THE ROARING ‘20S ARE BACK
A DECADE OF GROWTH IN MULTIFAMILY PAGE 8
THE TEXAS COMMERCIAL REAL ESTATE NEWS SOURCE | JULY/AUGUST 2020
DESIGNING FOR THE FUTURE
How COVID-19 could change offices for good
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BELTWAY 8 & KIRBY TWO TRACTS AVAILABLE Houston/Pearland, TX Tract 1 •
•
• •
• • •
± 15.09 acres of land situated on the Beltway 8 feeder road at the intersection of Kirby Dr., a signalized intersection. ± 1,320’ frontage along Beltway 8 feeder road and 646’ total frontage along Fellows Rd. 2 curb cuts in place on Beltway 8 feeder road. Property lies within the City of Houston ETJ (not subject to the governance of the City of Pearland. No Zoning, No Restrictions. No Floodplain. Zoned HISD. Ease of access due to redesign of on and off ramps from Beltway 8, due to be complete by 2020 year end.
TRACT 1
Tract 2
• •
±1.69 acres of land along the south side of Beltway 8 and just west of Highway 288 in the City of Pearland. Zoned S1, Spectrum District. Beltway 8 access ramps immediately in front of the tract.
TRACT 2
Tract has one curb cut.
2018 Traffic Counts
CPD
KIRBY DR., south of BELTWAY 8
14,462
BELTWAY 8, west of KIRBY DR.
111,500
BELTWAY 8, east of KIRBY DR.
94,300
2019 ESTIMATED DEMOGRAPHICS within 3 miles
KRISTEN MCDADE Senior Director 713.469.4509 kristen.mcdade@berkadia.com
76,611
$
•
POPULATION
$93,340 AVG. HOUSEHOLD INCOME
$
$224,664 AVG. HOUSING VALUE
MATT DAVIS Associate Director 713.974.2407 matt.davis@berkadia.com
© 2020 Berkadia Real Estate Advisors LLC and Berkadia Real Estate Advisors Inc. Berkadia® and Berkadia Commercial Mortgage® are trademarks of Berkadia Commercial Mortgage LLC. Investment sales and real estate brokerage businesses are conducted exclusively by Berkadia Real Estate Advisors LLC and Berkadia Real Estate Advisors Inc. Commercial mortgage loan origination and servicing businesses are conducted exclusively by Berkadia Commercial Mortgage LLC and Berkadia Commercial Mortgage Inc. In California, Berkadia Real Estate Advisors Inc. conducts business under CA Real Estate Broker Lic. #01931050, Berkadia Commercial Mortgage LLC under CA Finance Lender & Broker Lic. #998-0701, Berkadia Commercial Mortgage Inc. under CA Real Estate Broker Lic. #01874116. For state licensing details for the above entities, visit: www.berkadia.com/legal/licensing.aspx
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IN THIS ISSUE
Features The roaring ‘20s are back: A decade of growth will propel DFW’s multifamily market The Dallas-Ft. Worth metro outpaced all other U.S. markets in terms of population growth during the past decade. Projections to maintain that trajectory will help lift the area’s multifamily sector out of a recession brought on by the pandemic.
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Designing for the future: how COVID-19 could change offices for good COVID-19 has forced most of us to work from home, but eventually we will return en masse to our offices. There will be lasting changes, however, and not just physical ones; the office of the future will be designed around empathy and communication.
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Pandemic compels more technology uptake on construction sites Temperature checks, elevator scheduling and optimized shift work are just some of the techniques that construction sites have implemented to stay operational during pandemic shutdowns. The crisis is fasttracking changes to job sites, which will be far more technologically advanced in the years ahead.
Incentives in industrial: How the market shows potential during the pandemic COVID-19 is changing our behavior, compelling us to order more items—including groceries— online. This has immediately built up demand for logistics warehouse and cold storage space. What’s more, many firsttime users of e-commerce have become converts, so this new demand is here to stay.
Alpha Office Escalations: eliminating the escalations headache An important part of commercial leases, escalations are relatively simple on paper. When putting them into practice, however, this process of transferring a property’s operating expenses and taxes to the tenants can prove to be wildly complicated.
Leading the way in La Marque: The city’s EDC helps small business La Marque is the last mainland city before crossing onto Galveston Island—putting it at the crossroads of commerce and logistics. Even so, it takes hard work and innovation to help businesses stay afloat amidst this new normal.
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Letter from the Editor
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THE TEXAS COMMERCIAL REAL ESTATE NEWS SOURCE
t’s very clear that the pandemic is going to be with us for a while, a specter over our individual health and a curse to our collective economy.
