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 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. Peloton is a leasing and property management firm that launched in 2002. It manages or leases more than 25M SF for clients.
Houston has, for the most part, survived the oil downturn, but some areas are still in recovery.
Though Houston’s commercial real estate market is doing well overall, the office sector is still struggling with high vacancy rates.
Eli Gilbert, director of research at commercial real estate firm JLL in Houston, said this has to do with oversupply and jobs lost during the downturn.
Also, companies have learned to be more efficient with less space.
“Looking at the overall vacancy rate,” he said, “particularly in the office market, in the future, a higher value that has historically been seen may become the new normal for the region.”
The office vacancy rate is currently around 20%, with estimates placing the amount of vacant office space between 50 and 60 million square feet, according to the Greater Houston Partnership’s 2019 Employment Forecast.
Gilbert said population growth is the main driver for the other commercial real estate sectors, which include industrial, retail and multi-family.
The industrial market, in particular, is benefiting from an increase in online sales and demand for distribution centers.
If you ask the most powerful women in commercial real estate if they ever imagined they would work in such an industry, most say not in their wildest dreams. We know, we asked. Honorees at Bisnow’s Inaugural Houston Power Women event may not have planned to end up working in real estate, but they have helped evolve an old school industry into one that is attracting new talent from every walk of life. Bisnow/Catie Dixon Transwestern Executive Managing Director Jan Sparks, JLL Senior Managing Director Susan Hill, city of Houston Deputy Director of Economic Development Gwen Tillotson, The Richland Cos. CEO Edna Meyer-Nelson, Veritex Bank Senior Vice President Rhonda Sands, Laughlin Consulting Group CEO Elke Laughlin “It boils down to building a team of individuals that are culturally different in race, gender and age,” JLL Senior Managing Director Susan Hill said. “Real estate is no longer owned by a high net worth private family. Commercial real estate looks different; your team needs to look different.” That diversity can lead to business success. Commercial Real Estate Women’s recent white paperbacks up what women in Houston are seeing locally. Companies in the top 25% for gender diversity are 15% more likely to have returns above industry median, according to CREW. Women now occupy 43% of commercial real estate positions industry-wide. “Diversity is more than race or gender, it’s ideas, it’s background. You need a team with different ideas and different ways of communicating to make sure you’re getting the best from everybody,” Veritex Bank Senior Vice President Rhonda Sands said. Bisnow/Catie Dixon Bisnow Houston Power Women: The Richland Cos.’ Edna Meyer-Nelson and JLL’s Susan Hill surrounded by the Richland Cos. team — Nancy Baugher, Jody Merritt, Clay Steadman, Josephine Duncan, Angie Steadman, Jennifer Theriot and Raven Burleson “It boils down to building a team of individuals that are culturally different in race, gender and age,” JLL Senior Managing Director Susan Hill said. “Real estate is no longer owned by a high net worth private family. Commercial real estate looks different; your team needs to look different.” That diversity can lead to business success. Commercial Real Estate Women’s recent white paperbacks up what women in Houston are seeing locally. Companies in the top 25% for gender diversity are 15% more likely to have returns above industry median, according to CREW. Women now occupy 43% of commercial real estate positions industry-wide. Today, for the most part, women are playing on the same field as men in Houston’s commercial real estate sector. Many women and some of Bisnow’s honorees are outearning their male counterparts. As heavy-hitters and C-suite executives, Houston’s power women have not only changed the landscape of one of the most male-dominated industries, they are leaving a lasting legacy for the next generation.
What should the expectation be for capitalization (cap) rates and commercial real estate asset pricing as the Fed continues to cut interest rates? The short answer is, all else equal, a reduction in interest rates should result in a compression of cap rates, thereby increasing commercial real estate prices. This is because lower interest rates result in higher net cash flows available to the investor after accounting for debt service.
This may be thought of as the spread between the cap rate and the interest rate. As interest rates fall, an investor who was willing to accept a 300-basis point spread between a 5% borrowing rate and 8% cap rate would theoretically accept the same 300-basis point spread on a 7% cap rate if their borrowing rate fell to 4%.
Keep in mind, cap rates and interest rates are not 100% correlated. However, buyer beware, interest rates are not the only variable affecting cap rates and the underlying asset pricing.
In addition to an individual investor’s own return requirements, which will vary based on their risk appetite, there are many other data points to analyze in a commercial real estate investment.
Other variables that should be considered are business terms of the lease, the makeup of the asset and the health of the overall market. The business terms of the lease include the duration of the lease, what is the base rental rate and how does it compare to market rents; who is responsible for various maintenance-related items of the leased asset and how creditworthy is the tenant.
The general makeup of the asset would include variables such as location, age, condition, and competition. Any of these variables that reduce the risk of the investment should also reduce the cap rate an investor is willing to pay and those that increase the risk should increase the cap rate.
