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The Houston Commercial Real Estate Markets: What’s Ahead for 2014

Breakfast Forum December 5, 2013

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Land Development, Homebuildng & Multi-Family Markets Will Holder Trendmaker Homes

If Change is good, then this must be great!

The pendulum always moves fastest in the middle.

We are in a period when the pendulum is moving very quickly!

“I think I may have liked the recession better?”

Evolving MPC Sales Leaders

Changing School District Perceptions

Super Low Existing Home Supply

Lot Bidding by Land Developers

More Builder Owned Land

Longer Outlook on Deals

Lots of New Builders/Brands and Acquisitions and Mergers

• Toll Brothers • Shea Homes • MI Homes • Sitterle Homes • Megatel Homes

Challenged System-wide Capacity

Human Talent Shortages Including executives, employees, trades and craftsmen

Repurposing Land

1706 Calumet

Market Study-The Villages of Timbergrove Target Market Area and Competition

The Development-The Villages Of Timbergrove

Recreation Center Dog Park Welcome Center Splash Pad Fitness Park Detention Pond

Entry Fence and Gates Landscape of Recreation Center Landscape Around Pond Street Trees At Entry. Intersections, and Around Pond

Two Demographic Bubbles

Federal Regulation Challenges

Evidence of Surface Connectivity for Texas Gulf Coast Depressional Wetlands Bradford P. Wilcox & Dex D. Dean & John S. Jacob &Andrew Sipocz Department of Ecosystem Science and Management, Texas A&M University This study provides the kind of documentation called for by Justice Kennedy in the Rapanos decision. It demonstrates a “substantial” nexus between headwater depressional wetlands on the Pleistocene Texas Coastal Plain and navigable waters of the U.S.—a nexus that is not speculative but is the result of scientific observation. While further study is warranted and needed, this study… suggest that unless demonstrated otherwise, depressional headwater wetlands—at least on the Upper Texas Gulf Coastal Plain as a class—should be considered as hydrologically connected to navigable waters of the U.S. and thus may play a critical role in the maintenance of the aquatic and biological integrity of U.S. waters in this region.

“Galveston BayKeeper is evaluating legal options to protect prairie-pothole wetlands on the Upper Gulf Coast of Texas.”

At issue is the nature of the connection between these wetlands and “traditional navigable waters,” such as Armand Bayou. The fear is that the U.S. Army Corps of Engineers will acquiesce to developer contentions that headwater prairie-pothole wetlands, such as these, are essentially closed depressions with no significant nexus to traditionally navigable waters.

Galveston BayKeeper contends, as academic research has shown, that these wetlands are hydrologically connected to traditionally navigable waters, and that the aquatic integrity of these navigable waters is dependent on the nature of the headwater wetlands.

What’s staying the same?

Houston is still a spec home market.

School perception still drives home demand!

Houston is still a supply rich market.

Jobs Are Driving Home Demand

Not Low Interest Rates

Houston’s new home value, quality, complexity and finish is still the best in America!

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Retail Market Jay K. Sears NewQuest Properties

Annual Job Growth

U.S. Consumer Sentiment Index

Source: www.sca.ir.umich.edu “Surveys of consumers Thomson Reuters University of Michigan”

Retail Trade Sales

Source: U.S. Census

Holiday Sales

NRF expects sales in the months

of November and December to marginally increase 3.9% to $602.1 billion.

The forecast is higher than the 10-year average holiday sales growth of 3.3%.

Shop.org released its 2013 online holiday sales forecast, expecting sales in November and December to grow between 13-15% over last holiday season to as much as $82 billion.

The U.S. Department of Commerce announced that final Q4 2013 e-commerce sales increased 15.5%.

Forecast

Source: www.nrf.com “NRF Forecasts Marginal Sales Gain This Holiday Season”

Online and mobile continue to be a leading area of growth for retailers.

In this economy savvy, cost-conscious consumers go to the web to do their research and get the best bang for their bucks.

In addition to researching with their peers are saying online about products and gifts this holiday season, consumers will use the buy online pick-up in store option, retailers’ aps and mobile website.

Online / Mobile Shopping

Retailers are expected to hire

between 720,000 to 780,000 seasonal workers.

13% year-over-year increase from 2011.

Retailers operate more than 3.6

million U.S. establishments that support one in four U.S. jobs – 42 million working Americans.

