Monday, April 28, 2008

Home Depot hammers out deal for new distribution center

The Home Depot Inc. will be undertaking some improvements of its own after signing a huge lease last month for a new distribution center in Northwest Houston.
The Atlanta-based retailer is leasing the entire 535,000-square-foot Fallbrook Distribution Center, according to sources close to the deal.
Fallbrook Distribution Center is currently being built by Malvern, Pa.-based developer Liberty Property Trust.
Home Depot already has a 750,000-square-foot distribution center in the Cedar Crossing Industrial Park near the Port of Houston, as well as other facilities in the Houston area.
Home Depot executives were not available for comment by press time.
Joe Trinkle, city manager in Houston for Liberty Property, discussed the deal but would not confirm the tenant's name.
But the large transaction is common knowledge in real estate circles, especially since a number of developers tried to land the deal.
"I think it will be one of the largest single-lease transactions this year," says Ron Roberson, head of commercial development at Caldwell Cos. "There just aren't that many half-a-million square foot deals."
Meanwhile, the facility, located at the southwest corner of Fairbanks-North Houston and Fallbrook Drive, is being billed as one of the first industrial buildings in Houston to seek LEED certification as a sustainable development. Liberty Property first announced plans to build two "green" industrial buildings late last year.
Liberty Property also switched gears in the middle of construction to make the facility -- originally planned as 615,000 square feet -- smaller to suit the long-term tenant. "We disassembled the east side of the building and relocated tiltwall concrete panels to create a larger employee parking area," Trinkle says. "We had to take apart the building to accommodate their need."
The west side of the building was also disassembled and reconstructed in order to add a third loading dock, he says.
Gary Mabray, an industrial broker with Colliers International, says it is unusual for a construction project to undergo as many changes as this one did.
"That building was basically finished," Mabray says. "They had to go back in and demolish slab and everything."
Liberty Trust, a real estate investment trust, offered the tenant a build-to-suit option at another site so the building would not have to be converted, but Trinkle says the timing was off.
The Fallbrook tenant wanted to move in by July instead of waiting until the first quarter 2009.
"The problem was timing," Trinkle says. "They needed to be in this summer." FRom HBJ 4/28/2008 For more information see: or

White Rock lights up first Houston project with GE as partner

Houston's newest industrial development player -- which finalized its first local land purchase this week -- is bringing some major firepower to the market through a deep-pocketed investment partner.
Dallas-based White Rock Commercial LLC and GE Real Estate acquired 10.8 acres near the northeast corner of Beltway 8 and West Road for development of an industrial-type office building. The deal marks White Rock's entrance into the Houston market.
The firm also has plans to acquire three more sites for projects in the near future. White Rock has several equity partners it is working with on the various deals.
"We're looking to gain a significant presence down there," says Rockwell Hopkins, president and CEO of White Rock.
Houston has been a target market for the firm since it was formed two years ago.
"It's a really solid real estate market," Hopkins says. "How can you not be in Houston if you're in the real estate business right now?"
White Rock scouted Houston for sites for a year before executing this transaction.
"The biggest thing that's going on out there is a lack of available land sites," says Jeff Peden of Cushman & Wakefield of Texas Inc.
Peden and colleagues David Cook, Marshall Davidson Jr. and Graham Horton represented White Rock in the deal.
The land was purchased for a little more than $4 million from China Real Estate America Investment LP. The Chinese investor group was represented by Andy Sowell of Boyd Commercial.
White Rock plans to spend $27 million to develop a 170,000-square-foot office building on the site. General contractor Cadence McShane Corp. of Dallas will begin construction as soon as a building permit can be obtained. It will take up to 10 months to erect the building, which will be similar to other value-added office buildings that line the Beltway in Northwest Houston. Named West Pointe Center, the three-story tiltwall structure is designed to look more like a typical office building, Hopkins says. Gromatzky Dupree and Associates, a Dallas-based architecture firm, used spandrel glass in the design to enhance the building's entryway and parts of the third floor.
"We've done some tricks to it architecturally to make it look more dressed up," Hopkins says. "We've tried to design a building that is one level higher in quality than some of our competitors, but keep our cost in hand so our price is not significantly different."
White Rock plans to hire a local brokerage firm within two weeks to handle leasing. Rental rates will not be announced until after that occurs.
Grabbing a slice
White Rock was formed two years ago by parent company Boston Pizza International Inc., which is based in Vancouver, British Columbia. Boston Pizza is a large restaurant chain that reported 2006 sales in excess of $647 million.
White Rock represents Boston Pizza's entrance into real estate, although the firm has a number of other business lines under its corporate umbrella.
The real estate component was launched in Dallas because that's where Jim Treliving, chairman and owner of Boston Pizza, now lives after moving from Canada. That's also where he met Hopkins.
Before joining White Rock, Hopkins spent seven years as chief financial officer of institutional investor Invesco Real Estate. Prior to that, he spent 15 years with Dallas-based Trammell Crow Co.
Other White Rock executives include Mike Perot, senior vice president of development and marketing; and John Stone, senior vice president of operations and finance.
Even though White Rock has yet to complete a development, Hopkins says the firm was able to secure backing from GE Real Estate because of prior relationships between executives at each of the firms.
So far, White Rock has purchased three pieces of land for developments and has three more under contract in Texas and Pennsylvania. The firm broke ground last December on its first project, which is in the Dallas area, and plans to start construction on two more projects within the next few weeks. for more infromation see: or

