February 2022 REDnews Magazine by RE Journals

THE TEXAS COMMERCIAL REAL ESTATE NEWS SOURCE | FEBRUARY 2022

UN FLINCH IN G Your Advocate in the Fight Against High Commercial Property Taxes. For more information: see page 14

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Features “Back in Business, Back in Buildings: How property managers are bringing in tenants Avison young credits that growth to being persistent, engaged and truly caring about the client’s needs.

Finding the Balance: How the pandemic expedited evolution in property Property management has always been a feat of balancing the needs of the landlord with those of the tenants. Faced with the challenges of COVID-19, property management has evolved considerably in just two years.

FEBRUARY 2022

Force Majeure: COVID-19 pandemic prompts evolution of longstanding lease clause Tenants, property managers and landlords wrestled with ‘force majeure.’

‘High Expectations’: Office prospects pursue quality in recovering market Brandi Sikes’ analysis of the Houston office market: ecovery may be slow, but the market is recovering.

The Property Tax Protest: A Step You Should Take Each Year property tax season is just around the corner. For those who own commercial properties, it also means property tax protests aren’t far off.

3rd Annual Houston Industrial Real Estate Summit A Recap of the event.

REDnews Greater Houston Office Summit – 2021 A Recap of the event.

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CRE Marketplace

Letter from the Publisher THE TEXAS COMMERCIAL REAL ESTATE NEWS SOURCE

“The survival of the fittest mentality continues to pervade the (Texas commercial real estate) industry.” Dear Readers, As many of you know, REDnews is now owned by Midwest- based REJournals. I want to thank the national publisher, Mark Menzies, for allowing me the opportunity to pen this, my final, “letter from publisher”, since I am now officially retired. My entire career has been centered around Texas commercial real estate, and it is still the most vibrant industry I know. The survival of the fittest mentality continues to pervade the industry. I look forward to following all of you from the sidelines and please also feel free to reach out to me at gingerwheless@gmail.com. REJournals’ entry into the Texas market expanded their CRE reach which now includes six commercial real estate publications. The company hosts over 100 commercial real estate events throughout the US per year. Jeff Johnson and Todd Phillips are the owners of the company and their vision is to continue to expand their CRE reach throughout the US. I look forward to watching them grow!

All my best to all,

NATIONAL PUBLISHER Mark Menzies menzies@rejournals.com

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ADVERTISING & CONFERENCE SALES Ginger Wheless ginger@REDnews.com Tressa Mogas Barzilla tressa.barzilla@rejournals.com Jeff Johnson jeff.johnson@rejournals.com Jessica Johnson jessica.johnson@rejournals.com

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PRINT & DIGITAL DISTRIBUTION REDnews is directly mailed each month to commercial real estate brokers, investors and developers throughout Texas and the US.

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Back in Business, Back in Buildings: How property managers are bringing in tenants BY BRANDI SMITH

photo via @bkotynski for unsplash

When Laura Fishback joined Avison Young as Dallas Market Leader a month before the pandemic shutdowns in 2020, the newest member of the property management team thought she’d have plenty of time to get acclimated. “It was just the opposite,” she says. “Property management was thrown into hyperdrive.” At the time, Avison Young had only one building (a 156,000-square-foot Class A+ office building) under management. Flash forward to 2022 and the firm now manages seven office buildings totalling 418,000 square feet, four medical office buildings totaling 167,000 square feet and three industrial sites totaling more than one million square feet.

FEBRUARY 2022

Fishback credits that growth to being persistent, engaged and truly caring about the client’s needs. “This is a major differentiator with us: we listen to what our clients need and make it happen,” she says. As an example, Fishback offers the story of Avison Young-Dallas’ second property management client: Metrocrest Hospital Authority. She cold-called a contact there and hit it off, discussing how they could address and improve the asset’s property management needs. “This was during the pandemic, so the process took about seven months for us to get onboard. Previously they had managed the asset in-house,” says Fishback. “When we took over there was a significant amount of updating

“Property managers and owners are looking to bring people together while staying socially distant. This has led to many owners optimizing outdoor spaces, reconfiguring common areas and lobbies and adding new amenities to their buildings to allow for tenants to be comfortable and safe while moving throughout them.” the best in services and experiences for our tenants,” says Fishback. “We also strive to exceed expectations to get the most out of our clients’ strategies, properties, portfolios and investments. And finally, I am focused on leading and empowering our team, because at Avison Young we are powered by people.”

to be done in processes, operations and best practices, among others.” That persistence, engagement and care is what won Metrocrest over as a client, she believes. “We’ve also grown our property management team from two employees to nine,” says Fishback. “We are still expanding and are currently in the process of hiring an administrative coordinator.”

Laura Fishback

For more information about the property management team of Avison Young-Dallas, you can reach Laura Fishback by emailing laura.fishback@ avisonyoung.com or calling 214-559-3900.

Just as Avison Young is adding staff and expanding its footprint, it is assisting its clients in filling up properties. “It has been a very slow process. This is mostly due to company policies on COVID return-to-work procedures,” Fishback says. “However, our building occupancies are now close to pre-pandemic levels. Even though we are socially distanced and following protocols, it is so nice seeing buildings full of people again.”

JOIN THE VOICE OF COMMERCIAL REAL ESTATE

Managing safety and social distancing has led to properties taking a different direction when it comes to adding value. “Property managers and owners are looking to bring people together while staying socially distant. This has led to many owners optimizing outdoor spaces, reconfiguring common areas and lobbies and adding new amenities to their buildings to allow for tenants to be comfortable and safe while moving throughout them,” explains Fishback. Those improvements are generating excitement for tenants who are eager to see what property managers are doing to find safe ways of reimagining amenities and activities while also connecting with one another. “We are currently adding a tenant lounge and C-Store to our Parkview building so that the tenants can get a quick snack or come down for a break or small break-out meeting,” Fishback adds. Those challenges and opportunities are what she says she loves about being part of Avison Young. “It has truly been a blessing! Coming to work is always an adventure and I’m looking forward to our property management team growing and delivering

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FEBRUARY 2022

Finding the Balance: How the pandemic expedited evolution in property management BY BRANDI SMITH

Property management has always been a feat of balancing the needs of the landlord with those of the tenants. Faced with the challenges of COVID-19, property management has evolved considerably in just two years. “It's been challenging. COVID has brought a whole new element to what we have seen in the property management world,” says Branon Pesnell, Senior Vice President and Managing Director of Property Services for NAI Partners in Houston. “We've really had to hold a lot of hands for landlords and walk them through this whole process because it's something that none of us have seen before.” From issues of building underutilization early in the pandemic to building cleanliness and social distancing as tenants started to return, Pesnell says properties have had to pivot and adjust like never before.

