May 2020 Issue REDnews Magazine

MAY 2020

Texas Economic Developments Page 23 THE TEXAS COMMERCIAL REAL ESTATE NEWS SOURCE

STRATEGIC

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IN THIS ISSUE 18

8

17

20

Market

Sales & Leases 1–2, 5, 7, 13, 22

Scoop Events 32

Features

Support in Seabrook 8, 9 Covid-19 Response 10–13

Services

Environmental 3, 30, 35 1031 Exchange/DST 16

Force Majeure 14–16 Hope Lingers for Retail 17 Everything is Getting Bigger in Texas 18–19 Coronavirus and Construction Sites 20, 22

SPECIAL FEATURE:

Texas Economic Development 23–29

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MAY 2020

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GATEWAY TO THE GULF GATEWAY TO THE GULF

Letter from the Editor THE TEXAS COMMERCIAL REAL ESTATE NEWS SOURCE

Dear Readers,

T

NATIONAL PUBLISHER

hese are crazy times to be making an introduction, but here goes. Hello, I’m Matt Baker and I’m the new editor at REDNews.

Just as you likely are, I’m not in an office but my home as I write this. Unlike you, however, I’m roughly 850 miles away in Chicago. I have been writing about commercial real estate for over 12 years; it’s a business I find endlessly fascinating and I’m eager to learn more about how CRE operates in the Texas markets.

Those markets, like cities around the globe, are hurting right now because of the sudden onset of the COVID-19 pandemic. The unfortunate economic ramifications of this crisis are playing out in all of the stories in this issue.

For example, what measures are construction sites taking during the pandemic? How do you continue to build when you have to stay six feet from you coworkers? And as some sites have shut down, what are the cost and project management implications that will fall out?

We also look at how the retail sector is being impacted by shelter-in-place orders. Can it ever recover? And our economic development piece ponders whether the population boom in Houston can continue as COVID-19 wreaks havoc with oil markets.

Better times are ahead, I promise. We’ll get through this, to the other side and to a recovering economy. Thank you for reading, I hope you enjoy this issue!

Cheers,

Mark Menzies menzies@resummits.com

EDITOR Matt Baker mbaker@rejournals.com

STAFF WRITERS Matt Baker mbaker@rejournals.com Ray Hankamer rhankamer@gmail.com Brandi Smith info@REDnews.com

MANAGING DIRECTOR Benton Mahaffey accounting@REDnews.com

EMARKETING DIRECTOR Sarah Evans Carter emarketing@REDnews.com

GRAPHIC DESIGN Corporate Imagination digital@REDnews.com

SALES 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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MAY 2020

Support in Seabrook:

The city’s EDC steps up to help businesses

BY BRANDI SMITH

In many ways, the City of Seabrook had prepared for a disaster of this level.

Even before Hurricane Ike slammed into Galveston Bay in 2008, the city had developed a plan in case the inevitable occured. But the covid-19 storm that started brewing in early 2020 hit in an entirely new way.

“It was certainly like a tidal wave that hit shore so fast. We saw it coming, we started to prepare and then it hit. We just went straight into emergency mode,” says Paul Chavez, director of the Seabrook Economic Development 8

MAY 2020

Corporation. “It’s unprecedented because the whole world is experiencing something as significant as Ike. Everybody is affected by it.”

He says that in early February, the city started reaching out to citizens and businesses, trying to prepare them for what lay ahead.

“A lot of hard decisions had to be made, but we knew that for the safety of everybody, we had to make those decisions and enforce them,” Chavez says.

In some cases, it means abiding by and enforcing decisions made at a higher level, such as Harris County’s Stay Home, Work Safe order.

is leaning on apps such as Facebook, LinkedIn and Instagram to keep information flowing to area businesses.

“We’re asking our residents to work from home if they can and that’s the same policy we’re using at the city,” says Chavez.

From emergency notices to letters from Mayor Thom Kolupski, Seabrook’s social media channels are providing a constant stream of information to those who need it. They’re also a way to let residents know which essential businesses are open, including local restaurants offering pickup and delivery.

There are exceptions to the rule, such as EMS crews, firefighters, police officers and public works. In addition to responding to emergencies throughout the city, Chavez says first responders are also checking on local businesses, which may or may not be open.

“They make sure that there isn’t any kind of suspicious activity going on inside because we know a lot of people are scared about looting and burglaries,” he explains.

That’s one of many concerns local business owners started calling about months ago when it became clear that covid-19 was going to have a considerable impact in the U.S. As those calls came in, Chavez says the county was also keeping in contact, providing information in twice-daily updates.

“We’re trying to keep that economic engine rolling,” says Chavez. “Being a seaside community, our priority is keeping everybody above water. We’re doing what we can and we’re all locking arms together to ensure the vitality of our community and the region.”

“We’re asking our residents to work from home if they can and that’s the same policy we’re using at the city,” says Chavez.

Now in the midst of it all, he says his priority is touching base with Seabrook businesses to provide as much support as possible. Chavez says it is a new role to balance economic development and emotional needs of the business community during this volatile environment.

“It’s in this role that a new challenge of managing all of these needs has emerged to sustain the local economic base and assist with these new needs of the business community. They need somebody to talk to and I feel that a lot of them don’t want to express some of these things to their employees because they want to keep morale up,” he explains. “But when I call and I talk to them about what’s going on, they just sometimes open up and say, ‘I need help.’”

Chavez says he’s heard from some businesses that have cut down on staff.

In other cases, deliveries aren’t coming through, so they’re making do with what they have on hand. He has also talked business owners through the process of furloughing workers, how to apply for grants and loans and where to go for assistance.

“I’m trying to learn as much as I can as fast as I can so I can turn around and say, ‘Have you checked this out? Have you looked at this? Have you explored these options?” says Chavez.

Alternately, he says he’s picked up the phone to hear: “We’ve got a game plan in place. What does the city need from us? How can we help?”