However—and this is a long-term, cross-your-fingers “however”—good will likely come of this. It’s cold comfort now, as folks’ health and livelihoods are at risk, but the commercial real estate industry is having to innovate to keep up with a “new normal” that changes daily. Eventually, these innovations will pay off. For example, in this issue we explore the changes that have come to construction sites across Texas and the rest of the world. But we can and will go further than physical distancing and hand sanitizer stations. The job site of tomorrow, for example, will make greater use of prefabricated materials. Building modules in a controlled environment and shipping them to the site can help mitigate the spread of future pathogens, while simultaneously cutting down on construction costs and time to delivery. We also speculate on the office of the future. Here too, straightforward strategies like spreading out workstations or implementing shift work have already been put into place at offices that have reopened. One key change that may be coming to the white-collar workspace may be unexpected: a greater emphasis on empathy. There’s plenty more in this issue, such as the prognosis for the DFW multifamily sector (spoiler— it’s good), a deep dive into commercial lease escalations and incentives in the industrial sector. I hope you enjoy this issue and I welcome your feedback.
NATIONAL PUBLISHER Mark Menzies menzies@rejournals.com
MANAGING EDITOR Matt Baker mbaker@rejournals.com
STAFF WRITERS Ray Hankamer rhankamer@gmail.com Brandi Smith info@REDnews.com
SENIOR VICE PRESIDENT Benton Mahaffey benton@REDnews.com
EMARKETING DIRECTOR Sarah Evans Carter emarketing@REDnews.com
ADVERTISING & CONFERENCE SALES Joni Margotta joni.margotta@rejournals.com Kelsey Ancelot kelsey.ancelot@rejournals.com Ginger Wheless ginger@REDnews.com
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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JULY/AUGUST 2020
TWO EXCELLENT DEVELOPMENT OPPORTUNITIES! Email info@txland.com Call
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COMMUNITY CORNER Magnolia, Montgomery County / 3 Acres / $1,350,000
Great commercial building site in Montgomery County. This 3 acre tract is located East of FM 149 at the corner of FM 1488 and Community Rd 1 mile east of Magnolia High School. Future HEB coming soon on the corner of FM 1488 and Spur 149. Also located less than a half of a mile from the highly acclaimed development Mostyn Manor Reserve. Utilities available. Call for more information.
BANEBERRY CORNER Magnolia, Montgomery County / 2.44 Acres / $771,000
Unrestricted corner of Nichols Sawmill Rd and Baneberry in rapidly growing Magnolia. Excellent road frontage, 3 Miles from FM 2920, 7 Miles From SH 249, 9 Miles From The Grand Parkway (99). Updated 1809 sq ft home for office space. Also available for commercial lease.
JPI is developing Jefferson Central near Dallas’ Uptown neighborhood. The 430-unit property, due for delivery next year, will feature 9,000 square feet of premium amenity space.
The roaring ‘20s are back: A decade of growth will propel DFW’s multifamily market BY MATT BAKER Even during this time of unprecedented economic turmoil, lenders are showing a willingness to back new multifamily projects—assuming certain circumstances are met. Nowhere is that truer than in the fastest-growing metro over the past decade.
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The Dallas-Ft. Worth area acquired 1,349,378 new residents between 2010 and 2019, more than any other U.S. metro. Projections suggest that the 2020s will be just as roaring, with an estimated 1.39 million new residents to DFW by the end of 2029.
While the multifamily sector has been particularly strong across the country in recent years, the uncertainty created by the pandemic is forcing banks to take a more stringent approach to underwriting. For the moment, they are focusing on projects in high-growth markets like Dallas-Ft. Worth. Admittedly, the 2020s aren’t off to a great start. What seemed like a never-ending development cycle has slowed considerably due to the disruptions caused by the COVID-19 pandemic. Regardless of this uncertainty, nearly all of DFW’s in-progress multifamily projects have moved ahead without interruption. Even some new projects are landing financial backing. According to Payton Mayes, executive vice president, regional managing partner – central region at JPI, in addition to location and fundamentals, lenders are also looking to partner with experienced firms. “Most capital wants to deal with tried and true sponsors,” said Mayes. “Since we’ve developed more than 340 apartment communities and 100,000 units, companies like JPI should be the beneficiary of this conservatism.” According to Mayes, there are equity-backed investors looking to get multifamily projects underway while construction prices are down, but on
the whole, most are taking a wait-and-see approach. He believes those who are backed by capital and in the position to break ground now should consider getting off the fence—rents aren’t in a growth mode now, but they should be by the time a property is ready for occupancy in 2022. From a submarket perspective, Mayes likes to remain fairly agnostic, looking at the Dallas-Ft.Worth market as a whole. That said, he has seen a growing demand for high-quality multifamily product in the area’s suburban communities. Continued on Page 10>
Fort Bend County - Spur 10 / Hwy 90 / Hwy 59 / I-69 / Hwy 36 Industrial / Warehouse / Distribution / Commercial / Development Sites 1. 94 or 188 Acres - The Corner of Randon School & Daily Road. Great for industrial user or developer. Close to Hwy 59 & Spur 10. $18,000 per acre
2 1 3
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2. 80 Acres - Randon Dyer Road. Well located @ Spur 10 & Hwy 90, great access, across from CNG station. Other activity in the area. $2,999,999 $2,880,000 3. 4.3 Acres - 3715 Southwest Freeway. Major Hwy Frontage on 59! Truck stop, hotel, strip center, quick service restaurant. Excellent development opportunity. $1,823,200 4. 30 Acres - Highway 36 hard corner! Hot spot for investors & near future development. Well located for many uses. Needville area. $1,399,999
4 Seth Showalter, Broker
call / text 713-269-4908
5. 37.5 Acres - 8639 FM 2759. Growing area near FM 762 & Crabb River Road (99). Excellent investment/development opportunity near Greatwood & Royal Lakes. $1,299,999 $999,999 6. 1.3 Acres - Hard Corner Hwy 59 & Reading Road. Brazos Town Center Ground Lease. • Owner Financing • Motivated Sellers
Seth@FirstWarrantyRealty.com JULY/AUGUST 2020
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Many ground-up multifamily projects in recent years have had a mixeduse component to entice residents looking for more of a live-work-play community. This model may be in flux with the hurdles now facing retail real estate—an asset class that was hobbling before the pandemic and that has only worsened since. JPI, however, generally sticks to pure play multifamily properties, especially on their suburban projects. There may be a small amount of retail due to zoning requirements, but in most cases, they rely on existing retail in the target neighborhood and fresh amenity space in the new building to provide that communal experience for their residents.