“We don’t have any kind of precedent to go off,” he explains. “It’s definitely been a learning process for everyone involved.” Lease language was one of the first hurdles property managers had to navigate. Since many leases have force majeure clauses or other provisions that allow for abatement of rent if tenants are unable to use a building, some landlords struggled with how to respond. “Less than 60 days into the pandemic, we started to see COVID-related clauses entered into leases to protect landlords from situations like this,” says Pesnell. “It absolutely generated a conversation about what that means for tenants and how they use the buildings.” The newest balancing act testing property management firms is filling up buildings while keeping the people in them safe.

Central Management, Inc. CUSTOMER FOCUSED PROPERTY MANAGEMENT—YOUR NEED IS OUR PRIORITY! Central Management, Inc. “CMI” is a professional real estate Property Management firm for the real estate investor. We partner with investors to help them attain maximum profits while maintaining an asset for long-term appreciation. CMI provides in-depth property management for construction coordination and consulting in all phases of development; office, medical, retail, industrial, land and multifamily; and facility management — in Texas and Oklahoma. As a company, we consistently endeavor to provide the quality of management on all assets that an investor seeks. The company’s staff members hold the professional designation of CCIM, CPM®, RPA®, RPM, RPA, CAPS and ARM.

Victor E. Vacek, Jr. is a founder, Broker and Property Manager with CMI. "Vic" is a hands-on member of the team and specializes in providing advisory services to property owners and investors in the areas of Property Management, acquisitions, dispositions, ﬁnancial review and analysis. Vic is a graduate of University of Houston with experience spanning 40+ years. Mr. Vacek is an advocate of Professional Commercial Real Estate organizations and is an active member of IREM AND HAA.

Paul Panus

Paul Panus serves as Property Manager for properties of all levels including Fortune 500 operations, providing owners and investors service par excellence. Mr. Panus is a lifelong Houstonian, a proud Lumberjack, and graduate of Stephen F. Austin State University. Paul has 35+ years experience in the industry and was selected by BOMA International as Who’s Who 2022.

Victor Vacek, CPM®, RPM vev@cmirealestate.com

ppanus@cmirealestate.com

820 Gessner, Suite 1525, Houston, TX 77024 8

FEBRUARY 2022

713 -961-9777

“We have to find the happy medium between those groups (political and opinion) to provide a safe and healthy environment for people to come to work.” “As the political environment and personal opinion environment go, we deal with a lot of different personalities and opinions about what COVID means for building operations,” says Pesnell. “We have to find the happy medium between those groups to provide a safe and healthy environment for people to come to work.” A key part of that effort has been increasing janitorial services in buildings to make sure that shared spaces are cleaned and shared surfaces are wiped down often. It’s an increased cost for landlords, but one that seems to have paid off, especially as we’ve experienced waves of new COVID cases. “The challenge is making employees comfortable and letting them know they’re entering back into a safe work environment,” Pesnell says. Another cost: tenant-requested improvements, such as touchless controls. “Probably the biggest request has been for touchless controls for faucets, soap dispensers and hand-drying equipment in our building’s restrooms (if they didn’t have them previously). Touchless door-openers have also been requested a lot,” shares Pesnell.

He adds that plexiglass partitions and antibacterial materials are popular too. Not as requested, but still discussed often, are improved air-filtration systems for buildings. While tenants seem pretty universally supportive of increased sanitation, their approach to returning to the office has been varied. Some are seeking more space to expand Branon Pesnell their footprint and spread out employees to build in social distancing. Others are downsizing their space with the intention of having more employees work from home on a full- or part-time basis. “We’re helping tenants figure out what’s right for them and getting them into those spaces,” Pesnell says. To learn more about NAI Partners’ property management services, reach out to Branon Pesnell by email at branon.pesnell@naipartners.com or by phone at 713-985-4606.

Location! Location! Location! Hot West Ft. Bend County, Rosenberg Tx Spur 10/Hwy 90/Hwy 59/I69 /Hwy 36 Area • 80 acres at Highway 90 @ Spur 10 • Perfect for Industrial User or Developer • Near Frito-Lay Manufacturing Facility & Aldi Distribution Center; 4.5 miles from 1.2M sf Dollar Tree Distribution Center • 1300 FF on Randon Dyer Road which runs parallel to Spur 10 & has better access than being directly on Spur 10 • TXDOT’s major expansion project is the next major hub on the Texas Gulf Coast connecting Port of Freeport Looking to Buy or Sell commercial or acreage properties in Fort Bend County?

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Force Majeure: COVID-19 pandemic prompts evolution of longstanding lease clause BY BRANDI SMITH

photo via @homajob for unsplash

What had long been an afterthought in most lease agreements has been spotlighted the past two years as tenants, property managers and landlords wrestled with ‘force majeure.’ In its most basic interpretation, ‘force majeure’ translates to ‘a superior force.’ Its use can be traced back to Roman law, which incorporated the term ‘vis major’ and determined “possibility” was the limit of obligations. Today, the clause included in many contracts “is meant to protect the parties in the event that a contract cannot be performed due to causes which are outside the control of the parties and could not be avoided by the exercise of due care,” according to Black’s Law Dictionary. “The benefit of a force majeure clause is that it allows the parties to fashion a rational allocation of the risk imposed by unknown and uncontrollable events,” says Paula M. Bagger, Principal at Bagger Law. “In an ideal world, in which the parties have equal bargaining power and (importantly) are paying equally close attention to the entire contract, including the “boilerplate” 10

FEBRUARY 2022

during negotiations, a force majeure clause allows the parties to select a resolution that works best for their situation.” An example of a boilerplate force majeure clause as provided by the American Bar Association: Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any obligation under this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected party, including but not limited to fire, floods, embargoes, war, acts of war, insurrections, riots, strikes, lockouts or other labor disturbances, or acts of God; provided, however, that the party so affected shall use reasonable commercial efforts to avoid or remove such causes of nonperformance, and shall continue performance hereunder with reasonable dispatch whenever such causes are removed. Either party shall provide the other party with prompt written notice of any delay or failure to perform that occurs by reason of force majeure.

interpretation governed by state and federal law. As a result, jurisdictions vary in their treatment of such clauses,” says F. Warren Jacoby a Senior Advisor at Cozen O’Connor. At the heart of a given case, he adds, is the specific contract language, applicable law and causal connection between the pandemic and the parties’ ability to perform their contractual obligations. Paula Bagger

Matt Field

Even two years into the pandemic, it’s clear COVID19’s application in existing force majeure clauses is very uncertain. What is certain is that going forward, owners and tenants will reconsider the specific language in leasing agreements.