“It’s been good to see that everyone’s out there just trying their best to keep moving forward. We all know that we will all meet again soon and we’ll have a great time together, but until that point we have to all do our best to just keep things rolling,” Chavez says.

The city, which already relied on social media to keep its residents informed,

He points that other communities throughout are doing the same, resulting in a web of support that stretches throughout southeast Texas.

“What’s been very fascinating is how willing everyone is to share as much information as possible with one another. One city will say, ‘I have these employees. Can you help me?’ Another city will respond, ‘I have this program that works. See if this works for you guys,’” Chavez shares. “It’s been uplifting to see a city that would have been considered a competitor, if you will, for economic activity reaching out and asking, ‘Do you need anything from me to help you?’”

While Seabrook EDC focuses on keeping the city’s existing businesses, it hasn’t paused efforts to bring new businesses in, though things have slowed down on that front.

“I’m still calling prospects. A lot of them are still very interested in Seabrook, but they are constrained by the orders surrounding the disaster around the country not allowing them to travel or handle business as they previously could,” explains Chavez. “The environment is changing for both local municipalities and retail for the future, but industry experts are expressing that these changes are already being envisioned long term by retailers for future recovery efforts. With over 300 million dollars in thoroughfare expansion in our community, Seabrook is positive on the recovery efforts and what this could allow in the new market post-COVID.” He adds that some of the national prospects predict that by this fall, the economic climate will start to turn around. The hope is that all of the pent-up economic energy on the consumer side will result in a boom on the business side.

Just as it has overcome obstacles in the past, Seabrook is prepared to meet this challenge head-on. For more information about opportunities there, contact economic development director Paul Chavez by phone (281-291-5730) or email (pchavez@seabrooktx.gov). n MAY 2020

COVID-19 response:

Houston’s HI-REIT focuses on tenant success

BY BRANDI SMITH

Editor’s note: This article was written in early April and reflects Hartman Income REIT’S (HI-REIT) response plan at that time, which company managers say will evolve as needed. Please read it as a snapshot in time and as an example how one Texas property management company responded to the COVID-19 pandemic.

From hurricanes to tornadoes, the staff of Houston-based Hartman Income REIT (HI-REIT) has learned to weather just about any storm. But the one that hit in early 2020 was unlike anything the company had seen in its 35 years.

As covid-19 spread from one part of the world to another, Hartman leadership kept an eye on the headlines.

“We knew stay-at-home orders could take a toll on our tenant businesses, so we started assessing which businesses could be hit hardest,” says Shane Cawood, the company’s Director of Operations of Asset Services. “We began 10

MAY 2020

the conversations about what their needs could be and how we could add value as partners to help get their people and the businesses through all this.”

“... reaching out …”

With about 60 properties located in the greater Houston, San Antonio and Dallas areas filled with approximately 1500 tenants, that is no easy feat. Still, it was a priority for Hartman, which is built on “Exceptional Service + Inspired Values.”

“There’s a saying that character is not created by crisis, but it is revealed.

Honestly, I’ve never been prouder of the company for which I work,” says Mark Torok, COO, Secretary & General Counsel. “We are trying to go above and beyond what other companies may be doing for the benefit of our tenants.”

Angel Gonzales

Dan Jones

Kacie Skeen

Early on, the company focused on awareness of the issue, which involved educational posters and extra hand-sanitizer stations throughout its properties. As the situation escalated, so did Hartman’s response for its tenants.

“We want to keep them in business,” Torok says.

As Congress began working on a relief bill to help Americans and the economy, he says the staff reviewed the multiple versions up until it was eventually passed as the CARES Act. When President Trump signed it into law, Hartman developed a fact sheet for tenants, breaking down the 880-page document down and highlighting key portions, such as the Paycheck Protection Program and Economic Injury Disaster Loans.

Additionally, the company established a board of experts that tenants can call with questions.

Mark Torok

Shane Cawood

“... white glove service …”

It’s a lot of work that, in business-as-usual circumstances, might not be the focus for other companies, but Hartman has always prided itself on its commitment to exceptional service.

“We provide what’s called ‘white glove service’ to the tenants themselves, so we wanted to provide additional resource information for their employees,” Cawood adds.

“We instituted a program that involves reaching out to all of our tenants to make sure they know about this. We want them to know what’s available to help them,” says Torok. “We’ve gone a couple of steps further. We’re willing to help them with the application.”

Throughout all this, Hartman hasn’t closed a single property because each one has at least one essential business, ranging from grocery stores to doctors to oil companies. That means it’s had to tighten access to buildings and amp up cleaning efforts. Custodial crews now work through buildings three times a day.

In the case that someone in a building tested positive for covid-19, Hartman has extensive protocols that include hospital-grade sanitization.

“We inform the other tenants on that floor or in that building. We vacate the space. That same day, one of our EPA-certified deep-cleaning vendors, for which we have a short list, goes through and does a full, thorough cleaning of the space, the rest of the floor and all of the common areas, such as kitchens, break rooms, restrooms, elevators, lobbies and walkways,” explains Dan Jones, Senior Executive Vice President of Asset Management and Construction.

“We do everything we can to make the tenants happy and retain the tenants that we have,” founder and CEO Al Hartman told REDNews in a 2019 interview.

That core belief is what is driving the company’s response to the covid-19 pandemic.

“I deal with our tenants on a day-to-day basis. They have my cell phone number. We have a personal relationship,” explains Angel Gonzales, Hartman’s Director of Operations of Property Management. “The last thing that we want to tell them is, ‘Sorry, this is your problem. We can’t help you.’

That’s not acceptable.”

In what he calls an unprecedented time, Gonzales acknowledges that there can be some measure of apprehension and fear for tenants impacted by stay-at-home directives. Hartman staff, he says, wants to ease that burden as best it can.

“We provide what’s called ‘white glove service’ to the tenants themselves, so we wanted to provide additional resource information for their employees,” Cawood adds.

