The city seeks to reduce utility costs by keep sprawl to a minimum through increased density in the city center.
Connectivity
They are a multi-centric city. We want to promote connectivity between different areas.
Impact Fees
The city limits its fees insofar as possible to keep the cost of development low. They will typically charge extra fees for areas outside the urban area, without adequate infrastructure. For instance they charge the extra amount that the water line would have to be extended for the new development.
Deed restrictions and land ETJ
They have a very large ETJ, the area under their authority, with few areas under 2 authorities as in other cities. This speeds the development process as the developer needs to only meet one city group.
Deed restrictions can be set on a property will usually by the developer, on an at will basis.
The city is bound by law to enforce the deed restrictions. there are only 2 ways around this, finding the original deed writer and convincing him to change his mind, and state involvement. Many land owners have run afoul of this law, and the city recommends caution when purchasing property and a thorough title research before committing.
Incentives
There are numerous incentives underway, and some new ones coming, all the usual kind, historic preservation, TIFs and brown field incentives. They have extended the incentives along the rail lines to spur development along this important linkage.
on an ending note, they offered the following advice for doing business in Houston,
Always check the deed restriction, assume the worst, do an thorough due diligence, look at the flood plane, and ask the planning department for as much information as possible.
Marty Wender
Mr Wender is a master developer operating in San Antonio. He has been rather successful over the years with his more recent development, West Over Hills, attracting clients such as the National Security Administration, Microsoft, Sea World.
West Over Village
He gained the sea world business against much criticism from the development community and his investors as he had to take a loss on the deal. This was acceptable in his opinion as the trade off was increased traffic and ancillary services.
The National Security Agency (NSA) is one of his clients for this particular development. The contact at the NSA bought the property sight-unseen as Microsoft already had a data center there. The credibility and market research of Microsoft won Marty the business.
As the master developer he is responsible for infrastructure and permits. This ensures that the area is developed with a plan in mind and that the utilities are able to manage the load.
He has a philosophy that there are 2 kinds of people in the world, Givers and Takers. He has found in his career that the Givers always do better than the Takers, but unfortunately represent a smaller fraction of the population of business people.
Mr Wender believes that you cannot solve a problem with a negative statement, a throw back to a logic course he took in his undergraduate degree. This view has helped him to solve difficult problems by always looking for the solution instead of complaining about the problem. He promotes this positive approach.
He is a consummate salesman and had a lot of advice to offer about the topic, always pitch toward your clients needs, don't dictate to the market, work harder than everyone else. Always go the extra mile toward impressing your client. Meet their basic human needs as well as the business ones. For instance, he tells a story about a client who really enjoyed a BBQ place nearby but was unable to dine with them before his flight left. Marty personally saw to it that they had ample supply for the flight and all the crew before take off. He smiles and says, "I don't know if I got the deal because of that, but it sure didn't hurt"
He is one of those kind souls that was willing to offer of their time and energy to help the next generation of developers and real estate professionals. For this I am grateful to have made his acquaintance.
The business that he operates while small is good at outsourcing its vital roles to maintain the level of professionalism that his clients and investors expect.
Some challenges he has faced in his resent career are the following, the north side of town, where the development was going was over the recharge zone for the aquifer that feeds San Antonio, the ground while hard, was predominately limestone, which made installing utilities much more costly, and the environmentalists found some endangered species on his proposed development site.
All of this together combined to violate the 11th commandment, "time is the enemy of a real estate deal."
Mayor Garza at the time was trying to direct the market south of the city, and also created many obstacles to Mr Wender's developments in the north.
He began to look west and found the area that would become West Over Hills, an area close to 3 new economic drivers which had gone largely unnoticed by the development community. The Medical Center, USAA moved into the area with 18000 employees and University of Texas at San Antonio (UTSA) built a new campus as well.
The deal structure he created with his partner is a limited partnership with a pref. return to the equity investor. Marty believes in using assignable contracts to limit personal risk in all of his deals, although he admits that it will be hard to slip this past the banks in today's market.