F. Warren Jacoby

Note that, until the beginning of the COVID-19 pandemic in 2020, the term ‘pandemics’ was not widely used in most contracts. For a force majeure clause to be enacted usually requires the satisfaction of a number of criteria, per global law firm Shearman & Sterling. Those are: the event must be beyond the reasonable control of the affected party, the affected party’s ability to perform its obligations under the contract must have been prevented, impeded or hindered by the event and the affected party must have taken all reasonable steps to seek to avoid or mitigate the event or its consequences. How or whether that applies to parties affected by the pandemic is a topic of increasing debate and a prompt for new language in standard leasing agreements. B R I A R G R O V E P L A Z A R E TA I L C E N T E R F O R L E A S E

“The application of force majeure in any given situation is an issue of contract

“The contract language we’re going to get now is going to contemplate these things and there will be a new negotiation around delays that come from these kinds of events,” says Matt Field, President at TMG Partners. There’s simultaneously a discussion underway about whether the list of possible force majeure events should be abandoned, replaced with a simple and generic description, such as “any cause beyond the reasonable control of a party.” While the force majeure clause is a focal point as it gets tested in courts across the country, it’s just one of several risk-allocation mechanisms in contracts. As such, do not brush off the importance of preparing for the next round of “causes beyond the reasonable control” of each party

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Edge Realty Partners 515 Post Oak Blvd, Suite 175, Houston, Texas 77027 713.900.3000 | edge-re.com

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Monthly Retail Property Management Services including: • Site inspections • CPA prepared financial reports and account reconciliation’s • Tenant retention • Implementation of vendor services and oversite • Professional management software The Unilev Management Team offers 30+ years of experience in professional property management. Currently managing approximately 1.8M square feet of retail properties in Houston, Texas for properties ranging from 10,000–500,000 square feet. Contact Information: Tim Irvin, Director of Retail Management Unilev Management Corp 7500 San Felipe, Suite 725 Houston, TX 77056 Tim.Jrvin@unilev.com 713-403-2524 direct

Charles Blaschke |

Vice President

charles@edge-re.com | 713.900.3003

Logan Havel |

Vice President

lhavel@edge-re.com | 713.900.3004

Kathy King |

Vice President

kking@edge-re.com | 713.900.3030

Edge Realty Partners 5444 Westheimer Rd, Suite 1650, Houston, Texas 77056 713.900.3000 | edge-re.com

WOODLANDS TRADE AREA SHOPPING CENTER FOR LEASE

Mayde Creek Village & Emporium NWC & SWC Fry Rd & Saums Rd, Katy, Texas 77449

Charles Blaschke |

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charles@edge-re.com | 713.900.3003

Logan Havel |

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lhavel@edge-re.com | 713.900.3004

Kathy King |

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kking@edge-re.com | 713.900.3030

Edge Realty Partners 515 Post Oak Blvd, Suite 175, Houston, Texas 77027 713.900.3000 | edge-re.com

R E TA I L F O R L E A S E I N T H E H E A R T O F TA N G L E W O O D

Woodpark Shopping Center NWC Interstate 45 & Briar Rock Rd, The Woodlands, Texas 77380

Kathy King |

Vice President

kking@edge-re.com | 713.900.3030

Edge Realty Partners 515 Post Oak Blvd, Suite 175, Houston, Texas 77027 713.900.3000 | edge-re.com

Tanglewood Center NWC Woodway Dr & Chimney Rock Rd, Houston, Texas 77057

Edge Realty Partners 5444 Westheimer Rd, Suite 1650, Houston, Texas 77056 713.900.3000 | edge-re.com

Kathy King |

Vice President

kking@edge-re.com | 713.900.3030

FEBRUARY 2022

Edge Realty Partners 515 Post Oak Blvd, Suite 175, Houston, Texas 77027 713.900.3000 | edge-re.com

‘High Expectations’: Office prospects pursue quality in recovering market BY BRANDI SMITH

photo via @mariogogh for unsplash

If there’s one thing to take away from Brandi Sikes’ analysis of the Houston office market, it’s that recovery may be slow, but the market is recovering. “Based on what we know today, the worst is behind us,” says the Principal & Senior Advisor for SVN J. Beard Real Estate – Greater Houston, who merged Limestone Commercial Real Estate in November 2021. Negative absorption peaked in Q3 2020 and leasing activity began to increase in Q2 2021, Sikes adds, noting Houston just posted its first quarter of positive absorption. “Houston has one of the highest vacancy rates in the nation – 25 percent,” 12

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says Sikes. “Class A availability is closer to 30 percent, but the flight-toquality offices with abundant amenities will help mitigate this vacancy over time.” The demand for quality by prospective tenants almost assuredly requires buildings to offer amenities to remain competitive, she says. “Tenants have high expectations when it comes to incentives but learn quickly that not all buildings are created equal,” Sikes points out. “Stabilized assets can hold out for better deals in better days while the less fortunate are opting to ‘buy’ tenants on a short-term lease in hope of making it up on the renewal.”

