Published by:

O’Connor & Associates 2000 N. Loop West, Suite 110 Houston, TX 77018 713.686.9955

HOUSTON REAL ESTATE TRENDS EDITED BY PATRICK O’CONNOR, MAI

$199 PER YEAR

VOLUME 14 NUMBER 9

DECEMBER 2000

APARTMENTS The Greater Houston apartment market has slipped slightly on its road to recovery, as the level of multifamily demand appears to have plateaued. Leasing activity has slowed, although it appears that seasonal factors may be contributing to this decline. Still, a slowing economy, unsteady stock market, uncertainty over the presidential election and unusually harsh winter weather all likely factored in to make this quarter the first in over a year to experience a rise in vacancy. Overall occupancy is down 0.18 points this quarter, with only Class A not experiencing a decline. Multifamily absorption dipped this quarter, the seventh consecutive year in which fourth quarter absorption fell from third quarter levels. While some of the current decline is seasonal, this quarter’s absorption totals are the lowest since 1Q 1998 and the lowest 4Q total since 1996. During the last four quarters, the local apartment market absorbed 13,010 units. This total compares favorably with 10,910 units absorbed in 1998, but lags the 14,620 units absorbed in 1999. According to the O’Connor & Associates December 2000 Greater Houston Apartment Data Program, overall occupancy for Houston area multifamily projects is 92.20% (Class A = 91.68%; Class B = 92.89%; Class C = 92.56%). Compared to the current rate, occupancy in the Houston apartment market is up 1.27 points in the last twelve months. Meanwhile, the overall multifamily rental rate is $0.71 per square feet per month. •= RCA Holdings Ltd. plans to break ground on a 704-unit apartment complex in west Houston in the first quarter of 2001. The Royal Luxor Court (0876D and 0876G) will be three-stories of one, two, and three bedroom units and it will include four swimming pools, exercise facilities, a business center, a club room, and a conference room for residents. Each unit will offer high-speed Internetaccess and individual security systems; rents will average 88 cents per square foot. The first phase (0876D) of construction—352 units—will begin by March 2001, with the first units ready by October, while phase two (0876G) should also begin in 2001. The complex will be built on 24 acres of vacant land near the intersection of Richmond Avenue and Eldridge Parkway, which RCA has owned for the last 20 years.

•= Gables Residential has broken ground on Gables Meyer Park II (2163C), its 22nd apartment complex in the Greater Houston area. This is the second phase of the complex; the 345-unit Gables Meyer Park I (2163B) was completed seven years ago. The project will consist of 296 new apartments and will cost an estimated $27 million to complete. The apartments will average approximately 1,000 square-feet, with rental rates projected at $1.09 per square-foot. The following chart illustrates historical apartment sales activity.

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4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Se p99

Total Units Sold

Apartment Sales

Note: The multifamily projects listed below are followed by the O’Connor & Associates’ database identification number and are included for subscriber cross-referencing. The property information contained within the Houston Area Apartment Data Program is published on a quarterly basis. AMLI Residential purchased West Dallas Place (1410B) from West Dallas Place Apartments LP, of Trammell Crow Residential. AMLI has renamed the complex, located at 2210 W Dallas St, AMLI Towne Square. The class A complex consists of 380 units totaling 314,288 net rentable square-feet. The oneyear old complex is 93% occupied and demands an average rental rate of $1.22 per square-foot. AMLI Residential Properties Trust has acquired the Western Ridge Apartments (0952M) from Fairfield Properties and renamed the complex AMLI at Western Ridge. The 318-unit complex consists of 289,612 rentable square-feet and demands an average rental rate of $0.99 per square-foot; construction of this community finished in early 2000. The class A complex is set on 12.9 acres located on Rogerdale, south of Westheimer, and east of Beltway 8 in the Westchase area of Houston; the physical address of the property is 3354 Rogerdale Rd. Stone Mountain Properties has purchased The Cottages Apartments (1819) from KCF Partners L.P. The 253-unit apartment complex is located at 10300 Harwin. The class B complex is currently 93% occupied with an average rental rate of $0.73 per square-foot. The 23-year old complex features amenities such as access gates, balconies, a perimeter fence, and a pool. J. Todd Stewart, G. Craig LaFollette and M. Todd Marix of CB Richard Ellis handled the negotiations. HSR Enterprises has purchased the Bay Oaks Apartments (1770) from Jennmaur Associates Limited. The 154-unit apartment complex is located at 1700 Bob Smith in Baytown. This class C apartment complex is currently 97% occupied with an average rental rate of $0.53 per square feet. This 22-year old complex was last renovated in 1997 and includes amenities such as access gates, washer/dryer connection, and Cable TV connections. Wade Schmitz and Lynn Cirillo of Shapiro & Associates represented the seller in negotiations.