Dallas Multifamily < Continued from Page 9
“Earlier in this cycle, after the previous economic crisis, we were doing Main and Main, first ring submarkets,” Mayes said. “Today we feel we can produce the best rate of return in the suburbs.” Bringing best-in-class multifamily products to suburbia isn’t possible without achieving lower construction costs. For JPI, that has meant more standardization and bulk buying, as well as making some changes to units and amenity spaces that, while still attractive, are a good fit for a suburban location.
FOR LEASE SALE
NAME OF CENTER LAND
ADDRESS,DRIVE, SAN ANTONIO TEXAS 78155 78216 123 BYPASS & EASTWOOD SEGUIN,, TEXAS
Land: 1.472 Acres (64,112 Square Feet) Price: $20.00/SF
Established 1908
Traffic Counts: 123 Bypass & Eastwood – 25,147 VPD
Tom Rohde tomrohde@rohderealty.com Phone: (210) 844-0017 www.rohderealty.com www.loopnet.com
Demographics: Detail Total Population Average Hshld Income
3 Mile 26,719 $58,614
5 Mile 34,561 $63,411
7 Mile 44,616 $67,371
Although Rohde, Ottmers & Siegel Realty, Inc., the broker, has used reasonable care in obtaining data and making projections based upon that data, the information contained 11503 NW Military, Suite 330, San Antonio, Texas 78231 toPhone: Fax:changes 210-366-0246 Web: www.rohderealty.com herein is submitted without representation nor warranty. All information is subject errors, 210-366-1400 omissions, price change, in terms and conditions, prior sale or lease, withdrawal from the market without notice, and other events beyond the control of the broker.
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“When we talked about working from home 20 years ago, it was with the mindset of people using a desktop computer anchored to one location. Now laptops let you go anywhere,” said Mayes. “Rather than more business coworking spaces, we’re focusing on comfortable spaces with great connectivity where they can break out a laptop, as well as homes themselves that are laid out so they can work there efficiently.” Though JPI may have shifted their focus more towards the suburbs as of late, dense urban locations are still a great bet for providing the live-work-play environment that so many residents yearn for. Scheduled to open by the fourth quarter of 2021, Jefferson Central is one such development. Located in Cityplace at the southeast corner of the North Central Expressway and Carroll Avenue, this is JPI’s first multifamily project near the Uptown area of Dallas in 10 years. For this property, JPI is partnering with WDG Architecture Dallas, United Structural Consultants, Jordan & Skala Engineers, Kimley-Horn and Associates, TBG Partners and Dement Designs. Truist Bank provided financing, along with equity investor Pacolet Milliken.
SITE
11503 NW Military, Suite 330 San Antonio, Texas 78231
Those amenities are shifting ever so slightly due to the COVID-19 situation. With more employees working at their kitchen table rather than a workstation in a crowded office, engaging with that home-office relationship has become paramount. That means providing a variety of spaces, both inside and outside of the property, that have strong and stable Wi-Fi so that a resident can work from virtually anywhere.
JULY/AUGUST 2020
The five-acre, Class A development comprise 430 rental units, finished with above-market interiors and high-quality upgrades. Jefferson Central’s more than 9,000 square feet of community amenities will include a cooking demonstration kitchen, pet park with grooming station, resort-style pool, a business center, state-of-the-art fitness center with spin and yoga studio, a coffee bar and a fifth floor lounge space with views of downtown Dallas. Without question, it has been an auspicious start to the decade. Most economists believe that this recession will only last as long as COVID-19 is a threat, so once a vaccine or other therapeutic treatment is available, the markets should begin to bounce right back. There’s no reason to believe that the Dallas-Ft. Worth metro won’t continue its incredible growth trajectory, and with that, an insatiable hunger for more multifamily properties.
Designing for the future: how COVID-19 could change offices for good BY BRANDI SMITH
Credit: Corgan
“People are reaching out to one another on a personal level. Checking in on others, just asking, ‘Are you doing OK” David Euscher
More than they ever have before, Americans are working from home to follow CDC recommendations about social distancing to slow the spread of COVID-19. The situation is forcing employees and employers to adapt to a kind of new normal.
years ago, works with clients internationally to create places “where people thrive and clients succeed.” Projects span a range of categories from offices to healthcare to airports. The company touts clarity, singularity, locality, responsibility and empathy as its design principles.