Dallas is the only Texas market with a higher vacancy rate than Houston. Sitting at 25.3 percent, CBRE reports the DFW office market “has made some positive strides toward recovery,” including net absorption, new construction and deliveries picking up in Q4 2021. In Austin, new projects with minimal pre-leasing activity helped inflate the vacancy rate, which is hovering around 21 Brandi Sikes percent. Down I-35, the San Antonio market has recovered about 87 percent of the jobs lost during the pandemic, a sign the area is returning to work. That’s one reason the Alamo City has the lowest vacancy rate – 17 percent – of Texas’ largest markets. Back in Houston, Sikes says it’s clear workers are coming back too. “The best way to answer the return-to-work question is to ask, ‘Are companies committing to office space?” Leasing activity is only down 17 percent from pre-pandemic conditions. We recorded 1000 less transactions in 2021 than in 2019, but we’ve closed over 4400 office deals,” she says, adding that Houston’s availability rate only increased 3 percent through the pandemic. “We entered the pandemic anemic from oil and gas, but we have already recovered almost 75 percent of the pandemic-related job losses.” According to Sikes, average deal size for office leases is down by 30 percent but most people are surprised to learn that the pre-pandemic average deal size was only 3,856 square feet. Other changes she’s taken note of: the

average deal term is maintaining around 3.4 years and ‘force majeure’ clauses now specifically reference pandemics. When asked for an example of what the Houston office market is like on a day-to-day basis, Sikes shared that she’s representing a client who wants to see everything available before making a decision. “Touring all viable options in the Galleria office market now takes three full days and the gross spread between gross Class A rates is $28 per square feet,” she says. “Stabilized assets are not moving much and we are still looking for the bottom on older, less occupied buildings.” On the topic of older buildings, Sikes says she’s closely watching how the city handles its aging office inventory, 35 percent of which hit 40 years old in 2021. “1800 West Loop South did an extraordinary job of turning the top floor of their 1982 building into cutting edge speculative space, balancing both community space and privacy,” says Sikes. “On the other end of the spectrum, John Quinlan purchased 1801 Smith and is repurposing it into condos.” Whatever the path forward for those assets, Sikes and her team at SVN J. Beard Real Estate will continue to help guide their clients toward the best deals in their desired market.

DALLAS

INDUSTRIAL february 23rd, 2022 CLUBS OF PRESTONWOOD 8 am to 12 pm 7:30 am Registration, Breakfast, & Networking

FEBRUARY 2022

3rd

annual

The Property Tax Protest: A Step You Should Take Each Year BY HUNTER LANE, VICE PRESIDENT, LANE PROPERTY TAX ADVOCATES The start of the year is a busy time for just about everyone. Friends and neighbors are looking to make good on shiny new resolutions, companies are taking steps to start things off on solid footing and, of course, property tax season is just around the corner. For those who own commercial properties, it also means property tax protests aren’t far off. Although the idea of going up against authorities — or even in front of an appraisal review board — to dispute your commercial property tax assessment can be daunting, these efforts play a crucial role in ensuring you’re paying your fair share. When using a targeted approach, the process is fairly straightforward. Here are a few things to keep in mind as you contemplate whether a protest is the right move for your business. Protests Should Be an Annual Occurrence for Any Commercial Property Owner In a world where most of us attempt to avoid conflict, annual commercial property tax protests might seem counterintuitive — and uncomfortable. In truth, however, there’s no reason not to go that route. Protests of assessed values are successful in reducing bills more than 50 percent of the time, and can save you hundreds of thousands of dollars through the years. As an added bonus, these efforts don’t impact your commercial property’s resale value. Having Your Ducks in a Row Can Make All the Difference A little organization makes just about any process easier. Before diving headfirst into a commercial property tax protest, it’s important to know what you’re up against, and to plan accordingly. For instance: • Understand Your Deadlines: A missed deadline can spell the end of a successful protest, and can result in costly penalties. As it relates to property tax protests, there are two dates you should keep in mind. January 31 is your deadline for paying the prior year’s property taxes. Meanwhile, May 15 (or 30 days after you’ve received notice) is when all property tax protests are due. • Know Your Numbers: County appraisal districts (CADs) use a mass appraisal system to save time while determining the value of multiple properties at once. This imperfect system often results in appraised values far above what makes sense. Go into the process with an understanding of what your property was valued at the prior year, and in the years leading up to it, too. A healthy understanding makes it easier to spot and avoid paying excessive amounts. It Helps to Know How the Appraisal Protest Process Works Going in blind is rarely a good idea, regardless of the situation. This is especially true in the realm of commercial property tax appraisals, where missteps can result in hefty payments. While every protest will vary slightly, here’s how the process generally works:

FEBRUARY 2022

Hunter Lane

• CADs begin releasing notice values for commercial properties in February. You then have time to review the information and determine whether a protest is necessary. (My firm always recommends protesting.) • You have until May 15, or 30 days after receiving notice, to protest your commercial property taxes. • An informal hearing will be scheduled with your CAD appraiser, typically between May and October. If an agreement is reached, the process is complete. If you do not reach an agreement during the informal hearing, you move on to a formal hearing with the appraisal review board. • Should your formal hearing result in a value you still don’t believe to be true and accurate, it may be time to move into arbitration and litigation. Having a Trained Team on Your Side Can Pull Results in Your Favor Just as it makes sense to have legal representation in court, it’s imperative to have experts on your side during the protest process. A specialized firm that has seen virtually every tax protest scenario out there. Your team can quickly determine whether assessed values make sense, and can help you formulate a strategic approach to negotiate those property taxes down. They’ll take the reins all the way through arbitration or litigation, should it reach that point. It’s been found that 156 percent more property accounts are corrected when represented by an agent. On top of everything else, your agent typically won’t charge you unless they have successfully saved you money. The process of protesting your commercial property’s assessed value can make you feel like you’re out of your element. But going in with an organized plan — and with a qualified team at your side — can mean better results. Remember to make this undertaking an annual tradition. It can benefit you in big ways in the long run.

3rd Annual Houston Industrial Real Estate Summit BY RAY HANKAMER

Panel 1 Speakers

Panel 2 Speakers

Takeaway: Warehouse development and leasing are at all-time high, and activity amazes longtime brokers and others in this segment, who can see no definite end to the boom. With Houston’s expanding port and growing population, many distribution operations which were once handled in Dallas for our area have moved here. Investment sales are booming at lower and lower cap rates. Land for future development is only available further and further out, but these sites lack utilities and other infrastructure. Users who ‘must be here’ are driving up prices and rents from month to month.