Houston Real Estate Trends

DECEMBER 2000

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Baytown Housing Authority has purchased the Forest View Apartments (2773) from Tahir Majid for an estimated purchase price of $3,300,000 ($20,886 per unit). The 158-unit apartment complex is located on 301 Tri City Beach in Baytown. The class C complex is 82% occupied with an average rental rate of $0.53 per square-foot. The 36-year-old complex features as access gates, basketball and volleyball courts, a perimeter fence, and Cable TV connections.

SINGLE-FAMILY HOUSING Used home sales decreased in November as 3,889 homes were sold, down from the 4,278 homes sold in October, according to the Houston Association of Realtors. The 3,889 homes sold is slightly lower than the 3,933 homes sold in November 1999. The median price of a used single-family home sold in November was $119,500, which is up 12.8 percent from a year ago. Finally, the year to date home resales through November totaled 50,767 properties, a 0.14% increase over the 50,696 sales in the first 11 months of last year. New home sales decreased slightly in November, as 1,013 new homes were sold, down 0.2% from the 1,015 homes sold in October, according to CDS Market Research. The sales were a 23.8% increase over the 818 homes sold one year ago. The survey showed starts were down 11.2% in November, while closings were up 14.0%. Note: Figures on new home sales are reported as an indication of recent market conditions and are thought to be representative of overall market trends. Data represents approximately 60% of the total market. For the first time in almost two years, Houston home loans have fallen below 7 percent. After hitting 8 percent at one point this year, rates floated around 7.5 percent for most of the year. Houston Capital Mortgage is offering 30-year, fixed-rate loans of 6.875 percent, which is 0.625 points less than the mortgage rate the company was quoting last month. Chris Viviano of Houston Capital Mortgage is hoping that a new round of home-loan refinancing will occur when customers learn that mortgage rates are dropping again. Coventry Homes is now pre-selling homes in the new Northwest community of Blackhorse Ranch, which should be completed by spring of 2001. The builder is offering floor plans ranging from 2,900 to over 4,900 square feet priced from the $240’s. This golf-course community offers oversized homesites on the golf course, as well as waterfront sites. The subdivision includes tennis courts and a swimming pool within the community. Williowbrook Mall and Bear Creek Park are both within a short drive from the community and, children living in the community will be zoned to the Cy-Fair Independent school district. Enclave Homes, a member of the Royce Family of Builders, has begun construction on its first eleven homes in its new gated golf community Heron Lakes Estate. The community is located at North Gessner and the Sam Houston Parkway in northwest Houston. There are 7 floor plans to select from, with prices starting from the $160’s. Buyers interested in these homes can now purchase them at special preconstruction prices and have input on any final changes to the original floor plans. Area Realtors got their first glance at the unique 215-acre residential development in northwest Houston at an open house on December 5 at Rock Creek, located near Tomball at Spring Cypress and Grant Roads. Rock Creek was developed by Caldwell Watson Real Estate Group. Rock Creek will consist of more than 275 custom built homes, which will include tennis and swimming facilities, a playground, and a clubhouse. Prices for these homes range from the low $300’s to more than $1 million. Two-story houses will feature a minimum of 3,500 square feet, while the one-story homes will consist of at least 3,000 square feet. Houston real estate developer Jack Lee, of the Oakmont Group, has announced plans to develop a 250,000-square-foot, 64-unit condominium tower at 314 N. Post Oak Ln. near Memorial. The condo will be adjacent to the Houstonian and readily accessible to Interstate I-10. The units range in price from $300,000 to over $1,000,000, and unit sales are already well into double digits. Construction is not set to begin until spring, and the project is scheduled to be complete by the summer of 2002. Houston Real Estate Trends

DECEMBER 2000

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Centex has several homes ready for occupancy in WindRose, a Friendswood Development masterplanned community located on Kuykendahl, between Louetta and FM 2920. These homes feature a collection of one- and two-story floor plans ranging from 2,393 to 3,628 square feet; prices range from the $170’s to $200’s. There are a limited number of sites with direct golf course front, along with wooded sites, cul-de-sac and corner locations. Newmark is now constructing homes in Greatwood’s Wood Creek, with two floor plans ready to be shown to prospective buyers. Newmark offers homes from the $200’s to the $300’s, ranging in size from 2,500 to 4,300 square feet. Newmark was awarded the 2000 National Energy Value Housing Award. The following chart illustrates historical used-home sale activity.