Mr Wender supports numerous philanthropic initiatives in his area, among which is the issue of dyslexia in school children. He believes in empowering the "differently abled" toward their life goals. Having overcome this challenge himself, he is well aware of the challenges and rewards associated with this learning style.
Marty left us with the advice,"Be a giver, get involved in the community and find a mentor"
Please click play for the photos of Mr Wender and some of his projects
West Over Village
He gained the sea world business against much criticism from the development community and his investors as he had to take a loss on the deal. This was acceptable in his opinion as the trade off was increased traffic and ancillary services.
The National Security Agency (NSA) is one of his clients for this particular development. The contact at the NSA bought the property sight-unseen as Microsoft already had a data center there. The credibility and market research of Microsoft won Marty the business.
As the master developer he is responsible for infrastructure and permits. This ensures that the area is developed with a plan in mind and that the utilities are able to manage the load.
He has a philosophy that there are 2 kinds of people in the world, Givers and Takers. He has found in his career that the Givers always do better than the Takers, but unfortunately represent a smaller fraction of the population of business people.
Mr Wender believes that you cannot solve a problem with a negative statement, a throw back to a logic course he took in his undergraduate degree. This view has helped him to solve difficult problems by always looking for the solution instead of complaining about the problem. He promotes this positive approach.
He is a consummate salesman and had a lot of advice to offer about the topic, always pitch toward your clients needs, don't dictate to the market, work harder than everyone else. Always go the extra mile toward impressing your client. Meet their basic human needs as well as the business ones. For instance, he tells a story about a client who really enjoyed a BBQ place nearby but was unable to dine with them before his flight left. Marty personally saw to it that they had ample supply for the flight and all the crew before take off. He smiles and says, "I don't know if I got the deal because of that, but it sure didn't hurt"
He is one of those kind souls that was willing to offer of their time and energy to help the next generation of developers and real estate professionals. For this I am grateful to have made his acquaintance.
The business that he operates while small is good at outsourcing its vital roles to maintain the level of professionalism that his clients and investors expect.
Some challenges he has faced in his resent career are the following, the north side of town, where the development was going was over the recharge zone for the aquifer that feeds San Antonio, the ground while hard, was predominately limestone, which made installing utilities much more costly, and the environmentalists found some endangered species on his proposed development site.
All of this together combined to violate the 11th commandment, "time is the enemy of a real estate deal."
Mayor Garza at the time was trying to direct the market south of the city, and also created many obstacles to Mr Wender's developments in the north.
He began to look west and found the area that would become West Over Hills, an area close to 3 new economic drivers which had gone largely unnoticed by the development community. The Medical Center, USAA moved into the area with 18000 employees and University of Texas at San Antonio (UTSA) built a new campus as well.
The deal structure he created with his partner is a limited partnership with a pref. return to the equity investor. Marty believes in using assignable contracts to limit personal risk in all of his deals, although he admits that it will be hard to slip this past the banks in today's market.
Mr Wender supports numerous philanthropic initiatives in his area, among which is the issue of dyslexia in school children. He believes in empowering the "differently abled" toward their life goals. Having overcome this challenge himself, he is well aware of the challenges and rewards associated with this learning style.
Marty left us with the advice,"Be a giver, get involved in the community and find a mentor"
Please click play for the photos of Mr Wender and some of his projects
Wednesday, May 26, 2010
Alamo Architects
The owner and his assistant
This LEED Silver building is quite interesting in that it attained its LEED status by using many of the materials that where already on the site. The previous owner was using it as a furniture manufacture and storage warehouse. There was a lot of concrete on the site that the Alamo group reused as planters, conversation pieces and a wall around the parking lot. As one of the components that the United Stated Green Building Council (USGBC) measures is the weight of the wasted material, this weight saving earned them many points toward LEED.
The building is clad in steel cladding, considered to be longer life than traditional wooden or chipboard siding. Powering the office cubicles in the spaces required a cable tray for the power and data lines as the floor, one slab of concrete, was kept and reused. Much of the gates and other metal objects on the site where used in the planters for climbing plants to use. This was another weight saving toward the LEED certification.