“Connecting with clients and connecting with my team has been different,” says David Euscher, vice president and interior design studio leader at Corgan. “We're in a very collaborative field and I find that communication is much more scheduled and intentional than when you’re in a studio space together.”
Empathy is something Euscher, who’s based in the firm’s Houston office, says he’s grateful to see more of as American cope with a once-in-a-lifetime challenge.
Corgan, a global architecture and design firm founded in Texas more than 80 12
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“People are reaching out to one another on a personal level. Checking in on others, just asking, ‘Are you doing OK?” he says. “Everyone’s going through the same thing at the same time and that shared struggle is bringing people together.”
Credit: Corgan
While he’s working from home himself, Euscher and his team are working with clients who anticipate the return of employees to the office. His approach has evolved as scientists have learned more about the virus. Surface contamination, for example, was a concern early on in the pandemic, leading Euscher to look into anti-microbial materials for construction as well as cleaning regimens. More recently, scientists warned about person-to-person transmission as a bigger threat. “Knowing that is a contributor to the spread, that really starts making us think about our behavior and the space that our behaviors occupy or kind of drive in
“I think it all kind of comes down to how an organization works and how they want to interact with their fellow employees too. That's really going to be what drives office design.” an office environment,” says Euscher. Open floor plans are a less attractive option than ever, though Euscher suggests it’s easier to rework an open floor plan into a safe, social-distanced space than it is to work with cubicles and traditional offices. “At Corgan, we developed a tool called Unscripted (trademarked name, patent pending) that lets us analyze plans quickly to try to optimize the distance between people,” Euscher says. “We can look at an existing space and—based Continued on Page 14>
JULY/AUGUST 2020
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Designing for the future < Continued from Page 13
on the furniture they have, whether it’s an open plan—figure out how to reconfigure it to accommodate employees in a safe space.” Depending on the company’s goals, that could result in expanding its offices or the decision to scale back. “I think it all kind of comes down to how an organization works and how they want to interact with their fellow employees too,” says Euscher. “That's really going to be what drives office design.” It may not be a binary decision to have an office or not. As we return to the workplace, it will look different for each organization, but we will need to think about how to not only create a safe space but also a place where employees feel safe and confident—tapping into the psychology of trust and designing for that. If a company is one that thrives on collaboration, it may make the decision to bring all of its employees back into the office. Doing so in the current environment dictates that each employee would need more space, which leads to a need for more square footage. Companies that have found success in having employees work from home may see that as a long-term solution and an opportunity to find a smaller space to
ENERGY CORRIDOR LAB SPACE/OFFICE FOR LEASE
15366 PARK ROW HOUSTON, TX 77084
Credit: Corgan
TENANT NAME HERE
house those workers who do need to be in the office. “We're seeing different reactions from different groups, but in general, have learned that humans are adaptable. Different settings are needed for people and tasks,” Euscher says. “They’re making decisions based on what they believe is the right thing to do for business continuity, as well as for the safety and health of their employees.”
PROPERTY INFORMATION
19,117 SF +/- free-standing, flex building
3,339 ± sq. ft. lab space
769 ± sq. ft. warehouse
15,009 ± sq. ft. office
High quality interior finishes with hardwall offices, conference rooms, 8 cubicles
Employee kitchen
Deed-restricted Park Ten Business Park
Excellent Energy Corridor location
Starting Lease rate: $13.95/NNN
As Corgan’s clients learn about how to best serve their workforce, the firm’s designers are learning a lot as well, according to Euscher.
Excellent proximity to I-10 and Highway 6
Contact Broker For More Information: Evtex Companies 5100 Westheimer | Ste. 155 Houston, TX 77056 713-621-3999
Robyn Berry 713.629.5535
Robyn@evtex.com
Joe Evans 281.955.5535
Joe@evtex.com
Janae Evans 713.621.3999
Janae@evtex.com
The information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinion, assumptions or estimates used are for example only and do not represent the current future performance of the property. The value of this transaction to you depends on tax and other factors which should be evaluated by your tax, financial, and legal advisors. You and your advisors should conduct a thorough independent investigation of this property to determine the suitability of the property for your needs.
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“It’s happening all across the design industry. As a firm with diverse practice areas, we’re able to tap into resources across our education, healthcare, aviation, and interior workplace market sectors and share best practices, new technologies and lessons learned. Across the firm and across the design industry, we have a common goal to solve some really difficult problems,” he says. “There’s a collegial spirit of trying to make the world a better place for all the people we serve.” He’s hopeful that kind of energy will continue long after employees return to their workplace, no matter how different that space looks in the future.
SAVE THE DATES COME SEE US IN DALLAS!
