What's Important In CRE Today

Not Your Grandma's Wagon Wheel: Hub-and-Spoke

2022-05-24T13:08:00.003-05:00

The current catchphrase being applied to office leasing, "hub-and-spoke" was derived from the supportive design of early wagon wheels. The energy for motion originates at the hub and is then transferred outward via individual spokes, thereby generating motion.

I'm sure you remember learning about covered wagons during your American History class in school. Well, their large wooden wheels with massive hubs and spokes kept those behemoths rolling across the plains of the U.S., and make an excellent graphic illustration of how "hub and spoke" works with businesses. Historically, it was considered a business distribution method, but with the advent of Covid-19 and the ensuing disruption to a centralized business workforce, it is now being applied as an office/work model for an increasing number of large companies.

With the government enforced lockdown during the Covid-19 pandemic, in order to keep "rolling" companies had to figure out a way for their employees to work from home and still be productive. Enter, Zoom, Go To Meeting, and a host of other video conferencing applications. Problem solved, but another problem was ultimately created... Employees didn't want to go back to a centralized workplace once the lockdowns ended. Since this attitude among workers was extremely widespread companies were at a loss as to how to bring their employees back to full, focused production and not have to deal with the inefficiency or negative "woke" press from mass layoffs.

One increasingly popular solution has been the application of the "hub-and-spoke" business model. Large companies began looking for smaller regional support locations, "spokes" that could be controlled from a central business office, or "hub". As defined by Bryan Robertson, PhD., co-founder of ComfortZones Digital, Inc., in a recent Forbes opinion piece, "The hub-and-spoke model enables a centralized “hub” for people to come together, while also providing the choice to work from “spokes.” A spoke does not have to be a conventional office, but instead any place from which a person can be productive. This can include a satellite office or the home or even a coffee shop—a spoke can be an outpost of 50 or of one. Determining where to establish a formal spoke office versus relying only on informal spokes like a person’s home is dictated by the density of a company’s staff. If enough people live in and around a city, a new spoke would make sense. Similarly, if enough people live within a sub-market in the same market that the hub exists, a spoke also makes sense. "

In order to accommodate the new demand, CRE is seeing a transition from the standard office model to that of "flex-office" from providers such as WorkLodge, Serendipity Labs, and Regus. Longtime Houston CRE institution, Hines Interests has also gotten on board in a big way offering coworking space and executive office suites in two Houston locations via their concept, The Square, which offers office space by the "hour, day, or month". Because of the early success Hines is seeing in Houston, they plan to expand The Square concept to their properties globally providing amenities as shown below.

To compete with new builds, existing office buildings will have to reconfigure currently vacant space to accommodate the new demand by employing "behavior-based designs" and mobility factors. Workspaces will have to allow for high-tech meeting rooms, collaboration zones, "closet" rooms for private video and phone calls, and quiet rooms for individual work. In general, mid-level employees of large companies utilizing hub-and-spoke locations won't require dedicated individual offices due to the mobility factor offered by laptops and smartphones.

There is an unexpected upside to this shift for employers. In addition to solving the immediate problem of encouraging employees to come back to a more traditional work setting, employers are actually benefitting from access to a wider talent pool, allowing them to tap into new markets for candidates that they may not have done previously.

Finally, the rise of the hub-and-spoke office trend will present a unique opportunity for boutique commercial brokerages and independent commercial agents, because those agents will have a greater opportunity and ability to work individually with developers and existing landlords to assess the needs of established regional employers, as well as those relocating to more attractive business areas, such we see here in Texas, and to make sure needs are met so vacant spaces are filled. The possibilities are endless for those who are able to see the potential and opportunities.

FEMA/NFIP Risk Rating 2.0 Is Here. Now What?

2022-04-08T11:23:00.003-05:00

Flood map changes came in January of last year, now the previously announced Risk Rating 2.0 has just gone into effect. For the majority of property owners in the Greater Houston Area and the Gulf Coast region, it means an increase of between $10.00 to $20.00 in the premium cost.

Good real estate agents will familiarize themselves with all of the changes and will interview insurance providers in order to determine those who will be best able to explain coverage to their clients. Just as with property inspectors, it's incumbent upon good agents to provide a list of vetted insurance agents for their clients to review as possible options.

I highly recommend all agents, commercial or residential, read the following article as part of their awareness program.