The reason that they decided to do this project as a LEED silver one was that they felt the market was moving toward green building standards and they wanted to "walk the talk" This was their first green building, they have subsequently built many green buildings for clients.
One lesson learned was that the decision to go green if made early, during the planning phase lowers costs and frustration. They did not make the decision early enough for their own building, and feel that they would have attained a Gold rating if they had done so sooner.
The site is small enough that they did not have to include any kind of storm water detention facility. they did however include a rain water catchment barrel. This only gets 50% of the rain that falls on the building, but is supplemented with the air conditioner condensation. This is surprisingly high at 70 Gallons per day for a 150 ton unit. Many industrial units can generate much more water than one would assume. This water is used to water the plants on the site.
The net effect for them is good in terms of lowered operating costs. They enjoy 20% lower cost on utilities than their last office space despite the larger size of this site.
LEED certification pays off it would seem.
LEED silver!
Reused concrete walkway
Green space in the entry way
Rain water catchment
Parking wall - Reused concrete
The site before construction started
Cubicle siding - reused garage doors
Reused wood paneling
This LEED Silver building is quite interesting in that it attained its LEED status by using many of the materials that where already on the site. The previous owner was using it as a furniture manufacture and storage warehouse. There was a lot of concrete on the site that the Alamo group reused as planters, conversation pieces and a wall around the parking lot. As one of the components that the United Stated Green Building Council (USGBC) measures is the weight of the wasted material, this weight saving earned them many points toward LEED.
The building is clad in steel cladding, considered to be longer life than traditional wooden or chipboard siding. Powering the office cubicles in the spaces required a cable tray for the power and data lines as the floor, one slab of concrete, was kept and reused. Much of the gates and other metal objects on the site where used in the planters for climbing plants to use. This was another weight saving toward the LEED certification.
The reason that they decided to do this project as a LEED silver one was that they felt the market was moving toward green building standards and they wanted to "walk the talk" This was their first green building, they have subsequently built many green buildings for clients.
One lesson learned was that the decision to go green if made early, during the planning phase lowers costs and frustration. They did not make the decision early enough for their own building, and feel that they would have attained a Gold rating if they had done so sooner.
The site is small enough that they did not have to include any kind of storm water detention facility. they did however include a rain water catchment barrel. This only gets 50% of the rain that falls on the building, but is supplemented with the air conditioner condensation. This is surprisingly high at 70 Gallons per day for a 150 ton unit. Many industrial units can generate much more water than one would assume. This water is used to water the plants on the site.
The net effect for them is good in terms of lowered operating costs. They enjoy 20% lower cost on utilities than their last office space despite the larger size of this site.
LEED certification pays off it would seem.
LEED silver!
Reused concrete walkway
Green space in the entry way
Rain water catchment
Parking wall - Reused concrete
The site before construction started
Cubicle siding - reused garage doors
Reused wood paneling
Friedrich Lofts
The Friedrich lofts are located just across the tracks from downtown San Antonio. The building was originally used to manufacture HVAC systems for the residential and commercial market. They didn't follow a cohesive plan when they where designing the plant resulting in some strange space configurations. The original owners built adhoc buildings onto the site as they needed it, including extending the roof across some alleyways to utilize that space as well.
We met Patrick Sheer, the broker for the property, who furnished us with some detailed and interesting information about the history of the property, how the area declined with the construction of highway 281, cutting it off from downtown, the original use and current developers plans and sale price. He is asking for an ambitious $8m for this project. The current income does not support this value.
The site is well developed in certain areas into office space. There is 10000 square feet of office space at the moment. We where fortunate to tour one of the offices, which is occupied by an architecture firm. See pictures below for the specifics, but the space was well used by and large.
One issue that this project has is large industrial rooms with few walls. When the spaces are broken up into smaller sections, it becomes hard to get natural light into the majority of the useable areas.
