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High-profile projects in Houston’s Inner Loop are aiming to change the perception of the city’s epic sprawl, the people behind some of Houston’s hottest projects told attendees at Bisnow’s HTX Major Projects event.

“We’re thinking many decades in the future,” McCord Development President Ryan McCord said. “We’re trying to put our finger on why Houston is a lifestyle city. We have no mountains, no beaches. What’s Houston’s intangible? Access to opportunity. There’s something unique and cool about Houston, it’s a little gritty.”
McCord, whose Generation Park master-planned development spans roughly 5,600 acres, has been a passionate advocate for the Bayou City, pitching directly to Jeff Bezos during Amazon’s HQ2 search. “One of the central things about Houston that gets me comfortable is the prospect for growth,” McCord said.

Time will tell if Houston’s perception is really changing. America’s fourth-largest city has changed significantly in just a few years. With pockets of dense infill development, the next step will be connecting them all together, stitching an urban landscape that brings Houston’s diversity together. “The big issue to me is connectivity,” Schultz said. “The city is what it is. It’s vast and getting bigger. We’re not going to change that, so we need to find ways to take advantage of other transportation methods.”

When the opportunity zone program was announced in late 2017, Dosch Marshall Real Estate Vice President Tripp Rich received a lot of calls about the program, including from firms he was not familiar with. The initial prospect of the tax exemption was so attractive and unheard of that everyone wanted in. Houston showed particular promise: The MSA has the highest concentration of assets in opportunity zones — 21.7% compared to the national average at 12.6%, according to the commercial real estate data platform Reonomy. “Houston should attract more opportunity zone projects than any other city,” Reonomy Vice President of Marketing Sam Viskovich said.  But investment interest in the program has dwindled, and Rich said the number of firms talking to him about participating has dropped. Bisnow Archives/Kyle Hagerty Houston skyline Qualified opportunity funds have raised less than 10 cents on the dollar of the program’s targeted goal in 2019, according to CoStar. In Houston, the percentage of total commercial investment within opportunity zones has dropped from 38.5% in 2017, which is the highest in a nearly 20-year span, to 16.4% for the first quarter of 2019, according to a report by Reonomy.  There are at least three possible reasons for the slowdown, Viskovich said. It could be related to the number of sites in high-targeted areas. Since the program used 2010 census data and input from local leaders, some zones were already experiencing an influx of capital. He also noted the maturing cycle could have some investors tightening the purse strings and focusing on the tried-and-true deals. But some of the drops may just be that deals haven’t happened yet, not that they won’t happen at all. The initial obscurity of the program caused some to take a wait-and-see approach. Viskovich expects those who are satisfied with the new guidance (released by the IRS in April) will move forward with their projects.  Courtesy of Reonomy Reonomy Vice President of Marketing Sam Viskovich The pace of investment activity for the rest of the year will be a good indicator of the future traction of the opportunity zone program, Viskovich said.  Rich expects a big rush to close on sites closer to 2020. Opportunity zone projects follow the traditional development timeline and process — the deals take time. It could take up to 12 months after the site is under contract to break ground. And until dirt turns, developers are keeping quiet about their plans. “No one wants to talk about a project until they know it is about to happen,” he said. The rise in pricing in opportunity zones is one reason to stay optimistic about the program’s future in Houston. Since the announcement of the OZ program, the average sales price for properties in Houston opportunities zones has increased significantly compared to properties, not in opportunity zones, which have remained steady. Multifamily development has been the go-to property type for opportunity zone investment in Houston, said JLL Senior Vice President Jonathan Paine, whose team arranged construction financing and equity for Hines’ The Preston, a 373-unit luxury apartment project funded by Cresset-Diversified QOZ Fund in Downtown Houston. He is engaged with more than 10 opportunity zone projects across the country, made up mostly of multifamily developments. A local developer is planning two apartment complexes in the Inner Loop, Rich said.  A national QOZ fund plans to spend upwards of $350M in Texas, Arizona, Colorado, Kansas, New Mexico, Oklahoma, and Utah, according to Rich. The fund is targeting mostly multifamily development, while office and mixed-use projects are also being considered. Courtesy of Dosch Marshall Real Estate Dosch Marshall Real Estate Vice President Tripp Rich Developers are opting for apartments and hotels because they can be built quicker; the quality can be sustained over a long period; there is no pre-leasing required for financing; and, unlike office development, they are not dependent on long-term leases, Paine said. He expects retail development to come in the next phase of investment as zones become more densified. Industrial development is also feasible; he is in talks with a fund to develop an industrial building in an opportunity zone out of state.  More than a fourth of the properties in Houston’s opportunity zones are categorized as commercial general and about 25% is multifamily, according to Reonomy. Retail and industrial come in as third and fourth in the share of assets in opportunity zones.   Zones in Houston’s Inner Loop, which includes already-revitalizing areas such as downtown, are expected to benefit the most under the opportunity zone program, Rich said.  That is partial because all opportunity zone projects must pencil out. While the federal program was designed to stimulate commercial expansion in economically distressed areas by providing a tax benefit in exchange for a long-term investment, being in an opportunity alone doesn’t make a project a safe bet.  Bisnow/Catie Dixon Hanover Co.’s Brandt Bowden, JLL’s Jonathan Paine and Weingarten CEO Drew Alexander at Bisnow Houston’s capital markets event February 2016 Investors and developers have become more mindful when selecting partners, as funds must hold properties at least 10 years to maximize the tax benefits of the program, Paine said. These projects will require a long-term commitment from both sides.  Developers want to pick the fund early in the development process before designing and permitting the project, which helps to share the cost and provide input on the scope and viability of the project, Paine said. For example, one opportunity zone partnership in Las Vegas is considering how the next owner will perceive the quality of the product, Paine said. They opted for higher-quality materials and exterior cladding that will provide durability and functionality in the long run. While the upgrades ultimately add 10% to 15% more to the budget, the idea is that the property will retain its value.  “They were in agreement that was the best thing for a project that they were going to own for 10 years,” he said.  While the number of investors eyeing Houston opportunity zone deals has shrunk, that isn’t necessarily concerning. Since the Treasury Department released the second round of guidance in April, sophisticated funds are moving forward with development plans while the delays and intricacies of the process have weeded out less experienced real estate investors. The QOFs interested in building in Houston come from the same group of investors that have considered Houston in prior investment periods, Paine said. The most active groups are ready to deploy capital with the staff and the knowledge to meet and maintain the regulations set by the federal government.