• Houston industrial has gone from manufacturing to predominantly distribution

Panel: Industrial Market Overview Moderator: Dallas Hall, Allied Fire Protection Speakers: Reggie Beavan-Newmark Knight Frank; Reed Vestal-Junction USA; Michael Scheurich-Arch-Con; Steven SchneiderCushman & Wakefield

• All Houston submarkets are going strong, with North a little less strong, but still solid; it is a good time to be a land broker or an industrial broker!

Bullets: • We are in a robust spec and build to suit market; there is booming construction but demand is even stronger, driving up costs and rents; industrial business doubled this year for contractors • Buildings are getting bigger and bigger • Dallas is 5th largest US industrial market and Houston is 7th; Dallas is within a 12 hour drive of twice the US population as Houston, hence its predominance in distribution…but Houston has the port, good highways including I-10 and a good labor market and is very well positioned for future growth

• Many well-funded retail chains are playing catch-up with Amazon and are spending big bucks on their infrastructure too • The Port of Houston will be deepened and widened, expanding our container capacity, and leading to more ships coming here from Asia instead of to California

• We will have 25-30 million SF of absorption this year compared to a ‘normal’ year of 10-12 million SF • Users know they must take the space without negotiations or they will lose it, and then will have to wait a long time for another option to be available; and warehouses are being built farther and farther out, as sites become scarce close-in • Fluctuations in steel, concrete, roofing materials, and much more make bidding and pricing difficult since pricing is rising…but to users availability is more important than cost so all involved are charging ahead even if they have to pay more Continued on Page 16>

FEBRUARY 2022

image of a hot industrial city, and stress our cultural life, NASA, and other assets to work towards a ‘cleaner’ image for our city, such as life science and healthcare; ION and other high tech incubators are being promoted to garnish our image; we need to be a city of clean-tech, renewables, and recyclers, and we are being promoted now as being the center of energy transition, or ENERGY 2.0 • There have been lots of new startup companies by people trapped at home by Covid; high-tech manufacturing may be our next wave Panel 3 Speakers

Industrial Summit < Continued from Page 15

• In the long term, demand will determine materials cost; storms and hurricanes absorbed much of the materials stock and suppliers are behind, right as Houston needs to ‘feed the beast’ of its industrial boom • Will need for industrial space shrink as Covid is conquered and will people shop less online? Industry is betting the online shopping will continue and even grow • There is a frantic demand by investors for industrial buildings in spite of projected interest rate increases; tenants are even taking more space than they need right now if they can get it • There is lots of demand for infill 100-200,000 SF warehouses too Panel: Game Changing Economic Development Tools Moderator: Alan Steinberg-West Houston Association Panelists: Craig Rhodes-Greater Houston Partnership; Mike Pittman-Cushman & Wakefield Bullets: • For new developers coming to our area, there are more issues than just ‘dirt’: quality of life, availability of suppliers, tax abatements, housing stock, available trained workforce, etc.

thanks to the port

• Houston is replacing Dallas as the distribution hub to the Valley, San Antonio, and Austin, to some extent,

• Development councils are pushing Houston as business-friendly and overall low cost and low tax, and the fact that we offer financial incentives to incoming corporate relocations in the form of abated taxes over a maximum ten year period • Relocations here create jobs and add to our tax base, but also have infrastructure needs Panel: State of Industrial Development Moderator: Rives NolenCenterPoint Properties Speakers: Matteson Hamilton-Stream Realty Partners; Holden Rushing-NAI Partners; Brian White-EE Reed; Beau Harris-Black Label Commercial Group; David Claros-Dosch Marshall Real Estate Bullets: • Construction costs are soaring, as steel doubled, concrete rose 30%, and other buildout materials such as sheetrock and drop ceiling are all way up; materials prices fell with onset of Covid in March of 2020, but since then they have risen steadily, and with pent-up demand they are now way up; one exact copy of a completed building cost 56% one year later • A good relationship with a top contractor is key, since he has his relationships with subs and suppliers; we need to onshore suppliers to avoid logistics bottlenecks

• Some urban core infill sites can be reconditioned for users according to their needs, and logistics are important to almost all users

• Gulf coast storms absorbed lots of materials leading to the current shortage

• We sell our infrastructure and our port, our rail, our freeway network, and our workforce, as well as their level of training

• Pricing and wait times are causing headaches to builders

• We are the Metro area in the top ten of the US with the lowest housing costs • Economic development groups somewhat have to overcome Houston’s

FEBRUARY 2022

• With heavy demand, land availability has shrunk and prices have soared as developers are forced way out to Baytown, Spring, Waller, and Tomball, for example; even the South Beltway is now in high demand in spite of some flood plain issues; every land sale is at a higher price

• Rents are not climbing quite as fast as land and building costs but as demand continues at a high level, they will climb as well • Challenge for spec builders is to anticipate tenant needs into the future; clear heights are up; outside storage and parking are up; power requirements are up; and there are the unknown needs now which will inevitably appear • Developers need to put way more ‘whistles and bells’ into industrial buildings, as robotics play an increasingly important place • Industrial buildings with their expansive rooftops are ideal for solar panels • Development sites are more and more challenging with detention and other requirements that cost money; no big sites remain inside of BW8 • Capital is flowing out of retail and office and into the industrial sector • Developer interest rates are low and LTV high; banks are eager to approve even less-experienced developers; there is big competition for each spec warehouse that comes on the market • It takes about two years for a user to build a new warehouse, and statistical absorption figures next year will be lower since there will be fewer project being finished; demand will however exceed supply into the foreseeable future-who is the fastest and most nimble developer? • Some industrial sites are going for $15 SF, but overall Houston is still a cheaper industrial market when compared to others across the US Panel: Capital Markets and Investment Climate Moderator: Travis Warren-AmTrust Title Speakers: Katherine Bernstein-Logistics Property Company; Tom Lynch-CBRE; Kelly Williams-BridgeCo Financial; Shane Williams-Port of Houston Authority Bullets: • Capital is cheap and cap rates are compressed to the 4 range and some sales for lower; last year cap rates were around 5.5; more record sales are to come • The investment market has lots of buyers; tenants are in for a real sticker shock as rents rise with rising developer costs; cheap money is fueling deals • The port’s container volume is up 18% from last year; steel imports will reach 300 million tons for 2021; a $95 million ship channel dredging is under way, 24 hours a day; Houston is attracting new Asian shipping lines, and we are seeking to relieve the West Coast logistics jam • Regional lenders are coming into the Houston industrial market to compete with national ones for warehouse debt; developers are trying to lock in rates now • Leases are drawn with annual rent bumps but higher occupancy costs are not cooling demand in this sector • This is a good opportunity for industrial owners to cash in their chips and sell