This is one reason that the project has not continued in other areas. There was some talk about creating residential and retail in the other areas, but overcoming the lighting issues is complex, especially for the residential units.
It is in a serious state of disrepair in some places, with a portion of the roof collapsed in one room. It is not safe for public use at the moment as there are nails sticking up from the floor in one room, massive pits in the floor in another and inadequate ventilation in other areas. In short, the developed portion of the site is very clean and well designed and redeveloped with about 2 thirds of the site still needing major repair work.
The site is in a Tax Increment Financing (TIF) zone, is eligible for new market tax credits, historic tax credits and is also in a Planned Unit Development (PUD) zone. An interesting artifact of the organic way that the buildings grew around each other is that the site is quite flexible in terms of Historic tax credits, a major boon over other historic sites.
If a developer could build housing on the site, and employ those same people in another part of the site, he could claim some tax credits from the federal government under another plan aimed at minority groups.
The city asked them to park in another space as the parking area that they where using did not have sufficient ventilation. The cost of renovating this space is therefore wasted until a new usage can be found.
A final note is that this site is a brown field site with some PCB, asbestos and lead based paint that would need to be remediation.
Historical industrial elements in enterance
Another view
Architect Offices enterance
Inside the offices
Inside the offices
Parking area
Space available for construction
Space available for construction
Space available for construction
We met Patrick Sheer, the broker for the property, who furnished us with some detailed and interesting information about the history of the property, how the area declined with the construction of highway 281, cutting it off from downtown, the original use and current developers plans and sale price. He is asking for an ambitious $8m for this project. The current income does not support this value.
The site is well developed in certain areas into office space. There is 10000 square feet of office space at the moment. We where fortunate to tour one of the offices, which is occupied by an architecture firm. See pictures below for the specifics, but the space was well used by and large.
One issue that this project has is large industrial rooms with few walls. When the spaces are broken up into smaller sections, it becomes hard to get natural light into the majority of the useable areas.
This is one reason that the project has not continued in other areas. There was some talk about creating residential and retail in the other areas, but overcoming the lighting issues is complex, especially for the residential units.
It is in a serious state of disrepair in some places, with a portion of the roof collapsed in one room. It is not safe for public use at the moment as there are nails sticking up from the floor in one room, massive pits in the floor in another and inadequate ventilation in other areas. In short, the developed portion of the site is very clean and well designed and redeveloped with about 2 thirds of the site still needing major repair work.
The site is in a Tax Increment Financing (TIF) zone, is eligible for new market tax credits, historic tax credits and is also in a Planned Unit Development (PUD) zone. An interesting artifact of the organic way that the buildings grew around each other is that the site is quite flexible in terms of Historic tax credits, a major boon over other historic sites.
If a developer could build housing on the site, and employ those same people in another part of the site, he could claim some tax credits from the federal government under another plan aimed at minority groups.
The city asked them to park in another space as the parking area that they where using did not have sufficient ventilation. The cost of renovating this space is therefore wasted until a new usage can be found.
A final note is that this site is a brown field site with some PCB, asbestos and lead based paint that would need to be remediation.
Historical industrial elements in enterance
Another view
Architect Offices enterance
Inside the offices
Inside the offices
Parking area
Space available for construction
Space available for construction
Space available for construction
The Vistana
Ed Cross has been named in an article entitled "A Decade of INFLUENCE - 10 places & people that have improved Downtown San Antonio," by Bill Conroy, editor of the San Antonio Business Journal. His larger than life style and enthusiasm for sharing with students was evident in this project as we explored many different spaces with him.
This huge development in downtown San Antonio started as a parking garage of all things, and little bit by little bit it was upgraded until it now covers a full city block, has 247 apartments for rent, 4 level parking garage, storage, and a the floor is all retail space.
The project is 530,000 square feet in size.
The Apartments are loft style, well-lit, have access to a rooftop pool and fitness center, and are finished with granite and other high end materials. The ceiling height is enough to illicit the coveted "wow" response when you first walk inside.