JLL To Buy Peloton Commercial Real Estate Dallas-Ft. Worth September 19, 2019, Kerri Panchuk, Bisnow Dallas-Fort Worth Want to get a jump-start on upcoming deals? Meet the major Dallas-Fort Worth players at one of our upcoming events! Commercial real estate giant JLL announced plans to purchase Peloton Commercial Real Estate Thursday. The merger will effectively pull Peloton’s Dallas and Houston offices into JLL’s agency leasing and property management business lines.  Ricky Bautista, Unsplash Downtown Dallas As part of the merger, more than 130 Peloton employees will be joining JLL. The acquisition is expected to close in the next few weeks, with Peloton co-founding partners Joel Pustmueller and T.D. Briggs and JLL’s Jeff Eckert leading the statewide integration efforts.  Pustmueller and Briggs will work directly with the Dallas-Fort Worth and Houston offices while Eckert will oversee Austin, San Antonio, and Dallas-Fort Worth as the teams integrate.  Peloton Property Management partner John Myers will be named the regional leader of property management for DFW. “This is a momentous step in our journey to become a market-leading player in Texas,” said David Carroll, JLL market director for the South Central Region. “With the exceptional growth we have seen in those markets, Peloton’s position as a leading provider of leasing and property management services will greatly enhance our business capabilities and breadth of services. Just as importantly, we look forward to working with a team of professionals that share JLL’s strong commitment to collaboration and culture.” JLL has a long history of growing via mergers and acquisitions, including closing the $2B acquisition of HFF July 1. One of its most notable acquisitions in Texas was bringing The Staubach Co., led by Dallas Cowboys elite quarterback Roger Staubach, into its fold in 2008.

investors spent $3.8 billion on investment properties in the Houston area in the third quarter, a sharp decline from the same period a year earlier. The decline in the overall value of transactions, down 47 percent from the year-earlier, fell across most property categories, according to Real Capital Analytics, a research firm that tracks commercial property transactions.

*       Office: Local third-quarter investments totaled $500 million, down 56 percent from the year-ago period.
*       Hospitality: Local hotel investments were an exception, totaling $200 million in the quarter, nearly double the amount from the third quarter of 2018.
*       Multi-Family: The value of apartment deals transacted in the quarter fell by 40 percent year over year to $1.5 billion in the Houston region in the third quarter. Even with the decline, multifamily properties were still the top choice of investors, making up nearly 40 percent of the local sales activity.
*       Industrial: Locally, sales of Houston area industrial properties totaled $900 million in the third quarter, down 13 percent from a year earlier.
*       Retail: The value of year-over-year sales of local retail properties dropped by 85 percent to $300 million.

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The Bank of America Tower has sold for $542 million, according to a report in Real Estate Alert, a newsletter for institutional investors. At $695 a square foot, the deal would mark a record per-foot price for Houston, easily beating the previous record of $528 a square foot. The news shows that there’s a market for new, high-end office space even as Houston’s office market overall suffers from high vacancy rates.

The newsletter reported that the buyer was California teachers’ pension fund manager CalSTRS.

The 35-story tower at 800 Capitol opened this summer with 88 percent of its office space pre-leased. Originally called Capitol Tower, the 754,000-square-foot building was renamed the Bank of America Tower after the bank decided to consolidate its three downtown offices to 210,000 square feet in the project. Other tenants include Waste Management, Winston & Strawn and Quantum Energy Partners.

A lushly landscaped 24,000-square-foot “sky park,” a 35,000-square-foot community hub and culinary market and 10,000-square-foot conference and events center are among the amenities meant to attract tenants to space. According to the tower’s developer, Skanska, the LEED-certified tower uses 32 percent less energy than the typical office tower.

According to commercial real estate firm CBRE, 19.3 percent of Houston’s office space was vacant in the third quarter, and the average annual asking rate was $28.78 per square foot.