Longer-term leases, well-located properties, newer assets, below-market rental rates, and better credit tenants would all represent less risk when compared to the median. On the contrary, short term, poorly located, obsolete or older assets, above market rents and low-credit or no-credit tenants would all represent variables having a higher degree of risk and thereby resulting in a higher cap rate expectation.
All of these variables contribute to the overall risk of any given investment opportunity and for each one that reduces one area of risk there may be another that increases a different area of risk, but all should be considered together.
As we move through the third quarter, with expectations growing for another rate cut in September, it will be interesting to see how much further cap rates may compress and if commercial real estate asset prices increase, understanding that interest rates are only one of the variables that determine asset pricing.
A 4-acre parcel in Houston’s Greenway Plaza-Upper Kirby area has sold to an investment group led by a local commercial real estate firm, which is considering a mixed-use project for the site.
The partnership led by Houston-Based Senterra Real Estate Group purchased the property at 3440 Richmond from a joint venture between Houston-based Midway and Cathexis RE Holdings, which is also based in Houston. David Hightower, an executive vice president at Midway, represented the selling entity.
JLL (NYSE: JLL) marketed the site on behalf of the seller. The JLL Capital Markets team representing the seller was led by Managing Director Davis Adams.
The Senterra-led partnership did not disclose the sales price for the land located at 3440 Richmond Ave. However, the Harris County Appraisal District valued the land and improvements at $15 million as of Jan. 1, 2019.
The property is located at the northwest corner of Buffalo Speedway, directly across from the eastern edge of the Greenway Plaza campus. The property includes a corner pad site occupied by an operational branch of BB&T (NYSE: BBT), according to a news release.
Senterra Real Estate Group CEO Neil Tofsky said the partnership that purchased the property is still considering the best way to make use of it. However, he said a mixed-use development is among the possibilities.
“This is a strategic piece of property in the transformation of Buffalo Speedway,” Tofsky said. “The area is going to undergo tremendous changes over the next few years, and we wanted to be part of the transformation.”
The property at 3440 Richmond already abuts another proposed mixed-use project planned by San Francisco-based Spear Street Capital and Houston-based Transwestern Development Co. The Ro, as that development is known, will be built on 16.88-acres at 3120 Buffalo Speedway.
The project consists of eight parcels and will be developed in two phases, according to engineering plans filed with the city of Houston in July. Phase I will include two mixed-use buildings — one with ground-floor retail and office space above, the other with ground-floor retail and multifamily units above — plus two parcels that are still being conceptualized.
Renderings included with the plans show at least one high-rise structure.
American Cross-Dock & Storage leased 102,863 square feet of industrial space at 9701 New Decade Drive, Pasadena.
Transwestern Commercial Services completed 187,054 square feet of office leases at Westchase Park I and II at 3700 and 3600 W. Sam Houston Parkway North. LJA Engineering, represented by Anthony Squillante and Dustin Devine of Stream Realty Partners, leased 90,989 square feet; Centurion Pipeline Co., represented by Lonna Dorman of Transwestern, leased 28,078 square feet; and ABB, represented by Beau Bellow and Josh Hirsch of JLL, renewed its lease for 67,987 square feet. The new tenants will take occupancy in the first half of 2020. Transwestern’s Eric Anderson, Parker Burkett, and Katy Gragg represented the owner, Clarion Partners. The 569,825-square-foot Westchase Park office complex has a freestanding amenity center with a Citrus Kitchen restaurant, fitness center with locker rooms and tenant conference center with seating for up to 100.
American Cross-Dock & Storage, a family-owned and operated logistics company led by president and CEO Deborah Bressie, signed two leases totaling 146,863 in Pasadena. The company leased 102,863 square feet of industrial space at 9701 New Decade Drive in the Bayport North Logistics Center I, from Triten Real Estate Partners, for storage and distribution, and subleased 44,000 square feet at 13225 Bay Park Road for drayage and cross-dock services. Bob Berry and Grant Hortenstine of Avison Young represented the tenant, while Jason Dillee and Andrew Jewett of CBRE represented the landlord. The company has more than doubled its space since being founded in March 2018. It provides warehousing, trans-loading, fulfillment and packaging services to the Greater Houston area.
Houston-based Hartman Income REIT purchased a three-property office portfolio totaling 254,225 square feet from New York-based HighBrook Investors. JLL Capital Markets, led by Martin Hogan, marketed the property on behalf of the seller and procured the buyer. The portfolio consists of 16420 Park Ten and 1400 Broadfield in the Energy Corridor’s Park 10 Business Park, as well as 7915 FM 1960 near Willowbrook Mall in northwest Harris County. The portfolio is 55 percent leased.