His Tower Apartment, is the icon of the building, visible from the street level. It is a huge 3 level apartment with 360 degree balconies surrounding 2 of the levels. Being rented for $7000 per month, it was available for our viewing, a fact for which I am grateful. This apartment would be wonderful for entertainment of guests and other social functions.
The retail on the project is sadly empty at the moment, as Ed Cross and his agents seek a suitable tenant.
This project is a ways away from the norm for this developer who got started doing warehouse space as he discovered that the Tenant Improvements on retail and maintenance on office blocks have a detrimental effect on the ROI he could receive. He states "all you have to do is sweep it" in reference to the process of getting the warehouse space ready for the next tenant.
He entertained 2 mythical tenants in his planning phase, Nurse Betty, who works at the local hospital; and the knuckle Head. This young man is single, under 25 and fond of dropping large objects down the trash chute among other mischievous deeds. Having this focus allowed him to build to suit the needs of both (security and safety for Betty and unbreakable trash chutes for the other one)
The finance on this project is long term, fixed rate from a life insurance company, which has helped him weather the storm in the financial markets.
He volunteered as a guide for the DTA, a downtown association that ushered guests through various buildings in the downtown area for tourism. This he said was a great way to conduct focus groups as he would ask them after touring a building what they thought of the project.
One small issue that will be a benefit for the next project is that he overestimated the parking requirements for the the project. As such, he can use these extra spaces when he builds something new next door.
Rooftop Pool
Ed Cross show us an internal corridor - A full city block!
Inside an apartment
The Tower Apartment inside
The Tower Apartment view from the top
City of San Antonio
We met with David McGowan, Jesus Garza, Richard who stood in for Patrick Howard, Betty Feldman, one of the city's architects and Laurence Doxsey.
The key phrase I heard at this meeting was "catalytic projects." there is a prevailing meme that if the city invests in a key development for a specific area, it will generate other investment from the development community.
David McGowan, who is with the economic development arm of the city believes this, and is working with the federal government for a new 3 Million federal courthouse. He is involved with new market tax credits and HUD financing as well.
Jesus' Garza is working with Geographic Information Systems in the city. The city of San Antonio is one of the largest military training cities in the country. There are many bases around the city that act as economic generators.
Some zoning problems arise with the military from time to time regarding extraterritorial zoning, as much of their development is beyond the city limits.
His focus is to find developers who will develop in the city, under the "Inner City Reinvestment Act", which waives most if not all city fees, a saving of around 3% for the typical project.
The biggest barrier too inner city development is in the nature of their local economy. They are a tourism driven industry, and as such, hotels have traditionally been the only companies that can afford to develop along the San Antonio river walk. The per square foot cost is usually to high for other businesses to pro-forma well.
His is working with local universities and he in the King William neighborhood, in which development was sparked by artists involvement. As the artists moved in, the area became more attractive to other residential projects.
By way of incentives, they offer
1) Waives all city fees for permits(3%)
2) a Landbank for accumulating land for redevelopment
He is looking to attract business into the downtown area, among which he mentioned,tourism, military, biomedical, market for urban residential and advanced manufacturing.
As with all the cities we met with, they expressed a concern about urban sprawl with the resultant congestion and rising costs of providing services.
Betty Feldman, the city architect, spoke about one of the sites we would later visit, 1221 Broadway street, a failed project with a long history of litigation. She expressed some satisfaction that Ed Cross is going to be finishing the development, which is located immediately off the river walk.
Richard spoke about community development management as the effect of student housing on the inner city can be large as it brings in large amounts of discretionary spending in some cases.
Laurence, mentioned Mayor Harbor, who passed a resolution to change some of the green ordinance. All city buildings will follow sustainability guidelines from this point forward. The Department of Defense and the Department of Education are on board with the cities green initiatives. he mentioned that a little known fact is that LEED was started through government involvement. He has a colorful history as he worked with these original codes before coming to San Antonio.