Continued on Page 12>

MAY 2020

11

COVID-19 response < Continued from Page 11

Just as Hartman worked to get information to its tenants, staff knew employees would be looking for information about whether they would receive stimulus checks, what would be included with unemployment benefits and if mortgage or renter relief was available.

“We wanted them to say, ‘OK. We have some certainty now about what’s going to be available economically for the next couple of months. Now let’s just worry about staying healthy,’” says Cawood.

The company took its support to the next level when it started feeding its teams and tenants with food and treats purchased from its own food service tenants.

“We wanted to support the tenant and employee family,” Cawood says.

“The feedback has been positive. Our tenants are just so excited about what we’re doing. So many of them have just flat out thanked us,” says Jones.

“In a time of uncertainty, the most important thing you can do is communicate with the team and tell them exactly where we stand and give them the encouragement that is needed,” Skeen-Kinnamon says.

One of the first directives, what Torok called an “immediate response,” was to let any employee who wanted to work from home do so.

“That evolved into a more comprehensive plan. We asked at-risk employees, someone with a compromised immune system for example, to work from home. We also encouraged employees who cared for someone in their household, such as a grandparent or newborn, to work at home,” he says.

That wasn’t an option for every employee. After all, Hartman is a property management company, so some frontline employees are needed to service the tenants that are still operational. Alternatives include alternating days and weeks on site.

“... No. 1 asset …”

Property managers have also seen their role shift from visiting properties to calling tenants daily to make sure that touchpoint is still there.

As focused as Hartman is on those it serves, the company also prioritized those providing the service: its Hartman family.

“They’re calling just to say, “How are you doing? How are your employees doing? What’s going on with your families? What’s going on with your relationship? What’s going on with your staff inside your buildings? Is there anything we can help with the stimulus program?” says Torok. “If you’re working from home, your job 100 percent of the time is to make outgoing calls so that way the rest of the team can take care of the action.”

“We can actually have tenants come back to buildings even better than they left and new tenants would be ready to hit the ground running as people start looking more actively for leases,” says Cawood.

“Early on, I asked very candidly, “We’ve stated that our people are our No. 1 asset. We’re supposed to be a beacon of light to others. So how are we going to then be a beacon of light to our employees?” says Kacie Skeen-Kinnamon, Vice President of Leasing for West Houston and San Antonio. SkeenKinnamon’s passion led to Hartman to tap her as a spokesperson and leader for a program the company re-activated for just such a purpose.

As it has in the aftermath of major disasters like Hurricane Harvey, in the weeks before the stay-at-home orders, the company quickly formed a committee that brainstormed what kind of needs its employees would have through this process. Immediately, it stressed unified messaging and developed the Hartman C.A.R.E (Christians in Action with Real Empathy) Team Resource Guide, which outlines “resources available to all employees and their families during the outbreak of coronavirus.”

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MAY 2020

With so much of the team working remotely, it became more important than ever for Hartman to find a way to keep its staff united.

“We felt like we were on the front lines battling a fire together,” Skeen-Kinnamon explains. “We gave managers the authority to order lunch or breakfast or bring in coffee for their team. Just to give them a little bit of extra initiative. Something extra each week.”

Hartman also amped up efforts to publicly recognize team members who apply the company’s core values, extending it to building service providers.

Any employee can issue another employee a gift card, what Hartman refers to as “coins,” then share what that employee did in a company-wide email.

“That’s been a longstanding practice, but challenges like the pandemic are creating plenty of opportunities to publicly recognize our team members,” says Cawood.

In addition, the company is surprising each department and property management office with C.A.R.E. baskets. It also organized a food committee

to feed anyone who tests positive for covid-19, as an education committee to help working parents develop a homeschooling schedule. That’s all on top of Hartman’s benevolence fund.

“If an employee falls into hardship, they are able to apply for these funds,” Skeen-Kinnamon says. “They get a response within 72 hours and they get those funds within a week.”

are available,” explains Jones. “We’re already seeing the benefits of it. It’s really been very popular.”

Hartman plans to roll out the design at three other buildings in the near future. It will also continue to offer its traditional leases, which SkeenKinnamon predicts will be in demand as ever.

“... turning over every stone …”

“People are eager to get back to an office. Everybody who wanted to work from home before is now saying, ‘I can’t wait to get back in the office,’” she says.

While adapting to its new (and temporary) normal, Hartman sees some measure of opportunity as so many tenants send employees home. The steep decline in building occupants means the company can work through a list of “honey-do projects” that are typically disruptive for tenants.

When they do, Hartman’s leadership team will be there to welcome them back, just as they were to help tenants through this crisis, always leading the industry with exceptional service and inspired values.

“Projects such as remodeling lobbies or upgrading restrooms are usually a big headache. Tenants have to work around that,” says Jones. “Now we’re moving those forward.”

He adds that he’s reached out to a vendor about new air filtration systems for Hartman’s buildings. The company is also moving forward with making all of the common restrooms hands-free.

“We can actually have tenants come back to buildings even better than they left and new tenants would be ready to hit the ground running as people start looking more actively for leases,” says Cawood.

Tenants who continue to operate out of Hartman properties are benefiting from efficiencies, such as lighting and HVAC controls.

“We want to reduce the operating expenses for our tenants and we’re turning over every stone,” Gonzales says.

“We’re all in this together,” Torok says in summary, “And we have really great people.”

For more information about HI-REIT, contact 713-467-2222. n

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Noticeable improvements to their building likely won’t be the only change for tenants and their employees in the months to come. Stay-at-home orders proved how many workers can work beyond the confines of a traditional office.

That trend was already starting to emerge along with the introduction of coworking space, but Hartman anticipated a different environment. It already implemented its “shared amenity workplace” at one of its properties in Dallas. The floor plan includes smaller office spaces for individual tenants with conference rooms and break rooms shared by all tenants on the floor.