Panel 4 Speakers

• Some warehouses are being built for medical manufacturing with all-in costs of $250-300 SF • Will Houston industrial sector wind up servicing Tesla in Austin in some way? • There is lots of development of remaining sites along the ship channel and some development in the NASA area • Big money is chasing yield and value and the Houston industrial market has never been on fire like it now is • There are lots of tired empty old metal manufacturing buildings around greater Houston and they are being re-purposed when possible • When BW8 segment from 59 N to I-10 East is completed, many industrial sites will become accessible, so look for development in that quadrant • “You can’t go wrong with the City of Houston”

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REDnews Greater Houston Office Summit – 2021 BY RAY HANKAMER Takeaway: Negative absorption may have peaked in the third quarter after six negative quarters, and although we have the highest vacancies in the U.S., it is not the highest Houston has ever had, and we have always recovered. The sublease market makes now makes up a very small percent of the overall vacancies. Landlords and tenants alike are still unsure of which way employees will go with regard to work from home or from the office, although the consensus feels a hybrid system will prevail at present, with a longer term return of most workers to the office. This creates challenges to landlord and tenant alike today as to which direction lease space build out should take. Panel-State of the Houston Office Market Moderator: Robert Cromwell-Moody Rambin Speakers: Lucian Bukowski-CBRE; John Herring-FUSE Workspace; Brandi Sykes-SVN JBeard Greater Houston; Parker Duffie-CBRE; Chip Colvill-Cushman & Wakefield; Mark ZeidmanFriedman Real Estate Group; Jay Nowlin-Boxer Properties

Panel 1 Speakers

Bullets: • There is good action in Class A space, Class B slower, although the rent spread between the two classes is narrowing; landlords in both classes are adding amenities such as fitness centers and coffee shops, but Class B can’t always raise rents to cover these costs, especially if building is old and/or in poor location • Hines Texas Tower is opening downtown on the old Houston Chronicle building site, and it is the ‘Ritz Carlton’ of office buildings; question: what forces will continue to drive tenants to the CBD? The CBD will survive, but the focus on the west side of Houston is growing for development… • Landlords must create ‘an experience’ in their buildings, with amenities tenants crave, such as focus on outdoor feeling: floor to ceiling glass, plants, outdoor gathering places, etc. • Even with high vacancies we will see new development ongoing, since much of our vacancy is in 1980 era buildings, now forty years old and lacking the bells and whistles tenants now want and need • Special neighborhoods will attract buildings and their young tenantsexamples: Montrose, River Oaks District, Midtown; in these cases the area is the amenity; as rents rise in these new buildings, tenants are shrinking their footprints • The current 3-5% of co-working space may grow to 25-30% by 2030; some employees who worked from home now want office environments

FEBRUARY 2022

with similar amenities to their homes, such as their building being nearer to their kids’ ballpark, or being dog-friendly, and with a short commute; this is driving new development to the suburbs and beyond to the exurbs; tenants would prefer a 5-10 minute commute, and companies and building developers are listening • Employees are realizing the interaction with co-workers is key to learning and growing professionally, and that they need to earn the right to work some from home going forward now that Covid seems to be coming under control; knowledge transfer is more complicated to employees if they stay at home; trend is swinging back to more time in the collaborative office space • In 2021 only 1% of leases were ‘full floor’ and about 4,400 total smaller leases were signed-companies are renewing their commitments to office space, although in most cases they are making do with less; small companies have most people working in the office, but the big companies are the ones dealing more with employees who want to continue on the hybrid work plan; the last thing companies want to do is to shrink their space now and then a year from now have all employees decide to return to the office…so it is hard to make a long-term decision in the current environment • Landlords are creating ‘hospitality or hotel lobby’ feel in common spaces, with fresh air and ‘concierge’ feel • Houston landlords compete for corporate relocations with DFW and Austin, and those towns do not have hurricanes and floods and an image of refineries; economic development groups are stressing NASA, the Texas

Medical Center, and other ‘clean’ growth which is more and more driving our city economy; when big corporations change towns, 40% of employees do not move; nevertheless Houston’s population and work force is growing and it is a challenge to local governments to keep up with infrastructure to support these moves; time for site permitting is now at an all-time high, and this slows moving; even permitting for tenant improvement plans takes 8-12 weeks now, and TI costs have gone up dramatically due to supply chain issues • Houston has great fundamentals for continued growth, as Houston energy companies evolve toward renewable energy and away from fossil fuels • This is a great time to be a tenant in Houston, and lots of small tenants and start-ups are expanding; the O&G industry is strengthening and should have a good 2022 Panel-Capital Markets, Investment Sales, & Development Opportunities Moderator: Dougal Cameron-Cameron Management Speakers: Paul Penland-JLL; Ryan Stevens-Cushman & Wakefield; David Wheeler-Hartman Income REIT; Marty Hogan-JLL Bullets: • Transactions are strong, especially in ‘opportunistic deals’; it is hard to value deals though, since many have spotty or no cash flow; the more vacant the building, the easier to value and the more liquid the transaction; more foreclosures are coming • Many building purchased and financed just before the Covid setback are not living up to loan covenants and are in default, with illiquid owners-how to value these buildings? Many lenders however are reluctant to take back buildings into their REO accounts, and will sell their loans instead; there are a wide variety of situations currently available on the market • A large ‘dead’ building such as the former Exxon building creates a blight on the surrounding neighborhood and it is hard to recycle an old and ugly building with low ceiling heights; but what to do about it? • In the Energy Corridor some vacated ‘campus buildings’ are being converted to residential, and in some areas old office buildings have been converted to warehouses; it is usually too expensive to convert office buildings to hospitality • Co-working space is definitely financeable in today’s market, and it is expected to grow as a percent of office space • Many institutional owners of underperforming Houston office product are not panicking because their industrial investments here are doing so well • 80% of our office buildings here are 40 years old and stuck at 60% occupancy, and much of this dated product is inside Loop 610; this is a oncein-a-decade opportunity to buy discounted office buildings, but it comes with a risk because of obsolescence