Monday, April 21, 2008

Leases trumps late pays

The no-nonsense wording of the lease between an Indiana shopping center and one of its tenants has resolved a dispute between the two parties over rental responsibility.


"The lease required, among other demands, rental payments no later than the first day of each month. Plus, it made the tenant personally liable for those rental payments. Just as important, the lease stated that despite any relaxing of the conditions of the lease by the center's owners, the tenant still must comply with the lease requirements.

That last provision was tested when the tenant consistently failed to pay rent on time and the center's owners nevertheless accepted the late payments. The tenant apparently understood that laxity as a sign that the lease was flexible and compromising.

That thinking was tested when new owners began the center. Those owners required a strict honoring of the terms of all leases they inherited. So when the tenant continued to make late rental payments, the owners finally evicted him and demanded personal payment of all back rent and penalties.

The tenant replied that the new owners had in fact accepted some late rental payments and by doing so had waived their right to claim a lease default on his part. In response, the new owners pointed to the terms of the tenant's lease. It stated, in part, that:

the acceptance of rent by the landlord shall not be deemed a waiver of any earlier breach [of the lease] by the tenant.

Furthermore, the guaranty stated that the tenant's liability as
shall in no way be affected, modified or reason of any dealings or transactions or matter or thing occurring between landlord and tenant, its successors or assigns.

An Indiana appellate court, in ruling in favor of the center's owner, explained,

Under the clear language of the lease, the new owners did not waive the tenant's default by accepting the late payments. Further, the guaranty of the tenant was not affected by the owners' failure to assert its rights against the tenant. We conclude that the tenant was in default because he failed to make timely rent payments. Consequently, the owners did not waive their right to enforce the guaranty.

HK New Plan Marwood Sunshine Cheyenne v. Onofrey Food Services, 2006 WL 1098590), Decision: April 2006, Published: May 2006."

from RE Business Online, October 9, 2006

"Successfully managing environmental risks that arise from both known and unknown environmental liabilities lying below the surface of a brownfield is the challenge facing any developer. While most developers are well acquainted with managing risk, environmental risk can be particularly difficult to manage given the uncertainties relating to the presence or extent of contamination, governmental cleanup requirements, cleanup costs and potential third-party exposure. The industry has come a long way, though, since the days when even the smallest hint of environmental contamination could kill a deal. Experience and technology have spurred the development of a number of useful tools for managing environmental risk. One of the most important is environmental insurance.