Number of Homes Sold

H o u s to n U s e d -H o m e S a le s 6 ,5 0 0 6 ,0 0 0 5 ,5 0 0 5 ,0 0 0 4 ,5 0 0 4 ,0 0 0 3 ,5 0 0 3 ,0 0 0 2 ,5 0 0 2 ,0 0 0 1 ,5 0 0 N ov99

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PERMIT ISSUANCE The City of Houston issued permits to build 406 houses and to demolish 78 houses in November 2000. Permits were issued to build 18 multifamily building (677 units) and to demolish 24 multifamily buildings (62 units). Permits for privately owned new non-residential construction totaled $80,783,570. Public sector permits for new non-residential construction totaled $92,230,102. Additions, alterations and conversions totaled $56,900,573 for the private sector and $22,996,471 for the public sector. Total Building Permits, City of Houston 1998 November $ 210,057,592 Year-to-Date $ 3,288,904,849

$ $

1999 252,015,510 3,095,413,403

$ $

2000 371,007,722 3,761,934,549

The following chart illustrates historical permit issuance.

500 Permits

Number of Single-Family

N e w R e s id e n t ia l U n it s

400 300 200 100 N o v - D e c - J a n - F e b - M a r- A p r- M a y - J u n 99 99 00 00 00 00 00 00

Houston Real Estate Trends

DECEMBER 2000

J u l00

A u g - S e p - O c t- N o v 00 00 00 00

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OFFICE BUILDINGS The local office market slumped this quarter, with the -1,489,217 SF absorbed in 3Q, as Class A buildings were particularly hard hit. Each class posted negative totals, though, breaking a pattern of strong recent absorption. The largest losers were the Galleria and the Far West, which combined to lose nearly 800,000 SF this quarter. Over the last four quarters, -1,343,145 SF has been absorbed. Occupancy levels stand at 85.36% overall in 3Q, a decrease of 1.13 points over last quarter. While all four classes posted a decline in occupancy, the situation was most acute for Class D buildings. Rental rates posted slight gains this quarter, up $0.06 to $18.79 PSF. Class D rents had the largest increase, up $0.34 psf, as each class- save A- saw rents climb. This quarters minimal rent growth continues a pattern that has plagued the local office market all year. According to the O’Connor & Associates October 2000 Houston Area Office Data Program, overall occupancy for Houston area multi-tenant office buildings is 85.36% (Class A = 89.30%; Class B = 85.59%; Class C = 78.92%). Meanwhile, the overall multi-tenant office building rental rate is $18.79 per square foot per year, an increase of $0.48 over 3Q 1999. •= IKON Office Solutions will consolidate several of its Houston locations into a new IKON Houston campus. The campus consists of more than 157,000 square-feet of office space on 15-acres of land on the northwest corner of Greens Crossing Boulevard and Gears Road. IKON will move enough employees to the campus to make it the home for almost 900 employees, the largest IKON facility in the country. •= The former Nabisco Bakery building, located at the southeast corner of Almeda and Holcombe, is set to be redeveloped. The 627,000 square-foot building was purchased by the Texas Medical Center with plans to redevelop the building into office space for Medical Center institutions. A research joint venture of the Department of Veterans Affairs and Baylor College of Medicine will be the building’s first tenant, moving into a 25,000 square-foot portion of the building next year. The following chart illustrates historical office building sales activity. O ffic e B u ild in g S a le s 2 ,0 0 0 ,0 0 0 1 ,8 0 0 ,0 0 0

Square Footage

1 ,6 0 0 ,0 0 0 1 ,4 0 0 ,0 0 0 1 ,2 0 0 ,0 0 0 1 ,0 0 0 ,0 0 0 8 0 0 ,0 0 0 6 0 0 ,0 0 0 4 0 0 ,0 0 0 2 0 0 ,0 0 0