“It shrinks the space needed to accommodate the people who need to be there on a daily basis. Then maybe you have a staff meeting on Friday, you bring in your work-from-home folks and meet in one of several conference rooms that

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13

Force Majeure:

The Effect of COVID-19 on Contracts

David Groff

Scott Clinton

BY BRANDI SMITH As we roll into a second month of stay-at-home orders triggered by the COVID-19 pandemic throughout Texas, the commercial real estate industry is beginning to fully feel the impact. Non-essential retailers have been forced to shut their doors, in some cases eliminating all potential for revenue. Those employees, furloughed or laid off, face a similar dilemma: how do you pay your mortgage or rent when no money is coming in? The answer for some is to turn to the “force majeure” clause of their contract, if they negotiated one.

“Typically a force majeure clause has been something that people don’t pay much attention to. It’s one of the boilerplate paragraphs toward the end of the contract,” said David Groff, shareholder with Wilson Cribbs + Goren, a 20-attorney law firm that focuses on commercial real estate. “That doesn’t mean it’s any less important than any other provisions in the lease, but it sometimes doesn’t get the attention it requires because people get so comfortable for so long.”

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MAY 2020

Joined by senior partner Scot Clinton, the pair offered insight into what force majeure is, how courts have responded to it and how both tenants and landlords can respond during REDNews’ April 9 webinar on the topic.

“The gist to identify specific types or categories of events that will relieve parties of their duty to perform. In Texas, the general approach to interpreting force a majeure clause, if there is one, really does boil down to the actual terms of the clause,” Clinton explained.

WHAT IS “FORCE MAJEURE”?

At its heart, a force majeure clause addresses potentially unforeseeable circumstances that might prevent a contract from being fulfilled. However, Groff was quick to point out that it’s no “get out of jail free” card.

“It’s not a card you can play to get out of your lease. It merely is a mechanism to delay a performance when there is something occuring that’s specifically allowed in the lease to defer performance until that interruption is removed,” he said. “So any thoughts such as “I can terminate my lease because there’s a pandemic” probably won’t be workable.”

He and Clinton stressed that execution of the clause weighs heavily on its language, which is rarely duplicated contract to contract due to alterations or modifications negotiated between parties.

whatever may come after that, the catchall will be limited to things in the former,” he said. “The initial list is going to lay out the parameters of what follows after that.”

It’s also worth noting that the Court of Appeals held that catch-all provisions in force majeure clauses do not include foreseeable events in the TEC Olmos, LLC v. ConocoPhillips Co. ruling. Previous outbreaks, such as SARS in 2003 or H1N1 in 2009, could be used in an argument that this kind of crisis can be foreseen.

“[The contract language is] where the analysis, scope and application is going to be determined,” said Clinton. “A close review of the terms that you may have is really key. We can’t underscore that enough.”

“There’s an interesting discussion about whether the courts may look at those types of issues and think that issues of pandemics or epidemics are, going forward, foreseeable and ones that parties should be more expectant of and more actively negotiate,” said Clinton.

WHAT’S IN A CLAUSE?

IF THIS IS A FORCE MAJEURE …

Common categories outlined in force majeure clauses include government action, law and regulations; labor and material shortages; act of God; and catchall. Groff pointed out that epidemic/pandemic can be found in existing clauses, typically in the health care industry.

If a party believes in good faith that a force majeure event has occurred, two basic questions must be answered: when did it begin and when will it end?

Noting that this was new to many people - landlords, tenants, lawyers, bankers, etc. - and that information changes on a daily basis, Groff said negotiations will change as well.

“Generally speaking, a force majeure event is not going to last into perpetuity.

There’s going to be a beginning and an end,” Clinton said.

The next concern is how it applies. That all depends on the language in your lease agreement or loan documents.

“It’s been conspicuously absent from a lot of the form lease language that I’ve seen and even used over the past however many years,” he said. “You can bet that moving forward that the words “epidemic,” “pandemic” or “government shutdown” will start being used in everybody’s form force majeure language.”

“There’s often going to be found a carve out that says specifically that force majeure will not apply in the case of a monetary obligation,” Groff said. “So whether or not you have a force majeure, in a good number of leases, there is not going to be an exception for the payment of rent.”

Analyzing the “government action, law & regulations” category, Clinton said past legal interpretation suggests the action, law or regulation must be specific to the lessee.

However, there are other clauses within some retail leasing agreements that could be triggered by the current shutdown, the first being a cotenancy clause. Many major tenants require that landlords maintain open and operating neighbors within a shopping center to support traffic and customer base. If the landlord is unable to meet those requirements, the tenant may exercise certain relief as outlined in the clause. That could be interpreted as reduced rent, free rent or, in some cases, termination if cotenancy isn’t met for a period of time. The landlord could, in that instance, invoke force majeure in response.

“At the very least, it’s unclear whether a government law or regulation is going to be in and of itself sufficient to reach the type of situations that we’re seeing here,” he said, noting that the courts haven’t weighed in on the current situation. “We’re not seeing orders at the state, federal or local level that are specific to individual parties.”

Clinton expressed doubt the “act of God” would apply in this case either, as it is typically reserved for forces of nature, such as hurricanes.

“The analysis may go into whether the force majeure event is having directly to do with the pandemic itself or if it’s related to other issues that are within the series of events that are affecting the ability to perform,” he said.

Finally, there’s the issue of the “catch-call” in the clause, which addresses other circumstances that may otherwise hinder the ability of the party to perform.

Per Clinton, the courts generally lean on the ejusdem generis doctrine.

“The idea is that if there’s a catch-all provision, the list of items and categories of events described in the preceding portion of the clause,

“As this plays out, it’s going to get very interesting,” said Clinton.

Another clause worth noting addresses “continuous operations,” which outlines that retailers must remain open, as well as fully staffed and stocked during certain days and times. Clinton expressed that arguments surrounding this clause haven’t been made yet, but he sees them on the horizon.

LANDLORDS, WHAT’S THE NEXT STEP? The road ahead isn’t one we’ve traveled before, but Clinton and Groff offered up a kind of map to help landlords navigate how to move forward.

Continued on Page 16>

MAY 2020

15

Force Majeure < Continued from Page 15

First, have a conversation with tenants about the state of their business and review their contract.