Before coming to San Antonio, he helped Austin gain its position as the "green city" that it is today. Many of those same programs and doubtless, many more are being implemented under his direction in San Antonio now. For instance, PACE- property assessed clean energy, Retro fit ramp-ups, Efficiency and block grants of $12.9m for solar panels, $8m for advanced lighting in buildings, a tree planting program, public transportation European style with bicycles available on loan,a Green Fleet program, with 91 hybrid sedans, 30 propane trucks,comressed natural gas for 30 garbage trucks and some weatherization work.
He expects to save around 771 Megawatt of energy over the next few years of these programs.
The key phrase I heard at this meeting was "catalytic projects." there is a prevailing meme that if the city invests in a key development for a specific area, it will generate other investment from the development community.
David McGowan, who is with the economic development arm of the city believes this, and is working with the federal government for a new 3 Million federal courthouse. He is involved with new market tax credits and HUD financing as well.
Jesus' Garza is working with Geographic Information Systems in the city. The city of San Antonio is one of the largest military training cities in the country. There are many bases around the city that act as economic generators.
Some zoning problems arise with the military from time to time regarding extraterritorial zoning, as much of their development is beyond the city limits.
His focus is to find developers who will develop in the city, under the "Inner City Reinvestment Act", which waives most if not all city fees, a saving of around 3% for the typical project.
The biggest barrier too inner city development is in the nature of their local economy. They are a tourism driven industry, and as such, hotels have traditionally been the only companies that can afford to develop along the San Antonio river walk. The per square foot cost is usually to high for other businesses to pro-forma well.
His is working with local universities and he in the King William neighborhood, in which development was sparked by artists involvement. As the artists moved in, the area became more attractive to other residential projects.
By way of incentives, they offer
1) Waives all city fees for permits(3%)
2) a Landbank for accumulating land for redevelopment
He is looking to attract business into the downtown area, among which he mentioned,tourism, military, biomedical, market for urban residential and advanced manufacturing.
As with all the cities we met with, they expressed a concern about urban sprawl with the resultant congestion and rising costs of providing services.
Betty Feldman, the city architect, spoke about one of the sites we would later visit, 1221 Broadway street, a failed project with a long history of litigation. She expressed some satisfaction that Ed Cross is going to be finishing the development, which is located immediately off the river walk.
Richard spoke about community development management as the effect of student housing on the inner city can be large as it brings in large amounts of discretionary spending in some cases.
Laurence, mentioned Mayor Harbor, who passed a resolution to change some of the green ordinance. All city buildings will follow sustainability guidelines from this point forward. The Department of Defense and the Department of Education are on board with the cities green initiatives. he mentioned that a little known fact is that LEED was started through government involvement. He has a colorful history as he worked with these original codes before coming to San Antonio.
Before coming to San Antonio, he helped Austin gain its position as the "green city" that it is today. Many of those same programs and doubtless, many more are being implemented under his direction in San Antonio now. For instance, PACE- property assessed clean energy, Retro fit ramp-ups, Efficiency and block grants of $12.9m for solar panels, $8m for advanced lighting in buildings, a tree planting program, public transportation European style with bicycles available on loan,a Green Fleet program, with 91 hybrid sedans, 30 propane trucks,comressed natural gas for 30 garbage trucks and some weatherization work.
He expects to save around 771 Megawatt of energy over the next few years of these programs.
Sunday, May 23, 2010
Hill Country Galleria - Austin
This project is an example of a project that has managed to pull itself out of failure at the last moment. Low occupancy has plagued the mall (a very large open air construction, with green space and an interesting fountain out front of the leasing office) with lower cash flow than would have been expected at the outset.
This retail project was built in an area that had a population too small to support it's size. There are 100 000 people in the capture area where traditionally there would be 150K needed to support a project of this size. However, the demographic in the area typically has a higher net worth than demographics of other areas. This fact spurred the developer to risk doing the project.
The recession presented a real challenge to the project with occupancy still recovering to a more stable level. Some of the stores have rent concessions, which will remain in effect until the occupancy of the center increases to above 70%. For instance, the Barnes and Noble franchise is currently listed as the 4th best of it's peers in the surrounding area, but does not have to pay a percentage of it's sales to the galleria as per the lease agreement.