Seasonal Employment

Best Buy Annual Sales

Source: www.investors.BestBuy.com

Best Buy Quarterly Comparable Store Sales - Continuing Operations

Fiscal Years 2011-2014

January Fiscal Year-End

Enterprise Comparable Store Sales

Fiscal Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year

Fiscal 2014 (1.3%) (0.6%) 0.3%

Fiscal 2013 (5.2%) (3.3%) (5.1%) (1.4%) (3.5%)

Fiscal 2012* (3.1%) (3.8%) (0.3%) (1.0%) (1.9%)

Fiscal 2011* 5.1% 0.7% (2.8%) (5.0%) (1.2%)

Domestic Comparable Store Sales

Fiscal Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year

Fiscal 2014 (1.1%) (0.4%) 1.7%

Fiscal 2013 (3.7%) (1.6%) (4.0%) 0.9% (1.7%)

Fiscal 2012* (3.8%) (4.1%) 0.1% (1.1%) (2.1%)

Fiscal 2011* 4.7% 0.0% (3.9%) (5.2%) (1.7%)

International Comparable Store Sales

Fiscal Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year

Fiscal 2014 (2.8%) (1.8%) (6.4%)

Fiscal 2013 (13.4%) (11.3%) (10.3%) (12.6%) (12.0%)

Fiscal 2012* 0.7% (2.2%) (2.0%) (0.5%) (1.0%)

Fiscal 2011* 7.7% 5.2% 3.3% (3.6%) 2.0%

Kroger 2nd Quarter Highlights

Kroger's adjusted earnings per diluted share was a record $0.60 for the quarter.

Identical supermarket sales growth, without fuel, was 3.2% in the third quarter.

Achieved 39(th) consecutive quarter of positive identical supermarket sales

Reports Record Second Quarter Earnings Per Share

Source: www.ir.kroger.com “Quarterly Results”

Population Growth

5,946,800

6,127,645

6,280,138

6,435,268

6,593,498

6,754,896

5,400,000

5,600,000

5,800,000

6,000,000

6,200,000

6,400,000

6,600,000

6,800,000

7,000,000

2010 2011 2012 2013 2014 2015

Houston MSA Population Growth

Source: State of Texas – Texas Department of State Health Services Years

Popu

latio

n

Houston’s Retail Market

at Fry & Grand Parkway

at Northpark & U.S. 59

at Kuykendhal & FM 2920

at Loop 306 & Hwy 105

in Sugar Land

in Sugar Land

New Shopping Centers in 2013

Grocery Anchored Developments Openings 2013

25.0% market share

24.8% market share

22.2 % market share

Houston – area Market Leaders

Source: www.bizjournals.com/houston – “The Business Journal Interview with Bill Breetz of Kroger”

2013 Store Openings

Planned Grocery Anchored Developments 2014 & Future

25.0% market share

24.8% market share

22.2 % market share

Houston – area Market Leaders

Source: www.bizjournals.com/houston – “The Business Journal Interview with Bill Breetz of Kroger”

2014 & Beyond Store Openings

New Shopping Centers Project s Planned

Project / Anchor Developer Location Projected Opening

Tanglewood Court Fountainview & San Felipe

2014

Spring Marketplace Rayford & Kuykendahl

1st Qtr 2014

Blvd. Place

Post Oak & San Felipe

Spring 2014

Towne Lake Barker Cypress & Tuckerton

2nd Qtr 2014

Vintage Marketplace Louetta & Cutten Rd

Summer 2014

Spring Town Center Kuykendahl & FM 2920

June 2014

FM 518 & Pearland Pkwy

Spring 2014

South Shore Blvd. & Hwy 96

2014

New Shopping Centers Projects Planned

Project / Anchor Developer Location Projected Opening

FM 1960 & Townsend

2014

Grand 10 Center

I-10 & Grand Parkway

2014

Creekside Park Village Center Kuykendahl & Creekside

September 2014

Hughes Landing Lake Front and Lake Woodlands

2015

Clear Lake Marketplace Clear Lake City Blvd & El Dorado

2015

River Oaks District

Near 610 & Westheimer

2015

Green Street formerly Houston Pavilions

1201 Fannin Street

Renovations are in

progress

New to Houston’s Market

• New concept • Opened first store in

Sugar land at 13833 Southwest Freeway at Sugar Creek Blvd on July 17

• North Carolina based

gourmet grocery store • 4 new stores former Rice

Epicurean locations • Now Open

• Phoenix based healthy foods/ organic grocery store • 4 stores now open

• Limited assortment grocery with over 1,000 stores nationwide • 13 new stores in Houston out of 30 planned

• California base specialty Grocery

• 3 stores now open • 4th store to open in Katy

at LaCenterra with 12,500 sq. ft.