“Not every lease is going to be the same. Not every interaction between landlord and tenant will be

the same. Not every right of force majeure will be the same,” Groff said. “Each negotiation has the potential to be significantly different than any other based on the circumstances of that particular event.”

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“The groundwork for those discussions changes on almost a daily basis. Something a landlord may have offered last week is off the table.

Something a tenant may have tried to offer or be willing to accept a week ago is off the table,” said Groff. “Everything is very fluid and people are just trying to find their footing on where all of this is headed.”

A landlord offering relief is still obliged to pay his or her debts. Groff and Clinton encouraged those with loans to talk to lenders about what’s happening at their properties.

“Bring them in early, make sure they know they know the situation,” Groff said, contrasting it with the idea of suddenly asking for a forbearance months down the road. “Bringing them in would be a good idea at this time.”

GOING FORWARD

㄀ ㌀㄀ 䔀砀挀栀愀渀最攀 匀漀氀甀琀椀漀渀猀

䰀攀愀爀渀 䴀漀爀攀 愀琀

He emphasized that tenants will need relief and that needs to be understood. However, relief can be defined depending on the tenant. Options include rent abatement, rent deferral or a rent extension. In most cases, these are considered temporary.

Throughout this process, Groff stressed that these are temporary times and that, in the near future, we’ll have learned something from it. People will go back to work and leases and contracts will get back to performance stage.

When they do, expect to see changes roll out in future versions of form documents.

“You’re going to see a lot of language talking about pandemics and epidemics as well as governmentrequired business cessations, closures and interruptions,” said Groff. “I think, looking forward, there’s going to be a lot of change and the legal industry will address it.”

You can watch the full webinar, along with many others produced by REDNews parent company REjournals, here: https://www.rejournals.com/ videoreplay n

Hope lingers, but retail real estate is in for a long journey back to profitability

BY MATT BAKER With stay-in-place orders keeping customers at home, the retail sector is set to face pressure unlike other asset classes. And as the NOIs at retail properties contract, that financial stress will radiate up the real estate infrastructure, from retailers shuttering their stores, to landlords unable to collect rents to lenders themselves.

How much pain retailers feel is directly tied to how long our pandemic countermeasures are kept in place. As of this writing, for example, Dallas County’s “Safer-at-Home” order is in effect until April 30, which rescinded and earlier extension by the commissioner’s court approving the county’s disaster declaration until May 20.

“If we open the doors May 1, I think we will just fine. If we open the doors on June 1, there’s going to be collateral damage,” said Jennifer Pierson, managing partner at Dallas-based STRIVE. “If we go into August, I don’t think the word ‘severe’ would be an understatement.”

Before the pandemic, retail was already suffering as e-commerce took its toll and consumers opted to shop from home. The one shining segment of the sector was experiential retail, a tag applied to everything from fitness centers to DIY pottery shops, but which is largely comprised of restaurants and bars.

With shelter in place orders now keeping consumers away from these establishments too, many are in dire straits. The $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act, passed by Congress and signed into law by President Donald Trump on March 27, seeks in part to address this issue.

As written, however, the CARES Act may not have enough protections in place for small, independent restaurants and bars or their employees.

“While we initially thought that that was a fitting safety net, I think the net’s got pretty big holes,” Pierson said. “There are all these little gotchas that you don’t think about until you’re diving into the details.”

One portion of the CARES Act, the Paycheck Protection Program (PPP), is intended to assist workers like waiters and waitresses. The funds go to the business, who must use 75 percent of the financing to compensate employees at their standard wage over an eight-week period if the loan is to be forgiven—a tall order for a business that still has to pay rent, utilities and other costs with little or no income coming in.

According to Pierson, the forgivability of the PPP loan is unclear and it may even incentivize some businesses to lay off employees and attempt to re-hire them later. She also expressed concern for the high population of Hispanic business owners in the Dallas-Ft. Worth metro and elsewhere in Texas who may be daunted by the application process.

“There are a lot of landlords who specifically target shopping centers that have a high population of Hispanic tenants,” said Pierson. “Speaking in broad

strokes, the demographics are such that they are very honest, hardworking people that want to pay their rent and support their family. There are a lot of investors who have made a model of seeking shopping centers that are leased to Hispanic business owners.”

This minority group already faces higher scrutiny when seeking out traditional lending and they might be further intimidated by the process of applying for PPP protection. According to Pierson, some shopping center owners are reaching out to Hispanic tenants to help them get online and are even reading the language of the act to them in some cases if the tenant doesn’t speak English.

It’s probably too early to tell if owners of shopping centers or retailheavy mixed-use properties are inspecting the marketplace for a possible disposition. Until landlords approach a position where they cannot cover their debt service, most are unlikely to consider a sale right now.

“We’re hearing almost across the board that the bank lenders who have these properties on book are working with the landlords and the landlords are passing that savings through to the tenants,” Pierson said. “It’s really a tale of what kind of lender you have.”

If a borrower has a loan that has been securitized, they are going to have a tougher time getting principal and interest relief from that lender, and therefore those tenants are going to suffer for it. CMBS lenders and REITs, which don’t have a backdrop of federal aid, are largely holding firm in expecting tenants to pay their rent.

Banks—which account for the majority of financing on retail assets—have contracted considerably with few, if any, putting money out for retail products. Because of that, there would be a pretty extreme widening of cap rates for a property that has suffered severe damages.

It’s a scary time right now—both because of the health risks from COVID-19 and the financial worries for those heavily leveraged by retail real estate. But a combination of cabin fever and flattening curves means that, hopefully, we will be out of our homes soon and the retail industry can start to heal. n MAY 2020

17

Everything’s (getting) bigger in Texas

BY MATT BAKER

Woodlands Towers at Waterway, The Woodlands

2020 is a census year, so soon we’ll have a pretty good picture of the demographics, location and size of the U.S. population. But we’re pretty good at estimating too, and the estimates thus far show that Texas is definitely in growth mode. There are storm clouds on the horizon for one market, however.