Panel-Tenant Improvement Strategies Moderator: Elle AndersonHartman Income REIT Speakers: Nicole Cadenhead-Method Architecture; Jeffrey Abel-Abel Design Group; John Bellian-Adjunct professor Bullets: • Currently unpredictable what the client wants and needs, whether the client is the tenant or the landlord • Supply chain issues complicate pricing and selection by designers due to logistics and delivery and pricing issues • It is hard to predict when employees will return to offices and what they will want when they do • “WELL” is the new “LEEDS” as employees want less ‘contact’, more clean air circulation; hands-free and touch-free is the order of the day; “If I am going to ‘live’ in an office building I want to know it is safe” is the mantra • Loss of personal contact has been depressing for many employees; designers must create an ambiance where employees WANT to come back, one with more buzz and more attractions, so that employees will see what they are missing by working from home; Zoom meetings have been unfulfilling for many, and they mask body language and other subtle but important signals necessary for 100% communication; architects and designers especially need face to face communication and collaboration • Landlords see the benefits of dedicating more space to juice bars, common areas, dog day care, and the other amenities which employees have at home; aim is to create sense of community in office building common areas; natural light is needed, and people like to be outdoors even in Houston; more balconies and open and operable windows are appearing in re-concepted common areas • Interiors costs and refits and TI in general have skyrocketed due to supply chain issues, and prices and availability change from week to week; sometimes designers and architects have to redesign the same space three times due to disappearing availability of chosen items; important to use a local architect who specs domestic products, not overseas ones • New features such as “Zoom Rooms” with high-tech lighting are a new necessity • Virtual reality pre-design is the latest way to show a tenant and landlord what a new space will be like, and this eliminates expensive re-dos if something does not turn out to please the client/s; virtual programming can save time and money • Tenant buildouts are becoming much more expensive and concentrated in smaller areas, and this comes as tenant wants shorter lease commitment while landlord is expected to invest in costlier TI, and on top of everything else, tenant wants the newly improved space in a shorter time frame

• Buildings in far west Houston are not too far from the Bastrop/far east Austin high tech developments-two hour commute-and they may be attractive to companies supporting Tesla and other tech installations • Low tech start up incubators such as East End Maker Hub in EADO create new companies which can use Houston’s older office space FEBRUARY 2022

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H. Ross Ford is pleased to announce the TCN Worldwide Board of Directors H. Ross Ford, president and CEO of TCN

Worldwide, is pleased to announce the TCN

Worldwide Board of Directors, which were

SCOOP Highlights from CREMM Houston at Domain Heights

elected at this year’s TCN Worldwide Fall

Conference held in Austin, TX.

Ben Azulay, Principal & President, Chicago

Region

Bradford

Allen

Realty/TCN

Worldwide, was originally elected to TCN’s Board in 2017 serving as Secretary of the

Board of Directors. Since joining Bradford

Allen as an associate in 2004, Mr. Azulay has

made significant contributions to the firm. In 2015, Ben became a Principal

due to his hard work, dedication, and vested interest in the direction of the

company and he currently oversees brokerage at the firm. As a member of

the leadership team, he plays an integral role in the strategic direction of

Bradford Allen. His expertise in assisting commercial office clients with

operational, qualitative, and financial structuring allows Ben to easily

identify problem areas and craft smart, client-specific real estate solutions.

This will be Mr. Azulay’s second term on the TCN Worldwide Board of

Directors.

“We are extremely pleased to announce TCN Worldwide’s Board of

Directors,” stated Ross Ford. “Ben is a recognized leader in his market and

represents the type of professional that has made TCN Worldwide the

successful organization it is today. He has distinguished himself as one of

our organization’s most impressive leaders and we are fortunate to have

someone of his caliber help lead TCN Worldwide in accomplishing our

strategic goals.”

Bradford Allen was founded in 2003 in Chicago to fill the void between

large commercial real estate providers and small boutique firms. The firm

has grown into a best-in-class brokerage offering a full array of services,

including tenant representation, landlord representation, consulting and

advisory services, property and asset management, as well as construction

and project management. The recent launch of Bradford Allen New York

in September 2021, TCN Worldwide’s newest member and flagship New

York City affiliate, represents the latest expansion for the Bradford Allen

organization.

The 2022 TCN Worldwide Board of Directors include:

Gerald Sullivan, Principal and Managing Broker at PW Commercial/TCN

Worldwide in Chicago. Mr. Sullivan will serve as Chairman of the Board.

William Sitar Jr., Vice President at Sitar Realty/TCN Worldwide in New

Jersey. Mr. Sitar will serve as Vice-Chair.

Ben Azulay, Principal & Executive Managing Director at Bradford Allen

Realty/TCN Worldwide in Chicago. Mr. Azulay will serve as Secretary.

Timothy Mitchell, Principal at Norris & Stevens, Inc./TCN Worldwide in

Portland. Mr. Mitchell will serve as Treasurer.

Jonathan Rosenberg, Co-Founder and Managing Partner of LevRose

Commercial Real Estate/TCN Worldwide in Phoenix, will serve as an at-

large Board Member.

Paul Licausi, President of LS Commercial Real Estate Services, Inc./TCN

Worldwide in Kansas City, will serve as an at-large Board Member.

H. Ross Ford, President & CEO of TCN Worldwide in Richardson, TX. Mr.

Ford is responsible for the strategic direction of the organization and the

implementation of all expansion and networking initiatives.