This open air mall does not have a typical anchor store at the moment, which the developer feels will be key to creating better traffic flow into the project. They are seeking an "organic" grocery store such as Whole Foods or Central Market at the moment too meet this demand.
The project is funded mostly by high net worth individuals who are sitting tight in the hopes of seeing a return. This does not seem too far off as the occupancy is approaching the 70% barrier, above which the mall will earn far more. The smaller retailers are experiencing slow sales at the moment, but are also surviving.
Their typical lease times are 5 years with a 3,4 or 5 year extension option after the initial period.
After the visit, I expect that the worst is behind this project.
Nighttime at the Mall
Some of the shops
Seaholm Power
This project, which was an old electric plant, has been underway for 5 years when we visited it. It will be a mixed use, condo, hotel and retail area when it is completed.
Clean up has been very intense on this 7-acre brownfield site. It was an hydro-electric power plant, with water from the Colorado River. There where 4 turbines, long since removed that weighed a whopping 70 tons each, and where mounted on separate concrete platforms. These have yet to be removed and represent a significant cost. The 2 boiler rooms looked to be around 4 stories high, and have a fascinating industrial design to them.
Some other necessary remediation: PCB's, used to raise the boiling temperature of oil; and asbestos, in many of the floors and windows.
The finance used a $110 million construction loan with $40 million of equity. The owner hopes to open in a few years, as a unique entertainment and mixed use venue. He has saved the original crane, which runs the length of the building; the original facade', which will be cleaned and left in its existing condition; and will open the rest of the multi story space up to natural light at that time.
The long term nature of the remediation on this site (5 years and still not done) and the changing capital markets make this project quite challenging. The owner mentioned that there will be some historic tax credits to smooth the way however. These are essentially a tax credit that can be taken by an investor in the project, and are usually sold off at 80c on the dollar to help cashflow.
This site is very exciting as its location in the heart of downtown Austin, and its historic nature will be wonderful for the city.
The owner lectures us on some of the finer points on the project
Project Illustration
One of the boiler rooms
Turbine platform - still to be removed
The historic facade'
This project, which was an old electric plant, has been underway for 5 years when we visited it. It will be a mixed use, condo, hotel and retail area when it is completed.
Clean up has been very intense on this 7-acre brownfield site. It was an hydro-electric power plant, with water from the Colorado River. There where 4 turbines, long since removed that weighed a whopping 70 tons each, and where mounted on separate concrete platforms. These have yet to be removed and represent a significant cost. The 2 boiler rooms looked to be around 4 stories high, and have a fascinating industrial design to them.
Some other necessary remediation: PCB's, used to raise the boiling temperature of oil; and asbestos, in many of the floors and windows.
The finance used a $110 million construction loan with $40 million of equity. The owner hopes to open in a few years, as a unique entertainment and mixed use venue. He has saved the original crane, which runs the length of the building; the original facade', which will be cleaned and left in its existing condition; and will open the rest of the multi story space up to natural light at that time.
The long term nature of the remediation on this site (5 years and still not done) and the changing capital markets make this project quite challenging. The owner mentioned that there will be some historic tax credits to smooth the way however. These are essentially a tax credit that can be taken by an investor in the project, and are usually sold off at 80c on the dollar to help cashflow.
This site is very exciting as its location in the heart of downtown Austin, and its historic nature will be wonderful for the city.
The owner lectures us on some of the finer points on the project
Project Illustration
One of the boiler rooms
Turbine platform - still to be removed
The historic facade'
Tuesday, May 18, 2010
Austin
LEED Platinum Ronald MacDonald house in Austin was a modern marvel. The designers modeled the sun's progress over the project to determine optimum shade placement for structural elements, offer pressurized rooms that never share air with another patients' room, solar panels to aid with lowering electric bills, 10 inch deep planters on the roof areas to absorb and cool the suns rays, low volatility paint and glues meant the building never had a typical building site smell, and to take the cake, monitored the humidity in the project during construction to ensure mold was unable to form. This Platinum LEED project is a pleasure to visit and meets the statement "the building itself must be part of the healing process."
