In recovering office market, Houston landlords focus on bringing entertainment to the workplace

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As the office market is beginning to see first signs of a recovery, Houston-area landlords and property managers are bringing everything – from coffee shops to concerts – to their properties, experts on the office market said at an Aug. 9 luncheon hosted by the International Facility Management Association.

Progressive, savvy property managers who are seeing success in a lukewarm office market are taking seriously things like event programming and experiential amenities, Emily Howard-Wilson, a senior associate at Cushman & Wakefield, said at the luncheon. Panelists included Howard-Wilson; Lauri Goodman Lampson, CEO of PDR Corp.; and Raylena Browning, pre-construction director for the Houston office of Manhattan Construction. The panel was moderated by Ellyn Wulfe, civic and culture leader and senior associate at Gensler.

Wulfe noted that companies used to establish their brand through their logo or basic marketing materials; now, companies’ brands are being determined by consumers and clients – and the experiences those clients have in a company’s space and with their services.

“That’s a very different thing (regarding) who’s in control of the brand,” Wulfe said.

Among the landlords and property managers taking creative approaches to programming are Houston-based Parkway and New York-based Brookfield Property Partners, Howard-Wilson said, the latter of which recently acquired the 4.2 million-square foot Houston Center, a downtown office campus. Howard-Wilson said that Brookfield is expected to do a Houston Center renovation that’s similar to the nearly $50 million in upgrades it completed at Allen Center.

And Parkway, for its part, is working on reprogramming Greenway Plaza into a destination for tenants and non-tenants alike. The company’s been working to add new restaurants and entertainment offerings to its indoor and outdoor spaces, Parkway’s Mike Fransen told the Houston Business Journal in 2017.

“I want to … remind everyone that your space is a reflection of your brand, whether you realize it or not,” Howard-Wilson said. “That’s just not based on your individual office suite, but (on) the building and your campus as a whole.”

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Recent Deals

ICS Holdings, LLC (ICS) has leased 64,846 SF at 1314 W. Sam Houston Parkway N. to Houston based Relevant Solutions, LLC for their Rotating Equipment rental and service facility. This location’s focus is to provide compressors, dryers, vacuums, blowers and the associated accessories to the industrial marketplace based on long-term, planned or emergency outages. ICS plans to separately construct a 7,000 SF office component to accommodate Relevant’s Rotating Equipment’s sales and management staff.

Ross Foldetta and Dan Vertrees with Foldetta Commercial represented the Landlord and Josh LaRocca of Avison Young represented the Tenant.

New Woodlands Office Listing

Foldetta Commercial has a new Woodlands Office listing at 10655 Six Pines Drive in The Woodlands, TX. The space is 1,861 SF (Gross) space available in this location. The building it is in is a two-story building that is 22,461 total square feet. The space has a reception area, open cube area, 4 offices, conference room and kitchenette.

CALL FOR INFORMATION

More Information: http://foldetta.com/listings/10655-six-pines/

For other Office Space for Lease in the area visit: http://foldetta.com/properties/office-listings/

New Lease at Wildwood Corporate Center

Sean Smith with Foldetta Commercial represented Kimberlite International in a lease at Wildwood Corporate Center, a LEED Silver certified Class A building located in Spring, Texas. Kimberlite is an international oil & gas market research and analytics company that uses data and interviews to assess the current market trends and establish performance benchmarks for oilfield equipment and service suppliers. Sean Smith is a real estate professional that specializes in corporate/tenant representation in The Woodlands and surrounding areas.

New Lease Announcement

Dan Vertrees with Foldetta Commercial announces a new lease with Dr. Tapan Patel of Smile Revolution, PLLC in Phase I of the Spectrum Medical Professional Building  located off S. Loop 336 W. at 600 Medical Dr. in Conroe, Texas 77304. The 13,000 SF building is currently under construction with completion scheduled for early 2018. The building is 75% leased with preleasing of Phase II 13,000 SF underway.

New Lease Announcement

Dan Vertrees with Foldetta Commercial announces a new lease with Dr. Scott Andersen of Woodlands Pediatric Dentistry, PC at the Legends Professional Plaza located off Rayford Road at 29900 Aldine Westfield Road, Spring Texas 77386. The 7,864 SF Building is currently under construction with completion scheduled for early 2018.  The balance of the Medical Professional Building is available to a single tenant or may be subdivided to accommodate up to three medical/professional tenants.

New Listing – Building for Sale

Terrie Smith has a new listing. Building for sale, approximately 5,000 SF of office/retail with Rayford Road frontage and an additional 2,610 SF building in the rear of the property.

New FASB Lease Accounting for Commercial Real Estate Leases

Are you aware that the Financial Accounting Standards Board (FASB) has issued a new accounting standard for operating leases?  Under the new lease accounting standard (ASC 842), companies will need to include the majority of their operating leases (i.e. office & IT leases) on their balance sheets from January 1, 2019 onward.  For privately held companies, it is effective January 1, 2020.

And while 2019 may seem like a long ways away, publicly traded companies will need to provide the following:

  • 3 years of profit and loss statements (2017, 2018 and 2019)
  • 2 years of balance sheets (2018 and 2019)

As such, preparation and compliance for ASC 842 starts in 2017.

In terms of preparation, there are many things a company can do.  Simple things like centralizing your lease data and inputting into a central database (excel spreadsheets are no longer acceptable) is a great start.