Community Impact - MAP: With FEMA’s new risk rating in effect, see how Houston-area community flood insurance premiums change

Welcome to the New Age, An Economic Opinion for CRE in 2022 and Beyond

2022-03-07T09:56:00.000-06:00

Everyone would love to have a crystal ball so they can see events before they actually unfold. About the best we can do is avail ourselves of the learned opinions of professionals and academians in whatever field we're concerned with. The following video is from the KW Commercial Symposium that was held on Tuesday, March 1, 2022 in Houston at the KW Commercial Energy Corridor office and is a presentation given by Dr. Mark Dotzour, formerly Chief Economist of the Real Estate Center at Texas A&M University in College Station. regarding impending economic changes here in the U.S. and how he believes they may pertain to commercial real estate in Texas over the next year or so. In a nutshell, Dr. Dotzour sees rapid growth in industrial demand and development, especially along the NAFTA routes between Mexico and the U.S., and a boom for the Houston Ship Channel, and ancillary deepwater ports such as Freeport.

A Survey, Is A Survey, Is A Survey... Not Even Close.

2022-02-19T00:46:00.000-06:00

Most agents, especially residential agents, think there is only one type of survey. Think again. There are actually seven types of surveys used in conjunction with land sales, development, etc., with the most detailed being an ALTA survey, which is required in most Texas real estate contracts, especially those promulgated by the Texas REALTORS® Association (TXR). The seven types of surveys are:

1. ALTA/ACSM Survey

The purpose of this type of survey is to provide a title company and/or lender with the necessary location and survey data to issue an American Land Title Association or Extended Coverage Title Insurance policy. An ALTA/ACSM survey usually shows the relationship between existing improvements on a particular parcel of land relative to the boundaries set forth in the property’s deed.

This is one of the most comprehensive types of land survey because it covers all of the features and characteristics of the property. It is literally a survey "map" of the property. If this survey is done for an impending development, such as a subdivision, business park, etc., it will be referred to as a "platt". The definition of a platt is, "A map of a subdivision that represents a tract of land, showing the boundaries and location of individual properties, streets, easements, and other pertinent information."

2. Boundary Survey

A boundary survey is used to locate the corners and boundary lines of a parcel of land. This type of survey involves both record and field research, including any measurements and computations needed to set the boundary lines in accordance with applicable state laws. A boundary survey may also involve locating easement lines and encroachments from adjacent parcels.

3. Construction Survey

This type of survey requires staking out structures located on the property, including walls, buildings, roads, and utilities. Staking provides construction personnel with directions for implementing the improvements shown on the development plans. A construction survey may also involve both horizontal and vertical grading in addition to an As-Built survey.

4. Location Survey

Similar to a boundary survey, a location survey provides additional information on the location of interior improvements. This type of survey is most commonly used to fulfill the requirements of a zoning permit or loan application.

5. Site Planning Survey

Often a requirement for development permit applications, a site planning survey combines the elements of boundary and topographic surveys for site planning. This survey is used to plan design improvements and developments before construction begins.

Site planning surveys are frequently used for designing house lots, subdivisions, stores, playgrounds, commercial & industrial sites, and streets and highways.

6. Subdivision Survey

A subdivision survey is used to divide a parcel of land into smaller tracts, lots, or estates. This type of survey is also used to design streets and drainages, and it must be recorded by the local and state government agency. This survey is also known as a partition survey.

7. Topographic Survey (aka Topo)

The purpose of this survey is to locate both natural and man-made topographic features on a parcel of land. Examples of such features include fences, utilities, buildings, elevations, streams, trees, improvements, and contours. A topographic survey may be required by a state or local government agency or might be used by architects and engineers for planning site improvements and developments.

A topographic survey is typically implemented through a combination of aerial photography and ground field methods. This type of survey is not limited by property boundaries; however, in some cities along the Texas Gulf Coast, such as Houston, these surveys are required prior to development in order to identify the "determined base elevation" of a parcel prior to any permits being granted for construction. This requirement came about in September of 2019 as a result of the massive flooding experienced along the Gulf Coast region during Hurricane Harvey in 2018.

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Of the seven types of surveys, the most important for commercial realtors are the ALTA and the Topographical. In the case of land sales, it's not unusual for a buyer to have an expanded ALTA with topographical done as part of the feasibility study, especially if the land is being purchased for large-scale development.