PRESENTS
INDUSTRIAL SUMMIT: DALLAS
SEPTEMBER 1, 2020 • 8am - 12pm • Prestonwood
WOMEN IN REAL ESTATE SUMMIT: NORTH TEXAS SEPTEMBER 29, 2020 • 1pm - 4pm • Prestonwood
FOR SPONSORSHIP INFORMATION: Joni Margotta 469.569.0246 joni.margotta@rejournals.com
Ginger Wheless 713.661.6350 Ginger@rednews.com
Pandemic compels more technology uptake on construction sites BY MATT BAKER
Once complete, the Indeed Office Tower will be the tallest office building in Austin’s central business district.
Necessity may be the mother of invention, but stress is the foreman provoking further innovation. In these stressful times, we’ve already seen a lot of pioneering techniques to safely keep construction sites active. In the months and years ahead, the pandemic will continue to leave its mark on the way we build the world around us. In the larger Texas metros, the COVID-19 emergency has forced some projects to partially or fully suspend operations while others that were set to break ground have been pushed until next year, according to Matt Hoglund, central regional leader and management committee member with DPR Construction.
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“Ultimately, we know customers want predictability. They want to know ways we can limit disruptions with labor and the supply chain.” Though some of DPR’s clients have hit the pause button while they evaluate the economic impact of the pandemic on their business models, the vast majority of their projects have progressed forward. DPR instituted a number of safety protocols on active job sites that, in the end, caused minimal impacts and allowed work to forge ahead.
“Construction involves mitigating hazards under normal circumstances and COVID-19 prevention is now a new hazard taken into consideration in planning daily work, labor needs and PPE,” said Hoglund. “As a result, construction has proceeded consistently in most areas, with even some additional work being added by our healthcare
Numerous steps were taken to mitigate the spread of COVID-19 during the renovation of Hilton Americas, the largest hotel in Houston.”
teams as our customers seek their own solutions as a result of the pandemic.”
More integrated and efficient use of virtual design and construction (VDC) and building information modeling (BIM), for example, can allow for more modular and other off-site work to bring a project to delivery faster. These technologies aren’t new but using them in novel ways can potentially
change the industry for years to come, especially as the relatively nascent field of prefabricated construction begins to take off. “We expect cost and schedule certainty to be an even higher priority for customers as the economy recovers,” said Hoglund. “As we continue to deal Continued on Page 23>
For example, DPR has been tasked with renovating Hilton Americas, the largest hotel in Houston. The second phase of the renovation was set to begin after a number of large conferences were canceled due to the pandemic. Not only did DPR have to start work on 600 guest rooms earlier than anticipated, they had to come up with a COVID-19 emergency response plan to mitigate the spread of the virus.
䌀漀渀猀椀搀攀爀椀渀最 匀攀氀氀椀渀最 夀漀甀爀 䤀渀瘀攀猀琀洀攀渀琀 倀爀漀瀀攀爀琀礀㼀 䌀漀渀猀椀搀攀爀椀渀最 愀
Among these steps, DPR instituted a rigorous screening process for workers entering the site, using a sophisticated QR Code system, electronic badging, temperature scans and color-coded wrist bands. They also sorted the 250 people coming to the site each day into four separate shifts and scheduled use of the freight elevators so that deliveries and debris removal didn't create a bottleneck in the loading dock.
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“We are very proud of the adjustments our teams have made and the discipline they’ve shown in adhering to new protocols,” Hoglund said, “including utilizing an internally developed national pre-screening app, required temperature checks and physical distancing.” In Austin, Dallas, Houston and markets around the country, construction pipelines will before long find themselves filled with healthcare, life sciences and advanced technology projects. Even with this renewed focus, the pandemic has created serious economic disruption. According to Hoglund, however, this is a feature not a bug; the strain of the pandemic and it’s resulting recession will create more opportunities for innovative processes to gain a foothold on work sites. “Ultimately, we know customers want predictability. They want to know ways we can limit disruptions with labor and the supply chain,” said Hoglund. “We believe in our self-perform craft to help there.”
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Alpha Office Escalations: eliminating the escalations headache BY BRANDI SMITH What impact will COVID-19, and fluctuating oil prices, have on Houston’s industrial market?
accounting software isn’t set up to handle the complexities of commercial real estate leases.
Escalations are an important part of commercial leases and are simple in theory, but in practice escalations have the potential to be wildly complicated based on the makeup and occupancy of a given property. “It’s very much of a niche specialty that requires a lot of experience to get it right,” says Bill Brownfield, Counselor of Real Estate (CRE), Certified Commercial Investment Member (CCIM) and author of The Escalation Handbook for Office Buildings.