Environmental insurance refers to a fairly specialized set of insurance products offered by a handful of insurers to address various risks arising from environmental conditions. Unlike the rigorously standardized policies and endorsements found in other types of insurance, such as commercial general liability insurance, each insurer offers a somewhat different take on the environmental insurance it offers. And unlike most insurance policies, the terms, conditions and endorsements in environmental insurance policies are negotiable.

In brownfield deals, two types of environmental insurance are usually the most useful.

One is an environmental cost cap or stop loss policy (Cost Cat), which addresses non-contingent cleanup liability and protects the insured from the risk that cleanup costs will exceed cost estimates.

The second is pollution legal liability insurance (PLL), which addresses unknown, contingent liabilities such as cleanup costs (where there are no pending cleanup requirements or claims), bodily injury and property damage claims. These are all claims-made policies, which means that the claim must be asserted against the insured and reported to the insurer during the policy period, which usually ranges from 3 to 10 years.

Assume that the buyer intends to acquire and develop a 5-acre former industrial facility. On one corner of the property, there is significant contamination of groundwater by solvents emanating from the site of a former waste solvent tank. The state environmental agency is requiring the investigation of the solvent plume and will require cleanup at an estimated cost of $2 million. Petroleum contamination also has been found in shallow soils throughout the site, but concentrations appear to be low enough that remedial action will not be required. The buyer is concerned, however, that the site has not been adequately investigated and other contamination may be discovered during development. The buyer is also concerned that the plume of contaminated groundwater appears to be migrating into a nearby residential neighborhood. For various business reasons, the buyer is assuming all environmental liabilities with an appropriate adjustment in the purchase price."

Breaking it down, we have different risks that must be managed:

1. Risk that remediation of the solvent plume will exceed assumed costs.
While the buyer's consultant estimates the cost of cleanup should be
$2 million, those costs could increase for a number of reasons, such as the presence of more contamination than expected or a change in governmental cleanup requirements. The buyer risks losing his financing unless he can figure out how to contain the potential cost overruns. A Cost Cap policy provides protection against these cleanup cost overruns.
In effect, there is a self-insured retention that equals the estimated costs, and often a buffer of 10 to 20 percent of the estimated cleanup costs will be added to increase the self-insured retention in exchange for a reduced premium. The Cost Cap policies do not provide unlimited coverage; so adequate limits of liability (how much the policy will pay
out) to assure the risk concerns of the buyer and its lender must be considered. There are other solutions, too, such as a "finite-risk" policy or fixed-sum contract with the remediation contractor backed by environmental insurance, but these are usually more suitable for larger projects.

2. Risk that exposure (real or alleged) to known and unknown contamination will result in toxic tort claims.
For most developers, the risks from potential toxic tort claims are particularly difficult to handicap and manage. Insurers providing PLL coverage will ordinarily defend and indemnify toxic tort claims arising from both unknown and known contamination, provided the known contamination was disclosed to the insurer.

3. Risk that known or unknown conditions will result in new cleanup claims.
The cleanup cost coverage under a PLL policy should protect the buyer against the risk of being required to cleanup contamination missed in prior investigations, including possible cleanup requirements for the known minor petroleum contamination. Of course, the insurer will exclude the solvent plume in our example because it is subject to existing cleanup requirements.

Careful attention must be given to how the insurer proposes to exclude known contamination. For example, an insurer would probably propose to exclude coverage for all the chemicals found in the contaminated groundwater plume, even if the contamination arose from a release on another part of the property unrelated to the known plume or the solvent tank. Through negotiations with the insurer though, the exclusion can usually be limited to the known solvent plume.

As for the petroleum contamination, the insurer will probably exclude coverage for any remediation required as a result of site development activities. This is a fair exclusion if soil that could be left in place otherwise has to be removed and disposed due solely to site grading or excavation activities. Some insurers will also seek to exclude any contamination that is discovered during site work, even if the contamination is so significant that it would have to be remediated (assuming it was discovered later) regardless of the site work. In other words, the mere fortuity of how the contamination was discovered could determine whether its remediation is covered or not.