Houston Real Estate Trends

DECEMBER 2000

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Note: The buildings listed below are followed by the O’Connor & Associates’ database identification number and are included for subscriber cross-referencing. The property information contained within the Houston Area Office Data Program is published on a quarterly basis. Boxer Properties, which owns the largest portfolio of office buildings in Houston, has just purchased another local property after a 2-year absence. Andrew Segal has purchased The Atrium Tower (SOW 015) in southwest Houston from Commercial Credit Development Corp. of Baltmore, MD. The class B building, located at 9894 Bissonnet, contains 160,459 square feet of net rentable space and is 76 percent occupied. The nine-story structure was built in 1982. Boxer reportedly paid about $4.5 million ($28 per square foot) for the building. Martin O’Malley and Kristen Porter of Grubb & Ellis Co. represented the seller, while Michael Pariza of Boxer Properties represented the buyer. Continental Airlines recently purchased the 120,000 square foot NorthBelt Office Center I (NOE 171) and plans to renovate the facility in January. The building is located on a 9.5-acre site at 900 Grand Plaza Drive, at the intersection of Ella Boulevard and the Sam Houston Parkway in Greens Crossing. The building will be used as Continental’s flagship facility for its reservation call center in Greenspoint. The company expects to have 1,200 employees working in the building by the end of 2001 with the possibility of adding 1,800 more jobs in the future. Continental also purchased 3.8 acres adjacent to the site to expand the parking area. Kavoian & Winn bought three medical buildings totaling 45,332 square-feet. Northbelt Medical Investments sold the buildings, located at 530 N. Sam Houston Parkway (NOE 046). This multi-tenant building is approximately 96% occupied with an average rental rate of $9.00. Barbara Coffman of Coldwell Banker-Swilley Hudson Co. represented the seller in the negotiations, while Cal Snyder also of Coldwell Banker-Swilley Hudson Co. represented the buyer. The Radler Limited Partnership has bought a 6-story, 113,000 square-foot office building located at 5100 Southwest Freeway (GAL 079) from Bank One, represented by its servicing agent, Lennar Partners of Miami, FL. H. Dan Miller of CB Richard Ellis represented the seller in this transaction. TXU Communications has leased a total of 12,591 square feet at Ten West Center One (FAW 396) from Opus South Corporation. This building is located at 17420 Katy Freeway and includes 155,000 square foot of rentable space. The newly built office building features an average rental rate of $20.50 per squarefoot. T. Worth Davis and Vic Baltov of Cushman & Wakefield, Inc. represented the landlord in the negotiations, while Chris Oliver and Tim Relyea of Cushman Realty represented the tenant. Tri L Enterprises Ltd. has leased 17,345 square feet in the Renaissance Tower Office Building (DTN 057) located at 1801 Main St. from TCP Renaissance Partners LP. This space will be used to house the Metropolitan Ballroom and Conference Center. This Class B building was built in 1956. Charles G. Fertitta Jr. of Moody Rambin Interest Inc. represented the tenant while Welcome Wilson Jr. and Ryan Wasaff of TCP Realty Services LLC represented the lessor in the negotiations. Parsons Brinckerhoff has leased 12,058 square feet of office space in 17-year old Gateway II Office Building (NOE 018) located at 15333 JFK Blvd. This 154,325 square-foot building is located in Northeast Houston. The multi-tenant Class B building is 51% occupied with an average rental rate of $17.25 per square foot. Liz Westcott-Brown and Bob Cromwell of Moody Rambin Interests represented the landlord in the negotiations. Cable & Wireless has leased 20,923 square feet of office space in the Ashford VII Office Building (FAW 201) from Teachers Insurance & Annuity Association. The Class B office building is located at 900 Threadneedle. The 192,961 square-foot building is 79% occupied with an average rental rate of $19.00 per square-foot. Kris Lily and Howard Rambin of Moody Rambin Interests represented the landlord in the negotiations, while Tom Ford of Henry S. Miller represented the tenant.