Bill Brownfield
Larry Mayerhofer
commercial property managers. He and Mayerhofer worked together at Equity Office Properties (EOP), which became the largest REIT in the country, and pooled their respective management and accounting
“The problem is that these files can be corrupted with bad formulas or data links. And when a person leaves and someone else takes over, they may not know exactly how it works.” Escalations are the process by which operating expenses and taxes are allocated on a pro-rata basis to a property’s tenants (in addition to the base rent they pay). Because leases can—and often do—vary in definitions of who pays for what, it can be difficult to accurately calculate and invoice each tenant for its appropriate share. “Probably half of escalation invoices have errors in them. Those can be small errors or large errors,” Brownfield says. “Every individual lease is different, which means that there is the potential each tenant’s share of operating expenses to be calculated differently.” Having literally written the book on the topic along with Larry Mayerhofer, Brownfield saw the opportunity to create a system specifically for 18
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knowledge to develop Alpha Office Escalations (AOE). “Our software design incorporates input from four different real estate disciplines: accounting, programming, property management and legal concepts included in office and industrial leases. We know what people are looking for,” explains Brownfield. “It really takes a combination of all four of those specialties: people who understand how leases are crafted, what they mean and how operating contracts can impact variable expenses.” Mayerhofer, a Certified Public Accountant with more than 30 years of real-estate accounting experience including overseeing property accounting for EOP, points out that most off-the-shelf property
“Some of these properties have retail tenants on the first floor and office tenants upstairs. Some have condos in the building too. It gets pretty complicated splitting the expenses between the different lease types and billing them correctly,” he says, noting that ownership changes can result in a number of different lease clauses as well. Expense caps and capital amortizations also complicate things. While large REITS have in-house specialists or proprietary software to help with their portfolios, many small- to mid-sized property management companies have created in-house spreadsheets to track expenses and do the calculations. “The problem is that these files can be corrupted with bad formulas or data links. And when a person leaves and someone else takes over, they may not know exactly how it works,” says Mayerhofer. “So there are a lot of risks when using spreadsheets.” Those risks are eliminated by using AOE. First developed in 1998, the software has been enhanced considerably over time with new features and reports, and is now cloud-based for easier access and automatic upgrades. It allows property managers to input details of each individual lease for a property and use Building Owners and Managers Association (BOMA) International’s approved industry-standard methodology to generate tenant invoices. “Errors are eliminated because the underlying calculations cannot be overwritten, and AOE is flexible enough to deal with any unique lease specific issues,” Brownfield says. In addition to its accuracy, AOE saves its users time because lease information is only entered once. To get started, all a property manager needs to do is enter Continued on Page 21>
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Incentives in industrial: How the market shows potential during the pandemic BY BRANDI SMITH At our house, the doorbell rings more now than it ever did before the COVID-19 pandemic. The sound doesn’t typically announce a friendly visit from a neighbor these days. Instead, it alerts the household that our delivery has arrived, that on our doorstep awaits something as mundane as groceries or as exciting as new craft supplies for the kids. Our family is one of millions doing our best to heed recommendations from the Centers for Disease Control while also supporting the local economy. In doing so, we’re indirectly bolstering the industrial commercial real estate market.
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It’s no surprise that online sales have seen an incredible boost in the past few months. After all, most stores were completely shut down for a period, only able to offer their wares via the internet. As a result, there’s been an increased demand for warehouse, cold storage and distribution space. That need is driven in large part by the food industry, which has documented growing consumer desire to pick up grocery items or to have them delivered as an alternative to winding the narrow aisles of their neighborhood market. Daily online sales doubled between March 13 and March 15 (compared to March 1 to March 11), per Adobe’s Digital Economy Index. Before COVID-19 online grocery sales only represented 1.5 percent of e-commerce sales. They now account for more than 10 percent. Before you argue that the spike is temporary, a survey conducted by Brick Meets Click / Shopper Kit suggests that nearly half of people who are doing their shopping online intend to do so even after the pandemic is over. “The COVID-19 situation will drive further adoption of e-commerce in the future, which will require more fulfillment space and a higher demand for industrial properties,” said Jason Hsiao, managing director of Shaw Investments. “Restaurants will also evolve to incorporate omnichannel strategies and attempt to remove third-party delivery in order to maintain margins.” This is a trend market experts have been monitoring for years as more retailers leaned into the e-commerce world. Just west of Houston, industrial construction has exploded along I-10 with projects including Parkside Capital’s West Ten Business Park. The final piece of the 460-acre, masterplanned development sold to Insite Realty and joint venture partner Principal Real Estate Investors, who teamed up to develop the Cane Island Business Center, a 277,400-square-foot speculative distribution project. In its 2019 report Food on Demand Series: Cold Storage Logistics Unpacked, CBRE Research concluded an additional 75 million to 100 million square feet of cold storage space would be needed to meet the increasing demand associated with direct-to-consumer food delivery or in-store item pickup.
“Most people that sell to consumers will need to have a larger footprint to accommodate more inventory,” Walter Kemmsies, economist and chief strategist for industrial real estate firm JLL told Logistics Management. “E-commerce is on fire and the demand for industrial real estate is there to support it as well.” Another factor to consider, pointed out Kemmsies, is that America has started shifting away from China as a supplier. Doing so requires changes to the supply chain, possibly resulting in more safety stock and, as a result, the need for more storage space. Though COVID-19 has completely upended the industry, it’s also provided a spotlight for the strengths of the industrial real estate market. Just as they always have, resilient CRE professionals and their clients will adapt and respond to the challenges posed by the pandemic to capitalize on the investment opportunities the current situation promises.