There are a number of other issues that must be considered, such as limits of liability, self-insured retention, policy term, what to do when the policy expires, additional insured parties (such as the seller) and notice issues. There are any number of other risks that may need to be addressed as well. Careful evaluation of the policy and its endorsements is essential.

Indeed, it is critical that one enlist the help of specialists in the field. All of the major insurance brokerages have specialists in environmental insurance. Use them — it will cost you nothing. It is also essential to enlist the help of an attorney who understands these policies. While the environmental insurance market is providing a valuable service, the policies create many traps for the unwary through the use of exclusions, endorsements and conditions. It is important for an attorney, well versed in both environmental liabilities and insurance coverage, to go through the policy to assure it provides the coverage that is necessary and adequate and, if not, to negotiate language that does." For more information see : or

Friday, April 18, 2008

Rocket Sports Grill strikes out after several swings and misses

It appears to be game over for the much-anticipated Roger Clemens Rocket Sports Grill at Memorial City Mall, as all traces of the seven-time Cy-Young award winner have been erased from the would-be restaurant site.
Just one month ago, construction workers were busy erecting a large red "Rocket" sign at the entrance of the restaurant, while Clemens' baseball jerseys from the Boston Red Sox, New York Yankees, Houston Astros and The University of Texas Longhorns hung in the entry.
As of this week, the Clemens memorabilia had been removed. The restaurant -- which is still under construction -- now houses wide-screen televisions, NASCAR video games and a variety of non-Clemens' related baseball memorabilia.
The move comes as Clemens is under investigation for steroid use after being prominently featured in a December report on performance-enhancing drugs released by Senate Majority Leader George Mitchell. George Bush, good friends with Rodger, has made the congressional side of his problems , go away, when was the last time you heard about any of THAT? for more information see; or

Thursday, April 17, 2008

Opus West Breaks Ground on Senior Care Facility

Opus West, in partnership with Scottsdale, AZ-based RED Group LLC and Seattle-based Leisure Care, broke ground on what will eventually be a 24.7-acre mixed-use property in Missouri City, TX. The Reserve at Colonial Lakes will be the leader of a whole new kind of senior living option. Geared towards the wellness and health of its residence, this 222-unit wooden-frame structure will deliver in 2009. Both one- and two-bedroom apartments will be available on all four floors of the property. It will be on 8.1 acres of the northwest end of the acquired acreage. Although the senior living facility is not expected to deliver until the second quarter of next year, a representative from Leisure Care said that they were already fielding calls regarding space availability. Leisure Care is the firm that will manage The Reserve at Colonial Lakes. Opus West is also developing the 20,000-square-foot retail and 50,000-square-foot office portions of this mixed-use property. The retail pads will front Highway 6 on 5.2 acres along that road. Both of these developments should deliver by the first quarter of next year. fOR MORE INFORMATION CONTACT: or

Tuesday, April 15, 2008

Texas Real Estate Economic Data


March 11, 2008

The current conditions in the US real estate market precipitated by the failure of many subprime loans to home owners have created financial problems for developers and builders. It has slowed the velocity of land transactions and the construction of houses and developed lots. The number of buyers of real estate competing for quality real estate investments has become extremely limited.

In Texas, the developing shortage in inventory of houses and lots will set the stage for price increases as financing for home buyers become more available. Increasing construction to meet the new level of demand will be operating in a market with shortages in both new homes and lots. The price increase will occur in housing, lots and land for new subdivisions.

The Texas land market is stable and few tracts are discounted. However, some developers and investors with debt obligations that are difficult to meet are presenting opportunities. This is the time for those with capital to move into the market and purchase tracts at a discount. For those that have good positions in property, it is a time to be patient because significant price escalations appear likely as the market settles back to normal

The housing market in the United States in 2007 and 2008 has been subjected to the worst financial crisis in more than 30 years. The precipitating cause was irresponsible management of the mortgage business by the financial institutions.