If you look at a topographical map of Houston, as you zoom in you'll find the elevation of the land varies widely even in very small areas, and street to street. This variance in elevation is what can cause "ponding" or even flooding, hence the City of Houston's building code change in September 2019, which requires a property owner to employ a licensed surveyor to assess any parcel prior to construction in order to identify the "determined base elevation (DBE)" of a building site and provide an elevation certificate prior to application for construction permits for buildings or residences because the threshold of the entry door to the main living area or occupied space of all new buildings and homes constructed must be 18-inches above the DBE. Areas such as garages are not considered "living areas" and so are not included. This is why many townhome and apartment builders are now constructing garages on the first floor and the living areas on the second floors and above, placing them well above the DBE. (We'll explore the new CoH Building Code in another post.)

Cemeteries, An Eternal Resting Place

2022-02-18T23:18:00.000-06:00

Rock Island Cemetery, Washington, Tx

If you deal with land sales of any kind, eventually, you'll have to deal with a cemetery. When this happens, it will be helpful if you're aware of several points and laws dealing with them in the State of Texas.

1) Can a Cemetery be Moved?

Technically, yes. In certain circumstances, the owner of a property on which there is an abandoned cemetery or which is adjacent to an abandoned cemetery on unclaimed land may petition the Texas Historical Commission to have the remains removed. For such a petition to be granted, the cemetery must be more than 50 years old with no, more recent burials, and the individual or entity who gets approval from the State of Texas must bear the cost of the relocation from start to finish, including any permits. That expense alone is almost 100% prohibitive.

Once granted the bodies must be disinterred under the supervision of "a professional archeologist, and, when appropriate, with the assistance of a physical anthropologist, who is capable of gathering basic demographic data from the human remains being exhumed. Additionally, casket morphology, casket hardware, and any funerary objects must be examined and identified in a report. This policy applies to both marked and unmarked graves unless otherwise specified by the Commission." Health and Safety Code, Section 711.010 (a) - (b)

2) Can Development Take Place Over the Cemetery?

In Texas, the answer is a resounding,"NO!". Any disturbance of a grave, cemetery, burial monument, headstone, etc. is considered an act of desecration and is prohibited by law.

Section 42.08 of the Texas Penal Code states that a person who intentionally or knowingly disinters or disturbs a human corpse has committed a Class A misdemeanor.
Section 28.03(f) of the Texas Penal Code, Criminal Mischief, provides that an offense involving damage or destruction inflicted on a human burial site is a state jail felony.
Section 42.08 of the Penal Code, Abuse of Corpse, allows that a person commits an offense if they knowingly vandalize or damage the space of the interred. This is a Class A misdemeanor, punishable by fine and jail confinement.

If land is purchased with an abandoned cemetery on it, the best option is to fence it off concurrent with notifying local county and state historical commissions. The specific protocol once an abandoned cemetery is discovered can be found here: CaseText - 13 Tex. Admin. Code § 22.4

3) Must a Seller Disclose There is a Cemetery on Their Land?

If the seller is aware of a cemetery, the answer is, "ABSOLUTELY!". If no disclosure is made, the seller could face legal action from the buyer if and when the discovery is made. In truth, if at some future point the buyer discovers a cemetery on the property, even if the seller didn't know about it, there may be an attempt at litigation. This is another reason to have a full ALTA survey performed either prior to listing or as part of the feasibility period when listing or purchasing land. An ALTA survey is a detailed land parcel map, showing all existing improvements of the property, utilities, "and significant observations within the insured estate".

4) Pubic Access Across Private Land

Section 711.041 of the Health and Safety Code states that any person who wishes to visit a cemetery that has no public ingress or egress shall have the rights for visitation during reasonable hours and for purposes associated with cemetery visits. The owner of the lands surrounding the cemetery may designate the routes for reasonable access. Section 711.0521 further states that interference with ingress and egress is a Class C misdemeanor.

Health and Safety Code section 711.012(b) provides the Texas Funeral Services Commission the authority to write rules to support section 711.041 of the Health and Safety Code. These rules present a course of action that may be undertaken in cases where access to a cemetery is refused. See Title 22, Part 10, Rule §205.2 of the Texas Administrative Code.

Private Family Cemetery on Land No Longer Owned by the Family.

The court decision in the case of Davis v. May, 135 S.W.3d 747 (Tex.App.–San Antonio 2003, pet. denied), confirmed the trial court’s judgment granting descendants the right of ingress and egress to a private family cemetery surrounded by a single landowner.

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In short, once a cemetery, always a cemetery. Make sure your clients show them the respect they deserve and understand their responsibilities of good stewardship. For additional information on cemeteries in Texas I recommend accessing the information available at the Texas Historical Commission and touching base with the local County Historical Commission for the county where the land in question is located. That last link will prompt you to download an Excel file containing the names and contact information for the Chairs of all 219 counties in Texas.