Alpha Office Escalations < Continued from Page 18
lease specifics for each tenant into AOE’s guided step-by-step profile template. After uploading or inputting operating expenses, the software instantly creates invoices. The AOE dashboard offers a high level snapshot of the building’s escalation results. The software generates an unparalleled array of simple, clean reports and invoices for ownership, management and tenants. Its standard methodology provides a valuable tool to help defend the escalation calculations in the case of a dispute, tenant audit or lawsuit. AOE’s user support is unique to the industry. “If a customer has a question, they contact me or our programmer. They get a personal response and an immediate answer,” says Mayerhofer. People who use AOE love it, he adds, even bringing it with them when they move to a different company. Testimonials from some of the country’s biggest real estate companies echo that.
"The Alpha Office Escalation program has taken the guesswork out of trying to calculate gross-ups. We've made it part of our lease process to input new tenants and renewals into AOE as they're signed, it saves a ton of time when preparing annual reconciliations,” says Karrie McCampbell, regional operations manager for Transwestern’s Central Region. “We swear by the software,” says Cushman & Wakefield senior property manager Jennifer Hatchett. “Escalations are so easy for us!" Brownfield and Mayerhofer hope their software, into which they’ve poured their knowledge, experience, time and passion, will continue to make the lives of real estate professionals a little easier. “AOE is an escalation billing system with very helpful reports for office building management, ownership and tenants,” says Brownfield. “We specialize in escalations so you don’t have to.” To learn more about Alpha Office Escalations, visit www.AlphaOfficeOnline.com.
City Management JULY/AUGUST 2020
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Leading the way in La Marque: The city’s EDC helps small business BY BRANDI SMITH The past couple of months haven’t exactly been business as usual for Texas businesses as they dealt with the initial news of the COVID-19 pandemic, the subsequent closure of anything billed non-essential and now the reopening process. It’s been challenge after challenge: how to respond, what to do when shut down, how to operate in this new normal. “No doubt, this pandemic has not been a friend to many businesses and the effects will remain long after this first wave of infection is gone,” said EDC Executive Director Alex Getty. “However, the eternal optimist in me, while sometimes hard to see, looks for silver linings.” Lucky for those in La Marque, the city’s Economic Development Corporation is an example of that, stepping up and working at lightning speed to help its business owners stay afloat. It was only back on March 18 that the City of La Marque ordered the closure of
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Alex Getty
bars, restaurants and entertainment venues. Then came Governor Abbott’s executive order on March 19, followed by a stay-at-home order from Galveston County Judge Mark Henry. “We acted quickly to infuse desperately needed cash into small businesses that have been negatively affected by policies put in place to flatten the curve,” Getty said. “Those efforts will save some businesses.” Knowing the threat posed to the livelihoods of so many in La Marque, the EDC got to work on a plan. Just two weeks after that March 18 order, it had a plan: the Emergency Business Retention Program, which would provide grants to qualified La Marque business owners impacted by the COVID-19 pandemic. The EDC’s board of directors approved it on April 2 during a special meeting and by April 8, the Grant Application Review Committee met to decide who would receive the grants. Staff then contacted business owners and mobilized the City of La Marque’s Finance Department and started getting those muchneeded grant funds into the hands of those business owners. The last of the checks were issued on April 15, less than a month after the first businesses were forced to close. Now the LMEDC Board of Directors is considering round two of the COVID Emergency Grants. “Living on the Texas Gulf Coast, we are no strangers to dealing with adversity. Over the years, we have banded together to help each other many times,” said Getty. He added that the EDC was inspired by the innovation it’s seen as Texans responded to the pandemic. “What I have seen and read about regarding innovation over the past couple of months has been incredible. Businesses have pivoted production to meet current needs,” Getty explained. “I learned of a company turning their bar into a successful street-front grocery store selling, among other items, fresh fruits and vegetables. Most of us have heard about some of the local distillers pivoting to make much-needed hand sanitizer. Even a mattress company got in on the action by manufacturing masks. Some car dealers are now offering pick-up and delivery at home or work to service or repair cars.” Continued on Page 27>
Google has leased the entirety of the office space at Block 185, now under construction in Austin’s Green Water Redevelopment area.
Construction Trends < Continued from Page 17
with COVID-19, prefab helps take some of the workers away from the site and allows more space for distancing.” In addition to the Hilton Americas project, DPR has been involved with a number of high-profile builds around Texas. The 39-story Indeed Office Tower, for example, is set to deliver 683,000 square feet of retail and Class A office space to downtown Austin. Developed by Trammell Crow Company, the building is scheduled to deliver next spring. Set to be the tallest office tower in Austin’s CBD, Indeed Office Tower will feature 3,000-square-foot floorplates and tenant amenities such as a fitness center, dedicated conference center and outdoor terraces. The adjacent, historic Claudia Taylor Johnson post office building will eventually be transformed into a food hall or urban market. Another partnership with Trammell Crow in Austin is Block 185, a 35-story office building fronting the Colorado River in the city’s Green Water Redevelopment area. Designed by Pelli Clarke Pelli Architects, tech giant Google recently leased all 800,000 square feet of office space in the 1.5-million-square-foot development. Regardless of the building type or scope—from smaller projects to skylinedefining towers—the future of construction will likely be defined by digitally fabricated, modular components. By using prefabrication, materials can be procured at optimal times and there is less waste, delivering more value. And in a world still reeling from the pandemic, off-site manufacturing also provides an easier approach to physical distancing and cleaning/sanitization that tomorrow’s construction firms will find appealing. “Overall, we have been focused on technologies that improve efficiency in the way we deliver projects from early design through occupancy,” Hoglund said. “We expect those solutions will be an even higher priority coming out of the pandemic.”