FEBRUARY 2022

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CMI BROKERAGE 820 Gessner, Suite 1525 Houston, TX 77024 P: 713.961.4666 Website: cmirealestate.com Key Contacts: Trent Vacek, tvacek@cmirealestate.com; James Sinclair, jsinclair@cmirealestate.com Services Provided: Central Management, Inc. is a full-service commercial real estate firm providing Brokerage Services; Property, Facility, Construction and Asset Management Services; Landlord and Tenant Representation; Land Sales; Receivership and Real Estate Recovery. Services are available for Industrial, Land, Multifamily, MOB, Office and Retail. Licensed in Oklahoma and Texas. Company Profile: Central Management, Inc. (CMI) was founded by Houston real estate professional Vic Vacek in 1978. Our team understands the intricacies of the markets that offer investors an edge both from a leasing and an asset management perspective. Certified AMO® 1984, IREM, CPM, CCIM, NAR, HAR, NALP, ICSC, and TREC. Notable Transactions/Clients: Armada Big Springs Ptnrs, Barbour Invts., Baytown ISD, Core Real Estate, Hoffpauir Estate, JLC Properties, KBR, Prudential, Rawson Blum & Leon, Subway, Texas Hearing Institute, Triple Crown Invts., US Oncology, Vigavi Realty, Walgreens. FRANKEL DEVELOPMENT GROUP 5311 Kirby Drive, Suite 104 Houston, TX 77005 P: 713.661.0440 Website: Under Construction Key Contact: Bruce W. Frankel, President, brankel@frankeldev.com Services Provided: Frankel Development Group offers over 33 years of experience and expertise in the retail real estate business. Services include tenant representation, shopping center/ project leasing, investment sales, land sales, and development services. Company Profile: Headquartered in Houston, Frankel Development Group provides comprehensive brokerage services for its clients throughout Texas with an emphasis on the Houston MSA. The company represents over 25 "best-in-class" retailers and restaurants, 15 property owners, and possesses a skillset and depth of experience unmatched in the marketplace. Notable Clients/Transactions: Notable retailers include Orangetheory Fitness, Burkes Outlet Stores, UBREAKIFIX, Escalante's Fine Tex-Mex & Tequila, Three Dog Bakery, Fred Astaire Dance Studios, Pump it Up, WaveMax Laundry, and Rush Cycles. FRIEDMAN REAL ESTATE 34975 W. Twelve Mile Road Farmington Hills, MI 48331 P: 888.848.1671 Website: friedmanrealestate.com Key Contacts: David B. Friedman, President/CEO; Gary Goodman, Sr. Managing Director-Brokerage Services Services Provided: Friedman offers a full range of real estate services including commercial and multifamily property and asset management, tenant and landlord representation, investment and loan sale advisory, space planning, design and construction and a unique platform of lenderfocused bankruptcy, receivership and distressed asset services. All services are provided inhouse, though a single point of contact, which guarantees that clients receive the most timely and efficient service available in the marketplace. Company Profile: Founded in 1987, Friedman Real Estate is one of the largest privately held commercial real estate organizations in the nation; currently managing over 15M SF of commercial space and more than 15,000 apartment homes located throughout the country. Friedman’s commercial brokerage team has over 800 current listings with $20 billion in closed transactions. Notable Transactions/Clients: • Troy Technology Park - Troy, MI • Sakthi Automotive Industrial Portfolio - Detroit • Greyberry Apartments - Waterford • Tiffany Plaza - Youngstown • West 11 Tech Park - Southfield

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CONSTRUCTION COMPANIES/GENERAL CONTRACTORS ALSTON CONSTRUCTION COMPANY 1300 W Sam Houston Pkwy S, Suite 225 Houston, TX 77042 P: 713.904.2899 10440 North Central Expressway, Suite 720 Dallas, TX 75231 P: 214.363.0551 Website: alstonco.com Key Contact: (Houston) Nick Dwyer, Director of Business Development, ndwyer@alstonco.com (Dallas) Brittany Schneider, Director of Business Development, bschneider@alstonco.com Services Provided: Alston offers a diverse background of design-build experience, general contracting and construction management of industrial, commercial, healthcare, retail, and municipal projects. Company Profile: Alston Construction is celebrating 35 years of excellence in 2021, and we believe our success comes from being a true partner. With 21 offices nationwide, we have market knowledge throughout the country, which provides clients with the best building methods and materials available. Our goal is to provide quality, cost efficient projects that leave a positive experience for our clients and their communities. Notable/Recent Projects: Park 249 - 817,920 square feet LEED tilt-wall warehouse facility park including interior finishes for Amazon in Houston, TX; McKinney National Business Park – 150,000 square feet warehouse/distribution tilt-wall facilities in McKinney, TX; Restaurant Depot – 59,565 square feet pre-engineered metal retail building with cold storage in Pasadena, TX; Valley View Lane Warehouse – 160,000 square feet warehouse/distribution facility in Farmers Branch, TX

CADENCE MCSHANE CONSTRUCTION 5057 Keller Springs Road Suite 500 Addison, TX 75001 P: 972.239.2336 F: 972.239.1214 Website: cadencemcshane.com Key Contact: Will Hodges, President, whodges@cadencemcshane.com Services Provided: Cadence McShane Construction Company offers over 30 years of experience providing design-build, construction management at risk, preconstruction and general construction services on a national basis. The rm’s diverse expertise includes specializing in the Education, Multifamily, Senior Living, Commercial and Industrial market sectors. Company Profile: Headquartered in Dallas, Texas with regional offices in Austin, Texas, Houston Texas, and San Antonio, Texas, Cadence McShane Construction Company provides comprehensive construction services on a local, regional and national basis for a wide variety of market segments. The firm is the builder of choice in the state of Texas and its surrounding region as it deploys a culture of relentless service with an entrepreneurial spirit that originates from inside of each individual and helps constantly deliver reliable results of excellence. Notable/Recent Projects: Hermosa Village Apartments –Leander, TX – 238 modern farmhouse inspired garden-style units, offering one- two- and three- bedroom options.

DEVELOPERS PROLOGIS 2021 McKinney Ave., Suite 1050 Dallas, TX 75201 P: 847.420.8321 Website: prologis.com Key Contact: Kate Rutherford, Regional VP, krutherf@prologis.com Services Provided: Prologis provides approximately 1,600 real estate professionals worldwide with extensive local market knowledge and development expertise to meet complex logistics and distribution requirements. Customers include third-party logistics providers, transportation companies, retailers and manufacturers. Company Profile: Prologis, Inc. is the global leader in logistics real estate with a focus on highbarrier, high-growth markets. As of September 30, 2019, the company owned or had investments in, on a wholly owned basis or through co-investment ventures, properties and development projects expected to total approximately 797 million square feet (74 million square meters) in 19 countries. Prologis leases modern logistics facilities to a diverse base of approximately 5,100 customers principally across two major categories: business-to-business and retail/online fulfillment.

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