According to data from the U.S. Census Bureau, Texas was home to six of the 10 counties with the largest population gains: Bexar, Collin, Dallas, Harris, Tarrant and Travis Counties. Among the fastest growing counties in the nation, Texas tallied more than any other state as Comal, Hays, Kendall and Williamson Counties all made the list.

Among metro areas that the Census Bureau analyzed, Texas was home to three of top ten MSAs with the largest population gains between 2010 and 2019. The Dallas-Fort Worth-Arlington metro had the greatest jump in that time frame, increasing by 1,206,599 residents—a 19.0 percent rise.

Meanwhile, the 510,760 new residents in the Austin metropolitan area accounted for a whopping 29.8 percent increase.

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MAY 2020

There is a similar scenario playing out in the Houston metro, which increased by 1,145,654, a 19.4 percent jump, between 2010 and 2019. However, the main engine for this population growth, job creation, has hit some hurdles.

According to Colliers International data, the vacancy rate in the Houston office market has been ticking up quarter after quarter. The 20.0 percent rate that the market recorded in Q1 2020 was a moderate increase from the 19.8 percent of the previous quarter, and it was up from 19.4 percent year over year.

The market absorbed 837,872 square feet in the last quarter of last year, more than double the total of Q1 2019. As for Q1 2020, unfortunately, the Houston office market posted a negative 177,916-square-foot absorption rate.

There were absorption gains in some submarkets, such as suburban Class A space which posted 463,878 square feet of net absorption. That was nearly offset by suburban Class B space, however, which reported 330,799 square feet of negative net absorption.

These absorption figures aren’t calculated in a vacuum; they are due in part to an increase in construction. The market had 4.3 million square feet of new office space coming out of the ground in the past quarter, compared to 2.7 million square feet this time last year.

Among the largest leases of the first quarter was Western Midstream Partners, which in March took 133,948 square feet at The Howard Hughes Corporation’s Woodlands Towers at Waterway. TGS-Nopec Geophysical leased 97,293 square feet at 10451 Clay Road in Northwest Houston. Two January leases saw EDP Renewables take 92,523 square feet in the CBD at Hess Tower, 1501 McKinney Street, and SEMPRA LNG take 68,139 square feet at Transwestern’s BHP Billiton Tower, 1500 Post Oak Boulevard, Houston.

All four of those tenants highlight a weakness in the Houston office market as they are all in the energy industry. While the Houston metro’s wider economy has diversified over the past several years, oil and gas firms account for the majority of office jobs.

Hess Tower, 1501 McKinney Street, Houston

These first quarter numbers were recorded before the effects of the COVID-19 crisis could be felt by the economy. For the Houston metro, unfortunately, the pandemic will create a secondary disadvantage as oil markets fall around the world.

“The oil issue is driven by Saudi Arabia and Russia failing to reach an agreement on production and by the severe decline of oil and gas demand driven by the COVID shutdown,” said Patrick Duffy, MCR, president of Colliers Houston. “Oil has been in the low 20s since the collision of these two events.”

Energy Information Administration projections suggest that demand will fall short of supply throughout the year to the tune of approximately 10MM barrels per day—a disparity that will top off all land-based storage by mid-May.

BHP Billiton Tower, 1500 Post Oak Boulevard, Houston

With people sheltering in place and using vehicles less, oil prices are unlikely to rebound for at least another 18 to 24 months. As a result, upstream and midstream energy companies—as well as the companies that support them— will face greater pressure to cut costs, which likely means layoffs.

“Most of the energy companies had already leaned up their workforces since the 2014 price crash,” Duffy said. “There is not a great deal of fat left in these players to trim.”

If the best-case scenario for the COVID-19 crisis plays out and the economy quickly recovers, Houston will still have to wrangle with a significant slowdown in oil production and consumption. Time will tell what effect that will have on job creation and retention in the market. n MAY 2020

Coronavirus and construction sites: Build on or shut down?

BY MATT BAKER

In cities all over the country, construction sites are shutting down due to the COVID-19 crisis, while others are taking steps to limit exposure as work continues. Regardless of the tactic—sustained operations or stoppage— ignoring specific risks can lead to serious cost and project management implications.

but the project can still move ahead on schedule.

For sites that are continuing construction during the pandemic, the contractor should establish several measures to mitigate the spread of the disease. The first step is to limit exposure before anyone even makes it onto the property.

“It’s not as though they can just lock the gate and walk away,” said Julian Anderson, president of Rider Levett Bucknall’s North American region. “They have to make sure that the site is safe.”

Many sites now require a temperature check of anybody entering the site, as well as when they come and go, including upon return from lunch or break.

Other sites are asking workers—either verbally or by signing a form—if they, someone in their household or someone they may have been in contact with is exhibiting symptoms of or is confirmed to have contracted COVID-19.

The most effective weapon against the disease is social distancing, but that can be hard to maintain on an active work site. Some contractors are juggling their teams with shifts so that there are fewer people on site at any one time,

Elsewhere, either out of an abundance of caution or because of a government mandate, work has come to a halt. These work stoppages introduce a host of different issues.

That begins with ensuring that temporary utilities are turned off and properly terminated for the duration of the stoppage. The site also needs to be secured to prevent the theft of tools, materials or equipment. This may involve actually removing items to a secure, off-site storage location.

There are a number of considerations to account for when it comes to the biggest pieces of equipment on any site, cranes. Whether or not it is a mobile or a tower crane matters, as it is obviously much easier to move the former than the latter. The expected length of the shutdown is another consideration, as well as whether or not the contractor owns the crane or rented it.

Continued on Page 22>

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Coronavirus and construction sites < Continued from Page 20

“I’ve also got to be sure that I can get it back. A lot of cranes on very large site are chosen specifically because of their lift and reach capabilities,” said Anderson. “If I take down a rented crane that was perfect for my project and I want it back a few months later, I may or may not be able to get it. That’s going to factor into the discussions with the building owner.”