The result of subprime loans made to home buyers who were not qualified was a large number or foreclosures which created excessive inventory of homes on the market. In overheated markets, speculators were forced to put homes, held for investment, on the market; thus further increasing the inventory.

The financial problems among lenders have made buying a house with mortgage financing difficult. This has created financial problems for developers and builders and decreased the construction of new homes and the value of those homes on the market. Builders are selling their housing inventory at losses. They are suffering with reduced cash flow and dealing with debt obligations that are difficult to meet.

The lenders and the purchasers of mortgages in the secondary market have taken huge losses. The money available for new loans has been greatly reduced.

The foreclosures and inventory buildup in the housing market is focused mostly on starter homes, which is the group heavily financed by subprime lending. It is also focused on particular geographical areas of the US. However, the problem in the financial sector has impacted all housing negatively.

The decrease in home building will help reduce the excess of housing in the marketplace. It appears that home construction nationally will bottom out in the fourth quarter of 2008 at less than 1 million units per year. The peak of home building occurred in 2005 at approximately 1.8 million units.

All but 10 states have maintained a positive appreciation in house value through 2007 and into 2008. States with the greatest foreclosures and inventory excesses were those that suffered depreciation in home values. The states with the greatest depreciation were Michigan, California, and Nevada. The financial crisis affects all states. Most of the severe problems are in the 10 states showing depreciated values. These states had an overheated market with an unusual and unrealistic appreciation in home values over the last 3 years

Texas had an appreciation of 6.3% in house values for 2007. Its value appreciation in houses has been steady and at a normal sustainable rate. Construction also has been at reasonable rate and the inventory of homes stayed at a comfortable balance with absorption.

The Texas housing market is one of the strongest and most stable markets in the USA at this time. The evaluation of the Texas real estate and housing markets is done in the context of the USA as a whole. Employment and population are the driving forces creating the demand for real estate and homes. The supply of houses and other real estate elements compared to their demand effects construction rate and value changes.

In 2007, Texas job growth was 2.1% and lead the nation in both percentage growth and absolute number of jobs created. Job growth in the US was 0.9% in 2007. The job growth in Texas of 218 thousand exceeds Florida and California which had 86 thousand and 79 thousand respectively. Texas represented over 16% of total USA job growth in 2007.

Texas population grew over 3 million from 2000 through 2007 and again led the nation. Texas and California will lead the nation in population growth through 2030 according to the US Census Bureau. The growth for Texas is projected to jump from 20 million in 2000 to 33 million by 2030.

Houston had job gains in excess of 96 thousand in 2006 and in excess of 95 thousand in 2007. Houston led the state in 2007 in job growth and was followed by Dallas/Ft. Worth with 83.5 thousand, Austin with 30.5 thousand and San Antonio with 24.2 thousand. Both Houston and Austin had job growth rates of approximately 4.0% in 2007. Clearly, Texas and its major cities are having exceptional growth.

The median price home in Houston is $152 thousand while the median price in Los Angles is $ 589 thousand, Miami is $365 thousand and New York is 540 thousand. This difference in home costs is even more dramatic if the household income for each city is considered. The 2006 median household income for Houston was $57 thousand, for Los Angeles $62 thousand, for Miami $45 thousand and for New York $60 thousand. There is little difference in income with a large difference in home costs.

The affordability of housing and the low cost of living in Texas create an atmosphere to attract jobs and retain population. Thus the demand for real estate continues to grow.

Texas has a balanced housing and developed lot inventory. In Houston the inventory is 3 months for new homes and 6 months for resale homes. The average day on the market for resale homes is a reasonable 85 days. The vacant housing inventory in California is as high as 44 months. In Reno, Nevada the inventory is 13 months and is 12 months in Las Vegas.

Prior to the subprime lending crisis, Houston and the major cities of Texas had a comfortable to tight balance between construction, inventory and sales of homes. The lending crisis impacted sales and put additional homes in inventory. This caused the builders to reduce production.

Home construction in the US has fallen between 35% and 40% to date and will fall to approximately 50% in 2008. Construction should begin to recover in the US by the last quarter of 2008. California, Nevada, and some locations in Florida will recover later.

