Gables West Ave Mixed-Use Development
Situated on the corner of Kirby and Westheimer, this project was begun out of an RFP that was issued by a major land holder who does ground leases in the area. The winner, which was perhaps by the result of forced default of other offers, was Gables residential which has 26k units and a net worth which was upwards of $3B before the downturn. The developers, Josh Landry and Ben Peaceglock, gave us a tour and the low down on the project. It is currently 89% leased on the residential and 41% leased on the retail. Rental rates for the 397 residential units are around $2 per square foot per month with 2 months of rent abatements (not included in that figure). The tenant mix is diverse and is made up of young professionals, empty nesters, travelers, etc, with no one type of tenant dominating the rental pool. There are 72 floor plans, which are taken from the Gables other successful multi-family projects, have 3 different finish outs, but do not vary substantially in price. The Gables focuses on what they call EPN’s, established premium neighborhoods, and their continued success in these areas ensure their continued sustainability. This project was unique because of the two floor of retail space with 195k square feet. They purposely made their second floor a flex space that can be easily converted to office or, if they are really desperate, into apartments. They are still working on lease-up of the retail while they have been able to relax as their apartments leased very easily. They are confident that the whole structure will be occupied (minus turnover) in the near future and continue to ride their market research and unique business plan to success.
The Core
The core is located on Washington Street not far from the West Ave development and the two projects have many similarities. Washington used to be an industrial area, but is now an up and coming young urban professionals area. Great night life is within walking distance and a public bus system commonly known as the wave provides service to the area, day and night. According to Michael Morgan, a principle of the development company, the best philosophy a developer can have is to be conservative and not to speculate. Although he admitted that some of the development business is about being lucky, he said the most important thing is to avoid “stepping on a land mine.” He has been in the business since a young age and has done everything from single family houses to $100+M developments. His equity partners on this deal are a public REIT. They have 25% equity on the deal and 75% debt. He stressed that he is very comfortable with their high occupancy rate of 98.8% and expects that it will remain high because nothing is in the pipeline for the area for at least three years. The rental rates are currently below the market of $1.60 per square foot at $1.40. They also maintain the ability to go lower and still achieve their desired yield. He thinks that building too much at a time is like taking too many classes in a semester. You will fail some of them if you have to choose what to focus on! This is a great philosophy. He mentioned that most developers go broke and it is most often caused by the hype that is built over their projects. They over extend themselves and this results in their collapse. “Slow and steady wins the race!”
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