Other less simple things you can do is start learning the fundamentals of ASC 842 and determining the financial impact of existing lease contracts on the balance sheet.  Here are some of the questions you will need to answer:

  • How do you calculate the asset and associated liability on the balance sheet?
  • What is the impact on your Bank Covenants?
  • How do landlord allowances impact the calculation?
  • Are their good and bad clauses in existing leases that need to be amended?
  • What discount rate do we use?

As a frame of reference, a 12k SF office space leased for 5 years at an average annual lease rate of $25 PSF could increase a Company’s assets and liabilities by approximately $1.2MM.  Apply this to all your office leases, as well as any office or IT equipment, and the impact to the balance sheet could be substantial.

As a Real Estate professional that is also a CPA, I will be supporting my clients through this conversion and developing strategies for limiting the balance sheet impact of existing and future operating leases.

In the coming week and months, I  will be providing additional guidance on the impact of ASC 842 on commercial leases.  In the meantime, if you have any specific questions in regards to your company, feel free to contact me directly.

The Top 10 Markets for Investment Sales

 

The top 10 markets with the highest first half of the year sales volume include the following:

Houston, TX

Investment sales in the U.S. continue to lag the pace set last year. Even with an uptick in pricing, the $109.2 billion in sales that occurred in the second quarter represent a 5 percent year-over-year decline. Total first half sales dropped by 8 percent to $211.1 billion, according to Real Capital Analytics (RCA), a New York City-based research firm.

Certainly, that doesn’t show a precipitous drop. However, there are several factors contributing to that slowdown. “You can’t ignore the fact that we are in an environment where there is more uncertainty,” says Sean Coghlan, director of investor research with real estate services firm JLL. Elevated political risks, regulatory risks, rising interest rates and geopolitical issues are among the top concerns. JLL is reporting a bigger decline in first half of the year investment volume of 13 to 15 percent across the four major property types of office, industrial, retail and multifamily. (RCA also tracks hotels and development sites.)

There is a shortage of opportunities that is happening at the same time as buyers are becoming increasingly selective. “So we are seeing a little bit of an imbalance between the supply side and the demand side of capital,” adds Coghlan.

“I believe that there is still a lot more equity demand than there are deals out there,” notes Michael T. Fay, a principal and managing director in the Miami office of real estate services firm Avison Young. Pricing has become much more of a factor today. “There is a pricing gap between a seller’s expectations and where underwriting has come in on some of these properties,” he says.

The one sector that is out-performing is industrial. According to RCA, industrial sales increased 10 percent during the first half to reach $30.1 billion. “A big factor in that is that we are seeing a wave of new portfolio transactions that are over $250 million,” says Coghlan. According to JLL, an estimated $3 billion in industrial portfolio transactions have closed in the first half of the year and over $13 billion in portfolio sales are expected to close in the second half of the year.

Hotel sales remained flat, while other major property sectors also posted a drop in sales, led by development sites that fell by 20 percent; followed by apartments at 17 percent; retail at 16 percent and office at 2 percent, according to RCA.

Even with a decline in transaction volume, sales remain relatively robust in most major metros. Combined, the top 10 most active sales markets during the first half of the year accounted for 35 percent of total sales at $74.4 billion. The top 10 markets with the highest first half of the year sales volume include:

  • Los Angeles
  • Manhattan
  • Dallas
  • Boston
  • Atlanta
  • Chicago
  • Houston
  • Seattle
  • San Francisco
  • Northern New Jersey

Howard Hughes Corp. unveils next phase of Cypress master-planned community

July

Thousands of homes and a new amenity center with a lazy river are planned for the next phase of a massive master-planned community northwest of Houston.

The Howard Hughes Corp. (NYSE: HHC) and its wholly owned subsidiary The Woodlands Development Co. on July 24 announced the second of four planned villages in Bridgeland, a 11,400-acre community southeast of U.S. Highway 290 and the Grand Parkway in Cypress.

Parkland Village, which spans 1,200 acres, will feature 3,100 homes ranging in price from the mid-$200,000s to more than $1 million. As its name suggests, the theme of Parkland Village is “living in a park,” so it will boast green spaces along the neighborhoods and roadways throughout the village, officials said. Click through the slideshow to see renderings of Bridgeland’s Parkland Village.

Parkland Village, inspired by the Prairie School of Architecture and the Emerald Necklace in Boston, will have about 350 acres of parks, lakes, trails as well as natural and green spaces with meadows, trees, wildflowers and natural grasses mirroring the Katy Prairie. The neighborhoods within the village will be named after Texas State Parks, and the streets will represent historical state landmarks, flora and fauna within those state parks.

“Our overall vision for Parkland Village is a community where sustainability and community connect with one another,” said Heath Melton, vice president of master-planned communities, residential development with The Howard Hughes Corp. “We wanted to make sure we’re harmonious with nature.”

In Parkland Village, 14 homebuilders will construct single-family homes on a variety of home sites: 40-, 45-, 50-, 55-, 60-, 65-, 70-, 80- and 100-foot lots. The homebuilders include: Beazer Homes, Chesmar Homes, Coventry Homes, Darling Homes, Highland Homes, Lennar, M/I Homes, Newmark Homes, Perry Homes, Ravenna Homes, Taylor Morrison Home Corp., Trendmaker Homes, Village Builders and Westin Homes.

The Howard Hughes Corp. is planning to build a model home park within Parkland Village that will feature a nature-inspired neighborhood park with a playground and an events lawn. The first model homes in Parkland Village are currently under construction, and homebuilders have already sold six homes in the newest village, officials said. The model homes are expected to have a soft opening this fall and a grand opening in spring 2018.

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