The house is located close to a childrens' hospital and offers a place for parents of sickly children to stay close-by. Large windows in all rooms allow a direct visual connection with the hospital helping parents feel more connected in their trying time.
Ken, the CEO stated that they recovered the costs of the green rating within 2 years of opening as their operating costs are 60% lower than in a traditional building.
I can see no reason for this project to remain the exception instead of the norm for commercial projects of all kinds.
A view of the childrens' hospital from the Macdonald House.
Next we looked at the Meuller Project located a stonesthrow from the hospital. This master planned community has benifited from clever negotiations with the city as they hold the rights to purchase the land but do not have a tax cost in the meantime. When they find a buyer for a lot, they sell it to a developer who must follow the guidelines for the community. The master developer makes a 15% markup on the property.
Many of their developers and builders are green builders and maintain at least a 3 star rating under the Austin Green Building rating system. The community offers many running trails and outdoor spaces to mitigate the effect of zero lot line housing.
This is an interesting project as it seems the master developer has low costs for controlling such a large development with the ability to wait out the unfavorable market cycles.
It seems to me that many of the projects we have seen so far that have been successful have found an interesting and unique way to wait out the market cycle. I expect the rest of the developers have not faired so well.
The Mueller Master Planned Development
Monday, May 17, 2010
City of Austin, The Austonian
Today we met with the City of Austin's Fred Evans, Economic Growth and Redevelopment, Christopher Johnson, the Head of Development Assistance, Michael Knox, Downtown Economic Development, and Richard Morgen, from Austin Green Energy Building.
We Learned that the City of Austin, has an interesting approach to development, with many of their projects having a Green requirement and co-operation from the development community. There are a variety of tax incentives and offerings available and a "one stop shop" to aid developers, new and experienced alike, to work through the development process.
The city has a drive to move development toward downtown to maximize the usage of existing infrastructure. They also have some affordable housing programs to keep the city from gentrifying. SMART Housing for example offers assistance on down payments for qualifying buyers.
After lunch we met with Terry Mitchell who has been involved with the new Austonian project. This extreme luxury high rise is positioned with the concepts of Convenience, downtown location, Luxury, all the best and newest amenities including: theater, fitness room located on the top floor, entertainment area, pool table, swimming pool and some trees planted on the 10th floor. The project has an intentional air of exclusivity, for instance, Governor Rick Perry was asked to obtain a residents invitation to make use of their entertainment facilities for a recent function. The elevator only stops on the floor where your apartment is located, helping with security and adding to the sense of exclusivity.
As one of the survivors of the recent financial meltdown, this project is astounding. I am glad to see that it has continued to sell and am confident that this location has become and will continue to be an iconic structure in Austin.
We Learned that the City of Austin, has an interesting approach to development, with many of their projects having a Green requirement and co-operation from the development community. There are a variety of tax incentives and offerings available and a "one stop shop" to aid developers, new and experienced alike, to work through the development process.
The city has a drive to move development toward downtown to maximize the usage of existing infrastructure. They also have some affordable housing programs to keep the city from gentrifying. SMART Housing for example offers assistance on down payments for qualifying buyers.
After lunch we met with Terry Mitchell who has been involved with the new Austonian project. This extreme luxury high rise is positioned with the concepts of Convenience, downtown location, Luxury, all the best and newest amenities including: theater, fitness room located on the top floor, entertainment area, pool table, swimming pool and some trees planted on the 10th floor. The project has an intentional air of exclusivity, for instance, Governor Rick Perry was asked to obtain a residents invitation to make use of their entertainment facilities for a recent function. The elevator only stops on the floor where your apartment is located, helping with security and adding to the sense of exclusivity.
As one of the survivors of the recent financial meltdown, this project is astounding. I am glad to see that it has continued to sell and am confident that this location has become and will continue to be an iconic structure in Austin.
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