Deugro (USA) leased 16,625 square feet at 480 Wildwood Forest Drive, The Woodlands, for the relocation of its headquarters. Weldon Martin with CBRE represented the tenant. Steve Rocher and Jason Presley of CBRE represented the landlord, GeoSouthern Budde RD LLC.
Humble Independent School District purchased a 50-acre site at the intersection of Will Clayton Parkway and Rustic Woods Drive. The property was purchased from Lennar Homes of Texas for a future elementary school. Mark Wimberly of Houston Commercial Development represented the buyer.
A local investor purchased The Place at Greenway, a 219-unit garden-style apartment complex at 3333 Cummins St. Chris Curry, Todd Marix, Joey Rippel, Chris Young and Bailey Crowell of JLL represented the seller, Redwood Capital Group. Michael Johnson and Tolu Akindele of JLL arranged a five-year, fixed-rate acquisition loan from Ready Capital for the new owner. The property, on 6 acres near Richmond Avenue and Weslayan in the Greenway Plaza area, consists of 15 two-story residential buildings built in the early 1960s. The complex is 95 percent leased.
Oldham Goodwin Capital, in partnership with MGroup + Architects, broke ground on the second phase of Catalon at Lago Mar apartments at 6130 Lago Mar Blvd. in Texas City. The addition will bring 170 units ranging from 715 to 1,417 square feet in four buildings. Completion is planned in November 2020.
Brookdale Home Health leased 3,046 square feet of office space at 15425 North Freeway. Trey Martin of NAI Partners represented the tenant.
Blackstone Builder renewed a lease for 1,124 square feet at 2401 Fountain View Drive. John Buckley with Finial Group represented the landlord.
ESA Business purchased 2.2 acres at the southeast corner of Will Clayton Parkway and South Houston Avenue in Humble for a future fueling station and retail center. Mark Wimberly of Houston Commercial Development represented the seller, Doyle Bond Family Partnership.
Houston reportedly has a new high watermark for office sales prices. Skanska USA has sold the 780K SF Bank of America Tower office building for $542M, according to Real Estate Alert. At $685 per SF, the sale set a new record, far exceeding the previous $528 per SF benchmark set by BBVA Tower in the Galleria in 2015. The buyer, the California State Teachers Retirement System, worked with Eastdil Secured in brokering its purchase. Skanska may retain a 10% stake in the deal, REA reports. Skanska completed the building, once known as Capitol Tower, earlier this year. Bank of America acquired the naming rights when it signed a 210K SF lease. While the LEED Platinum building bears Bank of America’s name, Waste Management is its largest tenant, occupying 284K SF. The deal might not hold the record long. Nearby, CalPERS and Hines have enlisted Cushman & Wakefield to list 609 Main, the latest jewel in Downtown’s skyline. The 1.1M SF skyscraper could attract bids of about $660/SF, or $700M, according to REA.
Houston has, for the most part, survived the oil downturn, but some areas are still in recovery.
Though Houston’s commercial real estate market is doing well overall, the office sector is still struggling with high vacancy rates.
Eli Gilbert, director of research at commercial real estate firm JLL in Houston, said this has to do with oversupply and jobs lost during the downturn.
Also, companies have learned to be more efficient with less space.
“Looking at the overall vacancy rate,” he said, “particularly in the office market, in the future, a higher value than has historically been seen may become the new normal for the region.”
The office vacancy rate is currently around 20%, with estimates placing the amount of vacant office space between 50 and 60 million square feet, according to the Greater Houston Partnership’s 2019 Employment Forecast.
Gilbert said population growth is the main driver for the other commercial real estate sectors, which include industrial, retail and multi-family.
The industrial market, in particular, is benefiting from an increase in online sales and demand for distribution centers.
Weezie Mackey has heard stories about how coworking spaces operated by big national chains can be male-dominated, lack privacy and have a fraternity party feel that can be intimidating for users who want a more relaxed environment.
“People don’t necessarily want Ping-Pong being played when they work,” said Mackey, a writer who with her contractor husband is launching her first coworking facility in a North Post Oak business park. “We wanted to be a more grown-up version.”
The new space, Origin Cowork, fills nearly 10,000 square feet at 1000 North Post Oak near the Awty International School. The facility has 15 offices, 20 cubicles and 30 “hot desks” — unassigned spaces where people can work for the day.
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Mackey said there’s room for all models, especially in a city as large as Houston where potential coworking tenants might not want to go downtown or to the Galleria area where parking can be a costly expense.
“We have parking,” she said, “and it’s free.”
Users can buy month-to-month memberships ranging from $300 for a desk to $3,200 for an office suite. There are also $30-day passes and hourly meeting room rentals. Space also has podcast booths and a wellness room for nursing mothers
Mackey anticipates much of the demand at Origin to come from lawyers, accountants, architects, and freelance writers.
