City of Houston Green Building Resources Center
Gables West Ave., Westheimer & Kirby
The CORE on Washington St.9am, Houston City Planning & Development Services Office
After a long weekend, out trip is back in full gear, and this time we are going to the enchanted land of no-zoning and the epitome of uncontrollable sprawl. Going into the meeting with the City Planners there was doubt in my mind that they would be able the justify any appeal to being in Houston as a real estate professional. This quickly changed after speaking with these sharp guys and gal for our first meeting of the day.
Richmond Coward, Planner
Brian Crimmons, Planner
Ryan Albright, Sr. Planner (Hotel/Motel & Land & Parking)
Marlene Gafrick, Director
The topics covered were simultaneously touched on by each of these individuals through our Q & A format.
Diving into the material, the team mentioned how platting is the backbone of development in Houston. It is implemented though city code Chapter 42, and is considered their bible according to them all. Logically, densifying is important to reduce the sprawl, so that type of development is being promoted by the city a lot more. The second book of commandments comes from Chapter 26, the parking ordinance. Parking is a very important issue that needs to be addressed in Houston, and is taken very seriously on the city's agenda. Beyond the city lines, all of the surrounding cities that have taken their roots through sprawl are still covered in the ETJ (Extra Territorial Jurisdiction). The City of Houston does not provide infrastructure for those cities that choose to prop up too far for the city to deem feasbile, and this detail alone is probably going to be the biggest driver to dis-incentivize developers from sprawling too far. Chapter 42 has no height restrictions, as you can see clearly with skyscrapers outside of the CBD being bulid next to one story establishments. Constant amendments to Ch. 42 are being made, all in attempts to reduce the sprawl. Since there also no true development impact fees, again, the only thing holding developers back is the cost of creating a city within a city (road,utilities,plants, fire/police tasks, etc). TIF districts implement zoning in their interesting way, only in that they require certain restrictions on building styles, not as much uses.
As we wrapped up discussions with the City Officials, Richmond Coward kindly escorted us a few blocks down, via train, to the Green Building Showroom at the Code Enforcement Office. This showroom is one of a kind, and we had the honor to speak with the brainchild and director himself regarding what it's purpose and qualifications were. The showroom received a LEED Gold Interior designation recently. The showroom simply consists of green products from vendor's that are actively manufacturing/distributing these materials to the construction community. An interesting fact to not was that all of the tables/furniture was reused, from old libraries all the way to ex-Enron office space flooring. In putting the conversation into perspective, it clearly looks as if the LEED system is in it's infancy stages, and until the program becomes the industry standard, purely through increased demand and higher manufacturing volumes (lower costs), it will be hard to sell this slightly more more expensive material to those builders that are especially hurting right now. For those ahead of the curve and that are well capitalized, it is very necessary to take the costs at onset, and realize that the payback will come soon, but the real value lies within the reversion when everyone is LEED certified and you won't have to worry about discounting your property.
1:15pm-West Ave, Gables Residential, Josh Landry & Ben Peaceglock, Developers
If you are talking about the most valuable and largest contiguous land assembly in the affluent River Oaks portion of town, Gables has gotten their hands on it for a massive MF project. Through an RFP, the firm was granted the contract to construct this 397 unit project with all rentals, something this submarket has not seem. The approach is similar, in that they use their "EPN" theory (Established Premium Neighborhood) to target high density, high income, and primarily single family residential areas to place their product. Inherently, this attracts those who want the title of living in "River Oaks." At an effective rent of $1.65psf, they are charging a hefty sum for some lavish living. The duo of developers gave us a great breakdown of the property and it's amenities with a tour and video session. With a very chic and urban loft type of atmosphere, the trendy designs of the property, similar to other Gables projects, stands out tremendously. A big blow to the project for future value is that the tract directly across the street is a high rise condo, which was built after,completely impedes in the view of Downtown Houston. With the ground 2 floor retail, the project has taken a big hit. Only 41% of the space is leased, but far less is occupied and producing income streams. The second story retail space is actually escalator accessible, and can be used as flex space for either retail, office, or in the last case, more apartments. Overall, the project will flourish as the markets clean up, and it is largely due to it's appealing location and proximity to all major thoroughfares around the downtown area.
2:30pm- The CORE-Micheal Morgan, Principal of The Morgan Group
Situated on the old Washington St. corridor, and area mostly regarded as plighted until the recent revival of it's nightlife scene. At The CORE multifamily development, we had the honor of meeting with Mr. Morgan, the fine gentleman who created the project and many more like it around the country, primarily focusing on Houston. Born into a family of real estate investors/developers, and to a father that whethered the Holocaust, Mr. Morgan is a hard nosed conservative value driven human. He prefers to take the slow growth model and shift risk to others, and that is simply why he hasn't done an overly flashy product yet. He is very akin to providing what each market needs and can sustain on a consistent basis. His fundamentals have gotten him here, and he is going to ride with it until the end. The CORE is a loft type project, similar and in competition with the project we just saw earlier at West Ave. Mr. Morgan has experienced a greater response and is sitting at 98.8% leased on the 326 units, with an effective rent of $1.40psf, above what his proforma predicted. The lone strategy that stuck out most to me is that all of the loans he receives are different in terms, but never does he sign a personal guarantee on these them. He sets aside a fixed amount of assets/cash in a "Guarantee Corporation," and signs all of his loans against that. To him, he has already written those assets off as gone, being a forward thinking and conservative nature; and if it is there at the end of the day, then he just done an even better job at what he does. For the CORE project, he had to make 4 offers before landing the deal. Exposure & Accessability are vital to projects, and all of his work has been on tracts of land that form major streets. The subject site was a brownfield railroad tract, and had to have ground water remediation before anything could be constructed. Mr. Morgan was so kind to sit down with us and give us a full breakdown of his capital stack and deal structure, along with proforma insight and current performance history. In his many years in the business, he has gained a great repertoire with wealthy equity sources like Archstone-Smith REIT, and JP Morgan Chase on the debt side. With a basis of only .5% of the $45.4M project, he has the confidence of his partners in this project and is others, and is proving himself once again with this amazing property.
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