Typically, a shutdown is a phased process as some jobs on a site cannot be interrupted halfway through without completion or taking steps to secure the work for an extended stasis. Depending on the size and complexity of a project, as well as the number of subcontractors on site, it could take up to two weeks to fully de-mobilize a site and make it secure for an extended stoppage.

The pandemic won’t last forever, and eventually, workers will be allowed to return. There are some factors to consider, however, before this can happen.

In theory, all projects in a particular state or market all shut down at the same time and nothing would have altered the sequence of work being done on those sites. It stands to reason, therefore, that coordinating with subcontractors for specific jobs or acquiring materials won’t be impacted.

However, some projects may shut down much slower than others, and might actually get a few days ahead of where that were going to be. In that scenario, you could see some backlogs as multiple projects are vying for the same subcontractors and/or materials.

According to Anderson, the larger problem that contractors face as we get back to work is just that: getting workers back to the site. Even on projects that are still operational, as much as 10 percent of the workforce is staying away for reasons related to COVID-19—they could have symptoms and are in quarantine, for example, or they might have to stay home to care for children that can’t go to school. That issue doesn’t go away once a stay-at-home order is lifted.

“When work starts back up, I think there will still be leakage problems. The supply of labor won’t go straight back to 100 percent,” Anderson said. “There will be a cranking-up process and any re-mobilization will takeAshley several weeks Strickland before you get back to any semblance of normality.”

Even if it feels like the COVID-19 pandemic has been going on for a year, we’re still early on in this crisis, so it’s hard to say if there will be long-term impacts on how the trades construct buildings. In the short term, at least, COVID-19 will continue to have repercussions. The disease is not going to just disappear, it will go into the background with periodic flashpoints as we wait for a vaccine.

Until then, people will look askance at every cough and remain skittish about organizing in large groups. But what about two, three, four years from now?

“I would hope that the only remaining legacy to come from this is that contractors and owners have good disaster preparedness plans, which they’ve all had to drag out and dust off to cope with this,” Anderson said. n

City Management 22

MAY 2020

Texas Economic Economic Texas Development Development

EDC professionals: Get your community involved!

Market your city, county or state, and its top commercial projects, to more than 50,000 commercial real estate decision makers across the state of Texas by advertising in REDnews' Texas Real Estate Economic Development & Business Parks Guide.

MAY 2020

EDC professionals: your community This annual supplement willGet run in our digital & print Mayinvolved! issue of REDnews and

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Texas Economic Development

Tomball, Texas:

Building Infrastructure, Workforce and Culture to Attract Your Business Just a short drive from Houston in sprawling Harris County, Texas, the City of Tomball is a fast-growing, business-friendly city. Equipped with a readily available workforce and shovel-ready land, Tomball has proven to be the right match for growing businesses and families alike.

The master-planned and deed-restricted Tomball Business and Technology Park is the centerpiece for much of the recent development. A project of the Tomball Economic Development Corporation, the 99.5-acre park is fully served with all utilities, provides off-site detention, and is easily accessible to major highways and thoroughfares. Mirroring the city in which it lies, the park has shown a propensity to draw a diverse group of tenants since its opening in 2015.

Canadian-based Packers Plus was the first company to purchase property in the Tomball Business and Technology Park, acquiring over 17 acres.

The oil and gas services company built a 50,000-square-foot research and development facility in 2016 and plans to add a manufacturing facility and corporate office building on-site in the future.

French-based SUEZ Water and Technologies Solutions followed Packers Plus and constructed a state-of-the-art laboratory in the park. The SUEZ facility, which opened in October 2018, is one of the world’s largest research and development analytical testing labs. The 45,000-square-foot facility is home to 80 employees, including over 50 highly trained engineers, chemists, and technicians.

The Tomball EDC recently announced a myriad of new projects coming soon to the Tomball Business and Technology Park. Hoelscher Weatherstrip Manufacturing is moving dirt on 16.8 acres for a 193,000 square-foot office/ warehouse facility. Hoelscher, currently headquartered in Houston, plans to bring 120 employees to Tomball and projects growth after the move.

Nickson Industrial Warehouses is building three Class A tilt-wall buildings in the park, adding unique inventory to Tomball. Nickson, a speculative project

24

MAY 2020

developer, is constructing the project on nine acres, across two tracts of land.

All with 28’ clear heights, the inventory will include two 25,200 square-foot and one 30,600 square-foot single-tenant office/warehouse buildings.

Finally, Dkota Investments, Inc., a national build-to-suit development company, is constructing a distribution center for Bimbo Bakeries USA in the Tomball Business and Technology Park. This 20,000 square-foot facility on four acres will create 14 new full-time jobs operating two eight-hour shifts.

The rapid success of the park is due much in part to the completion of significant transportation projects that have made Tomball more accessible than ever. The recently completed State Highway 99 (The Grand Parkway) and the recently expanded State Highway 249 (The Tomball Parkway) are direct connectors for Tomball. Tomball is also just minutes from Interstate 45 and Beltway 8. These major thoroughfares provide instant access to the Tomball Business and Technology Park and Tomball’s many amenities, while reducing congestion and travel time to and from the city. Companies in Tomball also find the many nearby highways important when serving markets throughout Texas and the region.

As business growth continues on an upward trend, so too does residential growth. With new infrastructure in place and strong population growth, residential developers are heavily investing in the Tomball community.

Brand new master-planned communities are already drawing new residents to Tomball with over 5,200 new single-family homes under construction in the Tomball area.