“They’re already established,” she said. “They just want a place where they can get work done and meet clients that’s not their dining room table.”
The new space will officially open next month, said Mackey, who is also a writer and editor at Rice University’s business school. Her husband Rob was the contractor for the Silos at Sawyer Yards artist studios and other inner-loop real estate developments.
NIT Industrial bought a 151,260-square-foot distribution building at 12614 Hempstead Highway in northwest Houston. The seller, STAG Houston 3 LP, was represented by Ryan Byrd and Walker Barnett of Colliers International. Jason Tangen, also with Colliers International, represented the buyer. NIT, which plans to make capital improvements to the property, has retained Colliers to market the space to tenants.
Terra Energy Partners leased 33,457 square feet at 3050 Post Oak Blvd. in the Lakes on Post Oak office campus near the Galleria. Adam Grimm, Audrey Selber and Andy Iverson of Newmark Knight Frank represented the tenant. CBRE represented the landlord, Sinopec USA.
Terra Energy Partners leased 33,457 square feet at 3050 Post Oak Blvd. in the Lakes on Post Oak office campus near the Galleria. Adam Grimm, Audrey Selber and Andy Iverson of Newmark Knight Frank represented the tenant. CBRE represented the landlord, Sinopec USA.
The Richland Cos. renewed several tenants at its Bay Plaza Office Complex, 711 West Bay Area Blvd. The deals include DYB Advisory Group for 5,039 square feet, Simien Properties for 3,476 square feet and DFI Organics for 2,070 square feet. Angie Steadman represented the landlord in-house.
BH Properties has selected CBRE to lease and manage The Reserve at Park Ten office building at 15721 Park Row in west Houston. Constructed in 2009, the six-story building has 140,000 square feet available for lease. Kirksey Architecture designed renovations to the lobby, tenant lounge and a new conference facility. Steve Rocher, Parker Duffie, and Jackie Mendoza will lead the marketing efforts.
Pomo Resources, doing business as Pomgranit Stones, purchased an 84,894-square-foot industrial building on 5.9 acres at 5150 Blalock Drive. William Rudolf and Kyle Golding with CBRE represented the seller, 5150 Blalock LLC. Cindy Wilson with Groen Realty Partners represented the buyer.
Global Ship Services leased 25,949 square feet at Wallisville Industrial Park, at 9139 Wallisville Road. Jim Autenreith and Sam Rayburn of Moody Rambin represented the landlord.
Titanium Medical Imaging leased 13,310 square feet at West Hardy Business Park, at 15760 W. Hardy Road. Jim Autenreith and Sam Rayburn of Moody Rambin represented the landlord.
Legacy Community Health Services expanded its lease to 9,797 square feet at 2929 Allen Parkway. Elliott Hirshfeld and Kristen Rabel with CBRE represented the landlord, American General Life Insurance Co. Chris Volke of Texas Overland Co. represented the tenant.
Texas Southwest Floors leased 27,925 square feet of industrial space at 1350 Salford Drive. Chris Kugle of NAI Partners represented the tenant. Ed Bane and Jon Michael of Bridge Commercial Real Estate represented the landlord.
Adaptive Construction Solutions leased space at Northwest Place Industrial Park, a development of Levey Group at West Little York and Bingle Road.
FlowCommand leased 3,206 square feet at Fairway Park Business Center, 10606 Hempstead. Garret Geaccone and Boone Smith with Stream Realty Partners represented the landlord, Brennan Investment Group.
Baker & O’Brien renewed and expanded its office lease to 9,589 square feet at 1333 West Loop South. Jason Presley and Warren Savery with CBRE represented the landlord, Park Towers Investment. Craig Beyer and Wyatt McCulloch with CBRE represented the tenant.
Owens & Minor Distribution extended its lease of 124,044 square feet at Claymoore Distribution Center at 2700 Brittmoore. Adam Faulk with Newmark Knight Frank represented the tenant. Jeff Pate and Boone Smith with Stream Realty Partners represented the landlord, DRA Advisors.
Siltstone Capital extended its lease of 6,288 square feet at 1801 Smith St. downtown. Allie Hubbard with Limestone Commercial represented the tenant. Ryan Barbles and Craig McKenna with Stream Realty Partners represented the landlord, DRA Advisors.
290 Homestead LLC purchased 120 acres at U.S. 290 and Jones Road in Hempstead. Brad Elmore and Austin Alvis of NewQuest Properties represented the seller, Asset Preservation. Melissa Hegemeyer of NextHome Realty Center represented the buyer.
Asset Preservation purchased 3.8 acres at Fry and Longenbaugh roads in Cypress. J.J. McDermott of NewQuest Properties represented the seller, McMischer LP. Dimitri Jordan of Marcus & Millichap represented the buyer.