“Overall, we have been focused on technologies that improve efficiency in the way we deliver projects from early design through occupancy.”
is enhanced collaboration. Owners, developers, architects, contractors and subcontractors have continuously been drawn to those technologies that aid communication at every stage of a project. Having conducted integral project meetings during this crisis without being physically present, all of these stakeholders should be planning for the technological leaps coming in the years ahead.
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In the end, the biggest benefit to the construction trade that technology provides JULY/AUGUST 2020
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Newest Member of the REJournals Team
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Kelsey Ancelot,
Media + Event Online Sales and Marketing
Phone: 713.661.6316 Email: kelsey.ancelot@rejournals.com
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BACREN June Speaker Emily Krone with Greer, Herz & Adams, LLP and Shawn Budhwani with UTR Texas Realtors, President of BACREN
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CREW Dallas Taking Care of Business Virtually in 2020
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SIOR makes huge meal delivery to front line hospital workers!
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Committed to our Communities - IREM Houston Volunteers Again!
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Thank you to IREM Houston Kid's Meals Program Volunteers
Kelsey Ancelot joined REDnews/ REjournals in April of 2020. Born and raised in Southeast Texas, she now lives in Houston. Kelsey attended Kilgore College for two years before completing her education at Centenary College of Louisiana. At both schools, she was the starting centerfielder for their collegiate softball teams. Kelsey holds a Bachelorâ&#x20AC;&#x2122;s degree in Communications with a minor in Sociology. Kelsey comes to us from the apartment industry, giving her a strong background in customer service and property management.
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Leading the way in La Marque < Continued from Page 22
The EDC’s no stranger to innovation itself. The Emergency Business Retention Program is its most recent example, but there are many others before that, including Shine On La Marque. “We created Shine On La Marque to highlight local businesses and support the Shop Local initiative,” said Getty. In just more than a year, the program has featured more than 30 local businesses. The EDC pays a film crew to visit each location and produce a two-minute spot about it, which is shared via social media. On April 30, for example, Shine On La Marque put the spotlight on The UPS Store. The one rule for Shine On La Marque is that the businesses must be within city limits. Others featured include Hart Pharmacy, Kelley’s Country Cookin’ and a recent addition to La Marque’s Renaissance District: Art of Coffee.
infrastructure improvements. Next to Art of Coffee sits a restaurant space, waiting for a tenant, a great opportunity for someone to become a part of La Marque’s thriving downtown. “Now more than ever, the Shop Local movement has momentum and a sense of purpose. People are genuinely making a concerted effort to support familyowned businesses in their communities,” Getty said. “It’s no secret that small businesses are the lifeblood of a community.” Downtown, however, is hardly the only place to find development opportunities within La Marque. The last mainland city before crossing the bridge to Galveston Island, La Marque boasts the most I-45 frontage of any city in Galveston County. TxDOT is just getting started on a project to widen the freeway, setting up a perfect scenario for developers who plan ahead. By acquiring property and getting started on a project now, they could time their opening with the completion of the expansion.
“We make the best coffees, pastries, you name it,” said owner Jimmy Sims in the video.
“The past few months have reminded us how quickly things can change, but what we know doesn’t is the importance of location,” said Getty. “Location is certainly one of La Marque’s strengths.”
Residents clearly agree, filling the coffee shop’s parking lot along Laurel Street every day. It’s the kind of mom-and-pop business the EDC is looking for as it works to revitalize downtown with streetscaping projects, new lighting and
For more information about development opportunities in La Marque, contact the La Marque Economic Development Corporation by visiting LMEDC.com or calling 409-938-9258.
advertiser index Berkadia........................................................................................................3 City Management..................................................................................... 21 CRG Texas Environmental Services, Inc..................................................2 Evtex Companies.......................................................................................14 First Warranty Realty.................................................................................9 Jacobs Properties........................................................................................ 7 Kay Properties........................................................................................... 17 La Marque Economic Development Corporation.................................5
RE(AL)
Lincoln Property Company......................................................................23
CONVERSATIONS
Phase Engineering.....................................................................................24
JOIN THE REAL ESTATE COUNCIL AS WE CONVERSE WITH LOCAL EXPERTS ABOUT ISSUES THAT MATTER TO FORT WORTH AND ECONOMIC DEVELOPMENT
National Environmental Services, LLC..................................................27
Plus Corp Photography........................................................................... 20 The Real Estate Council - Greater Ft. Worth...................................... 26 Rohde Ottmers Siegel Realty.................................................................10 Signorelli Company....................................................................................11
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JULY/AUGUST 2020
A 360°APPROACH TO E N V I R O N M E N TA L S E R V I C E S STAY STRONG AND SAFE
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