Houston Real Estate Trends

DECEMBER 2000

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Mutual of New York has leased 11,217 square feet of space at the Buffalo Speedway Office Building (NEW 024) at 3700 Buffalo Speedway from TMG-Southwest. The 11-story building is 80% occupied with an average rental rate of $24.50 per square-foot. Bob Cromwell of Moody Rambin Interests represented the landlord, while Tom Tunnifcliff of the John Buck Co. represented the tenant. Travelers Indemnity Co. expanded their lease by 34,000 square-feet at Brookhollow Central II (NOW 124). The 320,000 square-foot, 14-story building is 90% occupied and features an average rental rate of $18.63 per square-foot. This transaction was conducted under the lead of Les Johns of Equity Office for the landlord, while Tom Maloney of Cushman Realty represented the tenant. Proxicom has leased 32,535 square feet of office space at 2700 Post Oak Blvd. (GAL 055) from Walton Street Capital. The 25-story building is 81% occupied with an average rental rate of $22.75 per squarefoot. Don Gonzales, Beth Young, and Ed Prejean of Staubach’s Cos. represented the tenant in the negotiations, while Warren Savery represented the landlord. Worldwide Fiber Networks has leased 27,460 square feet of office space in the Greenspoint Technology Center (NOE 173) from the Estate of James Campbell. The building is located at 12061 North Freeway and is 94% occupied with and average rental rate of $26.00 per square-foot. Lee James of Trammell Crow Co. represented the landlord in the negotiations.

RETAIL CENTERS This past year was one of generally steady but unspectacular performance for the local retail scene. Occupancy today stands at 88.07%, the highest year-end level since we began tracking this information a decade ago and 0.70 points above where it finished 1999. The 3.859 million square-feet absorbed marks a slight increase from the 3.815 million absorbed in 1999, certainly a respectable total. Overall multi-tenant occupancy decreased 0.18 points this quarter to 88.07% for Houston’s multi-tenant centers. This 0.18 point drop negates the 0.17 point rise in a strong third quarter, which was the highest occupancy has been in over eight years. The 188 multi-tenant facilities that have been built since 1990 continue to boast the strongest occupancy levels in Greatest Houston, as centers built in the 1990s boast an occupancy level nearly 4.5 points above the overall average. The coming year, though, promises to be more exciting. Houston will witness more retail construction in 2001 than at any time since the mid-1980s, according to Houston-based Wulfe & Co. Led by Wal-mart, Kroger, H-E-B, and Home Depot, this $400 million construction frenzy is expected to create 6.4 million square feet of space, Ed Wulfe reported at a recent O’Connor & Associates forecast event. Only 9 percent of the new space will be "spec" space, while over 90 percent of the new space will be preleased by a major chain or developed by the retailer itself, Wulfe said. “Houston’s growing population has got to eat. They've got to have clothes, and they've got to go to home improvement centers," Wulfe said. According to the O'Connor & Associates November 2000 Houston Area Retail Data Program, overall occupancy for Houston area multi-tenant shopping centers is 88.07%. Meanwhile, the overall multitenant retail rental rate is $1.49 per square-foot per month. •= Wal-Mart has announced plans to build a Sam’s Club on a 17-acre parcel of land at the intersection of Texas 6 and U.S. 90A. The Sam’s Club will be approximately 128,000 square feet and should be completed in spring 2002. This new Sam’s will join the 11 other Sam’s stores in the Houston area. Brendan Lynch of CB Richard Ellis represented Sam’s in the land purchase from Houston land developer Wolff Cos.

Houston Real Estate Trends

DECEMBER 2000

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•= The redevelopment of Gulfgate Mall, headed by local development firm Wulfe & Co., continues with the groundbreaking of two new anchors on the 72-acre site. The San Antonio based grocery chain H-E-B and Wilkesboro, NC based Lowe’s Home Improvement Warehouse were the first two anchors to sign leases in the retail complex this past summer. Demolition work has begun on the land where H-E-B will be constructing an 85,000 square foot grocery store, while Lowe’s is building a 165,000-square-foot warehouse store on the west side of the mall on part of a 24-acre tract of land Wulfe & Co. purchased earlier this year to offer more retail sites. The $50 to $60 million Gulfgate redevelopment project was announced more than two years ago when Wulfe & Co. and the city of Houston purchased Houston’s oldest mall in a joint venture. •= Best Buy will buy Musicland Stores Corp. for about $425 million. Best Buy will acquire 1,300 retail outlets that Musicland operates under the names Sam Goody, Suncoast, Mediaplay and On Cue, as well as the four commercial web sites Musicland operates. •= Lane Bryant is opening its 12th local store in the spring of 2001, and has announced plans to add several more. The clothing company has leased 5,400 square-feet of space at Copperwood Shopping Center (FNW 209), located at 15875 FM 529 Rd. near Highway 6. Michael I. Wheeler of Boyd Page represented the tenant in the negotiations, while Tom Lile of Gulf Coast Commercial Group, Inc. represented the landlord. •= Old Navy is adding three clothing stores throughout Houston. Old Navy leased 26,584 square feet in Baybrook Gateway Shopping Center (FSE 160) from Eastfield Realty, Inc. The shopping center is located at the southeast corner of Bay Area Boulevard at 1001 W. Bay Area Blvd and is 100% leased with an average rental rate of $1.50. Stephen Pohl of CDC Houston represented the landlord in the negotiations. In the second deal, Old Navy leased 25,600 square-feet of space in the Portofino Shopping Center (FNO 181) from Jefco Development. Jim Fisher of Jefco Development represented Portofino Ltd. in the negotiations. Finally, Old Navy leased 27,985 square feet in North Oaks Shopping Center (FNW 059) from Weingarten Realty. The 22-year old center is located at the southwest corner of FM 1960 and Veterans Memorial Boulevard at 4551 FM 1960, W. and is 89% occupied. Patty Bender of Weingarten Realty represented the landlord in the negotiations. Dean Lane and Culver Stedman of Boyd Page represented Old Navy in the negotiations for all three transactions. The following chart illustrates historical retail center sales activity.