• Under construction

Grand Katy location opening February 2014

• Now Open Sugarland location at Hwy 59 & University

• New Concept • About 7,500 sq. ft. –

10,000 sq. ft. • Sells products that cost

no more than $5 • Grocery anchored

• 5,000 sq. ft. Petco store • Grocery anchored & • Urban markets • No live animals • Organic foods

• New pet store concept • Looking for 7,000 – • 9,000 sq. ft.

• New pet store concept • Chicago based • All-natural food and

treats

• 4 new stores opening • Village Plaza at Bunker

Hill – Spring 2014 • The Woodlands Mall –

September 2014 • Willbrook Mall – Fall

2014 • Baybrook Square –

Spring 2015

• New wireless concept

subsidiary of AT&T • Prepaid service • Looking for 1,000 –

1,800 sq. ft. • 20 planned stores

• Dallas based liquor store • 28,000 sq. ft. • Opened 2 stores in

Houston (Humble and Westoaks)

• Plans to open 1 more in 2013 and another in 2014.

• New Palladium Theatres • 22 stadium-style theaters • Located on The Grand

Pkwy near Long Meadow Farms

• Now Open

• 8 screen • 560 seat luxury theater • Located at Westheimer

and Westcreek Ln • Open 2014

Houston Sales Comps 2013

FOR LEASING: CALL 281-477-4300

Spring Town Center Chambers Town Center Shops At Katy Reserve NEC & SEC of FM 2920 & Kuykendahl

Houston, Texas

Project Size: Anchors: 425,157 SF Retail: 153,845 SF Pad Sites: 32 Total; 5 Available

Tenants:

NOW OPEN: COMING SOON: 12 Screens 28,350 S.F.

SEC of I-10 & Hwy 146 Baytown, Texas

Project Size:

300,000 SF Walmart-anchored power center with pad sites 17,500 SF of multi-tenant retail and junior anchor space available

Tenants:

SWC & SEC of FM 1463 & Spring Green Katy, Texas

Project Size:

286,074 SF Grocery Anchored shopping center located in the explosive growth area of west Katy. This project is surrounded by the high end home developments of The Reserve at Katy (Toll Brothers with homes from the 400’s to 800’s) Woodcreek Reserve (Homes from 260’s to over $1 million). Over 1,000 new homes are projected to close in the next 12 months within a 1 mile radius of this center.

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Office Market / Multi-Use Development Jonathan Brinsden Midway

BoyarMiller Houston Commercial Real Estate Markets What’s Ahead for 2014

Big Picture

midwaycompanies.com |

Houston’s Economy Continues To Outperform

The Energy Business Has Changed

Houston Is A Great Place To Work & LIVE

The Office Worker Is Different

Third Coast/“Core” Investment Market

midwaycompanies.com |

Current Market

New Developments

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New Developments – Owner/User

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New Developments – Under Construction

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New Developments – Build to Suit

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New Development

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Total Non Build to Suit 5,400,000

Total Build to Suit 6,100,000

Total Under Construction 11,500,000

Total Pre-Leased 8,500,000

74%

Houston Supply, Demand and Vacancy

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Houston Supply, Demand and Vacancy

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Mixed-Use

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Industrial Market Welcome W. Wilson, Jr. GSL Welcome Group

HOUSTON WEATHER

We ARE the Machine

HOUSTON: THE PARAGON CITY

HOUSTON INDUSTRIAL MARKET TOTALS

506 million SF 1.977 million SF

under construction

521 million SF 5.366 million SF

under construction

2012 2013

VACANCY RATES

Vacancy by Product Type

Warehouse/Distribution 4.9% Flex Projects 9.4%

Houston Overall Vacancy Rate 5.3%

www.colliers.com/houston

LARGEST PROJECT RECENTLY COMPLETED

Igloo Distribution Warehouse 420,000 SF

BTS

Warehouse and Distribution Center

250 Additional Employees

GOYA FOODS, INC.

400,000 SF Operations and Manufacturing Center

KATY GRAND PARKWAY

SALES ACTIVITY Q3 2013

Total Sales: $146M

No. of Properties: 24

Average $/SF: $46.36

Average Cap Rate: 7.67%

TEXAS’ BIGGEST CITY AND THE LARGEST

IN THE SOUTH!!

EXXON/QATAR UPDATE

Deal signed in May 2013 between Exxon Mobil Corp. and Qatar Petroleum International

CORPORATE CAMPUSES

AMERICA’S GROWTH CORRIDORS

THE PANAMA CANAL & THE HOUSTON SHIP CHANNEL

E.T. ISN’T PHONING HOME, HE’S FUELING UP…

THE “SHALE” REVOLUTION

Driving

Energy

&

Producing

Jobs

HOUSTON…

The Gateway City!!!