Covid and SBA Lending

2022-02-18T10:50:00.003-06:00

One of the side effects of Covid and the federal government's associated SBA loans to affected companies and investors has been a huge backlog in approval time required for any SBA-backed loans. What used to take three to four months, now in reality takes a minimum of eight months in most cases, and in some cases over a year. Obviously, sellers aren't wild about waiting over a year for a contract to close, so the option many investors are using is what's called a "bridge loan".

When third-party financing is involved, such as an SBA loan, a bridge loan "bridges" the gap between the closing and permanent funding and is generally granted via a short-term conventional or personal bank loan at a higher interest rate than the anticipated final loan from the SBA. Bridge loans can also be used to bridge the gap between the closing and approval of a standard conventional commercial loan. When that is done, it's generally by acquiring a "hard money" loan (we'll discuss "hard money" lending in another post). An excellent explanation of bridge loans can be found here: Investopedia - Bridge Loans

Regardless of which side you're representing in a transaction, it is incumbent upon you to make your client aware of the SBA loan process and potential timetable. For sellers, during the listing process, you need to find out what type of financing they are willing to work with since there may be added closing costs, in addition to the previously mentioned delays. For buyers, giving them as much information as possible will help them to prepare and potentially shorten the overall timetable. If asked, you should be prepared to provide them with a short list of approved SBA loan providers. Our group has seen excellent lending experiences with Jim Lindsey, Sr. V.P. at Allegiance Bank's North Loop West office.

For a detailed explanation of the SBA loan process (and there is a plethora of SBA loans to choose from), you can refer your clients here: U.S. Small Business Administration - Steps in the Life of an SBA Loan

CCIM Houston/Gulf Coast - 2022 Commercial RE Forecast Competition

2022-01-08T15:59:00.002-06:00

This event hosted by the Houston/Gulf Coast chapter of CCIM runs $110 for non-members and $85.00 for members until January 28th, and will provide you with 4 MCE TREC credit hours. There's currently quite a cross-section of brokers signed up to attend, including some of the heavy-hitters in Houston. If you have the time and inclination, it would be a good event to attend. Registration after January 28th will be at a higher rate, which has not yet been posted.

Registration Link for CCIM 2022 Commercial RE Forecast Competition

Zoning, Variances, and Permitted Use

2022-01-08T15:12:00.001-06:00

Here in Houston, there is no "zoning". That said, there are use restrictions in place in many areas which can be found in local deed restrictions that are recorded with the Harris County Clerk's office. Most deed restrictions have some vehicle in place that allows for periodic changes or even complete removal. The most common vehicle used in the City of Houston is applying for a "use variance".

In the Heights area of Houston, you will frequently see large 4'x8' signs posted by the City of Houston on a tract of land announcing such an application has been made. Those signs will provide information regarding the variance requested, along with information for protesting the request and deadlines to do so. An example of such a notice is shown below.

Most other municipalities in Texas have fairly detailed zoning ordinances and maps available with full descriptions of the activities/industries allowed. A simple web search using the municipality's name and "zoning" or "zoning map" will provide a link directly to the information needed to determine if a tract/parcel can be used for commercial purposes, along with the type of commercial use permitted. Here's an example for the City of Pearland.

As areas grow and develop, most municipalities will make revisions to their zoning maps, so it is a smart idea to check the municipality's website periodically for any updates. Note: Counties, as a rule, don't engage in zoning, and provide a letter to that effect. Here's a link to download an example for Brazoria County: Land Use Letter - Brazoria County

For detailed information regarding zoning, re-zoning, variances, and conditional use permits, there are a couple of sites I recommend: Property Metrics, and Investopedia Actually, both are prime sites to use for a wide range of commercial real estate and investment information. Here are links from both specifically dealing with zoning...

Property Metrics - Rezoning, Variance, or Conditional Use Permit: Which One Can Solve Your Zoning Problem?

Investopedia - What Is Zoning?

Welcome to KWCEC's "What's Happening" Page

2022-01-08T14:12:00.005-06:00

Nothing like starting out the new year with a little "housecleaning". Revamping this blog site for use by our KWCEC agents (and anyone else who drops by) will continue to be a work-in-progress. In that vein, it will be used as a repository for industry training notices, trending topics, CRE news items and listings. If any reader has a suggestion for something they would like to see included, please provide information in the comments section or reach out to me directly at claramattox@kwcec.com.