Retail Building Sales

Square Footage

3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000

Houston Real Estate Trends

DECEMBER 2000

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Note: The retail centers listed below are followed by the O’Connor & Associates’ database identification number and are included for subscriber cross-referencing. The property information contained within the Houston Area Retail Data Program is published on a quarterly basis. A California Investment Group has bought the 70,000 square foot Shadowbriar Shopping Center (FAW 072) located at 12280 Westheimer from Shadowbriar Partners L.P. The 15-year old building is 58% occupied with an average rental rate of $0.80 per square-foot. International Realty Concepts represented the seller in the negotiations, while Investar Real Estate Services represented the buyer. PETsMART leased 19,248 square feet of space in the Portofino Shopping Center (FNO 181) from Jefco Development. The center is located at 19075 North Freeway. This Multi-tenant shopping center opened in 2000 and is 86% occupied. Dean Lane of Boyd Page and Craig Wielanski of L3 Corporation represented PETsMART in the negotiations, while Jim Fisher of Jefco Development represented Portofino Ltd. Tweeter, a division of THEG USA, L.P., leased 10,337 square-feet of space at the Wood Ridge Shopping Center (FNO 030) from Amerishop Woodlands, L.P. Tweeter currently has four stores operating in Houston, one in Humble, and one in Sugar Land. They acquired the Home Entertainment Inc. chain in February 1999, and changed to the corporate operating name of Tweeter in July 2000. Ed Page of Boyd Page represented the tenant in the negotiations, while Jeff Beard of The Woodlands Operating Company L.P. represented the landlord. Ulta3 has leased 12,017 square feet in Greentree Retail Center (FWE 154) from Caltim, Ltd. Greentree Retail Center is at 525 Fry, S., on the corner of I-10 west and Fry Road. Dean Lane of Boyd Page and Craig Wielanski of L3 Corporation represented Ulta3 in the negotiations, while Cynthia Smith of Shelby Estus represented Caltim, Ltd. Anthropologie Inc. has leased 9,307 square feet in Highland Village Shopping Center (INL 047). This will be their first store located in the Greater Houston area. Anthropologie is a subsidiary of Urban Outfitters, Inc., which sells a broad array of fashion apparel, accessories and household and gift merchandise in a retail environment. The company’s wholesale subsidiary designs and markets young women’s casual wear, which it provides to its retail operations and sells to over 1,300 specialty stores worldwide. Music Go Round has leased 3,000 square feet of space in the Meyerland Court (NSW 095) shopping center from Kagan-Edelman Capital Fund XXCIII. The 41,895 square-foot center is 83% occupied with an average rental rate of $1.40 per square foot. The 43-year old center is located in southwest Houston (530T) at 4854 Beechnut. Music Go Round currently has over 80 franchised stores nationwide. Michael I. Wheeler of Boyd Page represented the tenant in the negotiations, while Brenda Henson of Commercial Property Advisors represented the landlord.

VACANT LAND Robert N. Mixon, trustee purchased a 139.2-acre tract of land in Liberty County near FM 1409 from Jeremy Davis. John Talhelm of Cushman & Wakefield represented the seller in the negotiations. Metropolitan Transit Authority purchased a 33-acre tract of land on Fannin at West Bellfort from Lenord Rauch, trustee, A-K Texas Venture Capital and Linda Hudson. The land will be for the Houston Light Rail Project. Bobby Rauch with Orr Realty and David Klein with Quest Properties represented the seller in the negotiations.