Home construction in Houston was down 25% in 2007 and is possibly going to continue to fall until mid 2008. Annual sales in Houston are significantly down in housing below $200 thousand but sales are ahead in housing above $200 thousand. Houston responded early to the housing slowdown. New housing starts have been less than sales in the Houston market since the end of 2005.

The impact on Texas of the housing slowdown as a result of the national financial crisis in the US will begin to correct by mid 2008. Extremely strong job growth and population growth over the last few years has continued to create demand for housing and other real estate and muted the impact of the inventory and financial issues.

The subprime crisis created several problems which affected the Texas housing market. It retarded mortgage lending in general for all price housing and had a strong negative impact on housing under $200 thousand. Loans to purchase homes are more difficult to obtain and required stronger credit and more equity by the home buyer. Many potential buyers, including those that were recently foreclosed, will reside in apartments until they have the credit or until loans become more available. This group will represent pent up demand that will ultimately add to the continuing demand from the strong job and population growth in Texas.

During this troubled time in the housing industry many National builders who were building in Texas came under huge financial pressure because of the problems in places like California and Nevada. They had to use their capital to support their business in the weaker markets and had to abandon or greatly reduce their programs in Texas. Their reduced interest in Texas construction and development meant that development of houses and lots would slow.

The slowdown of their Texas programs would further reduce available inventory. This is not a problem on the short run because demand in Texas has been reduced. The number of homes and developed lots will ultimately be reduced to a point where normal demand increase from future home buyers benefiting from better credit availability and greater market confidence will drive prices of homes, subdivision land and developed lots upward.

Additionally, the national builders will return to Texas with their old enthusiasm and buy land to develop lots or buy lots to build homes as their financial problems elsewhere are resolved.

The supply of available housing and lots for construction is becoming short in Texas. The demand will accelerate as the population increases and home loan availability again returns to a normal level. This will bring strong pressure in the marketplace for subdivision land, lots and new homes and should drive prices to higher levels.

Wednesday, April 2, 2008

A Taxing Situation

A dispute over the tax debt owed the owners of a Pennsylvania shopping center by one of their tenants has ended with a decision favoring the center's owners.


"The shopping center, located in the Pittsburgh area, had leased space to the tenant for the operation of a T.J. Maxx store, and the dispute started when the two parties failed to agree on the tenant's payment of real estate taxes.

The lease states that the tenant must annually pay a share of the taxes.
That share is calculated by multiplying the total of the center's taxes each year by a fraction. The fraction is determined in the following manner: the numerator is the floor area of the tenant's premises and the denominator is the total square feet of all building space leased in the property owned by the center.

A problem arose because four department stores operate at the center, and each owns its building but leases the land its building sits on from the center's owner. The question therefore arose as to whether the department stores' building space should be excluded from the denominator in the tenant's real estate tax formula.

Complicating matters is that the tenant's lease provides that the total square feet of all building space leased at the center shall be deemed to be not less than 95% of the total square feet of all building space leasable in the center's property.

The tenant contended that the department store space is leasable under the terms of the lease. The shopping center owners insisted that it is not.

The impasse needed a legal interpretation, and a magistrate found that the department stores do in fact own their buildings. He further found that the terms leased and leasable mean those areas leasable by the shopping center. Finally, he found that the department stores separately pay their proportionate share of the total real estate taxes assessed against the land and buildings at the center.

Therefore, the magistrate concluded that the building space owned by the department stores is not building space leased within the meaning of the lease. So he ruled that such space is properly excluded from the denominator for the calculation of the real estate taxes. Such a ruling meant that the tenant would pay a greater share of the real estate taxes owed by the shopping center.

The tenant appealed, and an Ohio appellate court, given jurisdiction in the case, agreed with the magistrate, ruling that the shopping center owner's definition of leasable was correct and explaining:

The department stores' space cannot be considered leasable because the center's owners do not own the department stores and, therefore, cannot lease that space. for more information see ; or