Tomball’s collective strength is at an all-time high. The city finds itself in a prosperous place, on the brink of a boon. Local leadership is determined to keep Tomball thriving, placing a priority on community, economic partnerships, and connectivity. With an outstanding mix of transportation, business, education, and lifestyle, there has never been a better time to locate in Tomball. Discover more at tomballtxedc.org. n

focus:tomball, tx From corner stores to Fortune 500 companies, Tomball is focused on business! A skilled workforce, low property taxes, and a well-connected transportation system provide an ideal backdrop for your business to prosper. The Tomball Economic Development Corporation promotes job creation by encouraging attraction, expansion and retention of businesses through: assisting with site selection; identifying incentives; connecting to workforce resources; and providing business and industry data.

expand relocate improve

tomballtxedc.org •–•–• (281)401- 4086

Texas Economic Development

Conroe, Texas:

Unparalleled Growth, Unlimited Potential Conroe, Texas, 40 miles north of Houston in booming Montgomery County, emerges as a flourishing city ready for your business. Expanding business parks, innovative infrastructure, and premier educational opportunities, set near one of Texas’ finest lakes, make Conroe a top destination. With so much to offer, it’s no wonder Conroe is one of America’s fastest growing cities.

Business Opportunity Conroe offers affordable shovel-ready land located just two miles east of Interstate 45. Recently expanded Conroe Park North welcomes diverse business growth to its 1,655-acre, fully platted industrial park featuring critical infrastructure.

Conroe Park North is home to more than 30 companies and 3,000 employees.

Industries include advanced manufacturing, freight distribution, pharmaceuticals, and oilfield services.

Deison Technology Park is located a few miles away. Designed with corporate-campus elements for modern technology businesses, the 248-acre development features integrated technology with contemporary layouts nestled amid Conroe’s pine trees and rolling hills. The natural setting embodies an eco-friendly Park.

Advanced Infrastructure Interstate 45 runs through the heart of Conroe, giving businesses convenient access to one of America’s busiest highways. Significant transportation investments throughout Conroe make it easier to reach business centers and local attractions.

Adjacent to Deison Technology Park sits Conroe-North Houston Regional Airport.

A U.S. Customs Federal Inspection Station serves foreign travelers and recent runway expansion handles increased air travel into the growing Conroe airport.

George Bush Intercontinental Airport, one of the busiest airports in the Unites States, is a mere 30 minutes from Conroe. Port Houston opens global shipping markets to Conroe businesses.

Attractive Incentives Conroe presents a bevy of available economic incentives. The City of Conroe and Montgomery County offer ad valorem tax abatements up to ten26

MAY 2020

years. A locally funded Performance Based Cash Incentive program offers qualified firms cash incentives based on a project’s economic impact to the community. The State of Texas utilizes the Texas Enterprise Zone Program and Texas Enterprise Fund to attract new business.

Foreign Trade Zone #265 serves Conroe and greater Montgomery County helping companies obtain several tax and tariff savings. Additionally, businesses that serve national or international markets may qualify for the Freeport Exemption.

Capable Workforce More than 4,100 Conroe businesses employ close to 50,000 people. Workforce partners like Lone Star College-Conroe Center and Conroe Independent School District pump talented, well-trained people into the workforce. Lone Star College-Conroe Center, located inside Conroe Park North, offers several programs that translate directly into Conroe careers.

Nearly 90,000 potential employees within a 30-mile radius of Conroe and more than two million workers available in neighboring Harris County help Conroe companies find skilled employees.

Endearing Lifestyle

Conroe is known for its quality of life. Outdoor recreation and cultural venues, along with festivals, entertainment and retail options are readily available. Idyllic 22,000-acre Lake Conroe is a slice of paradise and the region’s most popular attraction. Home to resorts, including Margaritaville Lake Resort opening this summer, surrounded by award-winning golf courses, lake-side campgrounds, and popular dining establishments, Lake Conroe provides opportunities to play, stay, and eat along the lake. Sam Houston National Forest’s 163,037 acres invites hiking, biking and birding along natural trails.

Downtown Conroe is home to cultural attractions, including historic theatres, music venues, and top dining. Numerous festivals attract thousands of visitors every year, bringing entertainment from around the world.

Ready for Your Business A business-friendly mindset and a hospitable culture establishes Conroe as a premier destination for businesses, residents, and visitors. We invite you to discover why Conroe is ready for your business!

EXPANDING OPPORTUNITIES FOR NEW BUSINESS IN CONROE, TEXAS

Just north of Houston, a world-class business environment awaits you in Conroe.

Skilled labor and excellent schools Just north of Houston and The Woodlands Near Bush Intercontinental Airport & Port of Houston World-class medical services Regional airport with U.S. Customs facility Two business parks with pad-ready sites Incentives to qualified projects Live, work and enjoy life in Conroe, Texas

936-538-7118 â&#x20AC;¢ ConroeEDC.org

Texas Economic Development

Crockett Industrial Park Crockett’s 94.408 – Acre Industrial Park is ready for business! The Park is strategically located between South 4th Street and South 5th Street, and also has access from Loop 304 South. Utility infrastructure – water, sewer and electricity – have been installed in the Park’s first phase, opening up ten of the Park’s seventeen lots for development. The lots range in size from 3.95 to 7.86 acres, and are flat to rolling. Land in the Industrial Park is available on a low or no cost basis, dependent on the proposed development’s job creation and capital investment. The Industrial Park is located in the City’s established Enterprise Zone, which provides a variety of state and local incentives. The City of Crockett is eligible to apply for Texas Capital Fund infrastructure Grants for street extensions into the Industrial Park and also for Real Estate Loans up to one-half of the cost of construction of a new manufacturing building in the Park. Restrictive Covenants have been established to guaranty quality development and preservation of the investment in the Park. Initial tenants in the Park include the Muscles and Curves Gym and a Technology Center that the CEIDC invested in for Business Development and Training. For more information, contact James Gentry at 936-546-5636 or jjgentry@corckettedc.org.

www.crockettedc.org 936-546-5636 James J. Gentry jjgentry@crockettedc.org

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SCOOP Due to postponement of events during this time, the following pages only contain information about upcoming REDnews webinars.

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We are in this together!

MAY 2020

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MAY 2020

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If this person is no longer with your company, please notify subscriptions@ rednews.com or call 713-661-6300

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Land Development Summit: Houston

July 31:

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