Houston Real Estate Trends

DECEMBER 2000

Page 9

Polyfoam Products purchased 2 pieces of land on Boudreaux Road. In the first deal, they purchased 9.6 acres of land from Clyde C. Dollins. Keith Brenton of Caldwell Watson represented the seller in the negotiations, while Caleb Lawson of Caldwell Watson Real Estate Group represented the buyer. In the second deal, they purchased 4.3 acres from Alton Laskowski and Elain F. Laskowski Nelson. Caleb Lawson of Caldwell Watson handled the negotiations. Tanglebriar Trust purchased a 13-acre tract of land from All States Resources Corp. and Midstates Resources Corp. The land is located on Aldine-Westfield at Old Cypresswood. Timothy K. Clay of Clay & Company represented the seller in an auction transaction. George H. Zakhira purchased an 11.08-acre tract of land on St. Edwards Green from Most Reverend Joseph A. Fiorenza. Amy Silvey of Clay & Company and Chris Winters of Colliers International Inc. represented the seller in an auction transaction. Dannett Inc. purchased a 7.37-acre tract of commercial land located on Sandpiper Road from Perry Financial Corp. Timothy K. Clay of Clay & Company represented the seller in an auction transaction. Medallion Investments III has bought 6 acres of land from The Curry Corp. and Charles L. Thompson, trustee. This land will be used to develop a 72-unit Country Inn and Suites by Carlson and a future extended stay hotel. The land is located at 8778 Airport Blvd., near Hobby Airport. Mark Lehman of Grubb & Ellis represented the seller in the negotiations, while R.S. Patel of RSP Realty Advisors & Associates represented the buyer. WCF Development has bought a 2.8-acre tract of land for the construction of a 14,490 square foot Walgreen’s. The land is located at FM 518 and North Calder Road in League City. Amanda Fox of Wulfe & Company represented the buyer in the negotiations, while Laddie Howard of Oak Realty represented the seller. Hole Specialists has purchased the Tomball Industrial Park from Spring Creek Development, Ltd. This site consists of 13.7306 acres of industrial land. Caleb Lawson of Caldwell Watson Real Estate Group represented the buyer and Art Depue of Free & Associates represented the seller in the transaction. The following chart illustrates vacant land sales activity.

Land Sales

Number of Tracts Sold

310 260 210 160 110

Houston Real Estate Trends

DECEMBER 2000

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INDUSTRIAL FACILITIES The Greater Houston Industrial market saw occupancy drop almost one percent in the third quarter, as the overall total fell 0.85% to 82.97%. The overall industrial occupancy rate for Houston has varied from 83.33% to 82.97% within the past seven years (October 1993 through October 2000). The occupancy peaked in October 1998, but has declined over the past two years. A slowing economy combined with increased construction has continued to deflate occupancy levels. The overall occupancy level is down 0.35 points from last quarter and down 2.14 points from last year. Research & Development facilities and Distribution Centers post the highest vacancy levels for the third quarter, as these property types are often highly specialized spaces and can be difficult to release. Warehouse have seen their occupancy levels fall slightly, down 2.47 points in the last 12 months, while Manufacturing Facilities have seen occupancy fall by 2.99 points over the same time period. According to the O’Connor & Associates October 2000 Houston Area Industrial Data Program, overall occupancy for Houston area multi-tenant industrial facilities is 82.97%. Occupancy in the Houston industrial market decreased 0.35 points this quarter. Meanwhile, the overall multi-tenant industrial rental rate is $0.41 per square foot per year, up $0.04 since 3Q 1999. •= Southwest Glass of Houston Inc. has broken ground on a 17,000 square-foot facility at 2450 Black Gold Court for the company’s new corporate facility. The company is relocating their north Houston corporate headquarters to The Houston Intercontinental Oil Center (0315 FNO) in north Houston at Richey and Hardy Toll Toad. The move is necessary to accommodate their continued growth and work on larger projects. The company has been in operation since 1978 and currently has 35 employees. Their new facility is being built by Jack Field Interests on Reserve #30, a 1.6acre tract of land in The Houston Intercontinental Oil Center, which was purchased from Shirley Houston Inc. with James A. Garrity of Garrity Commercial Real Estate as the sole representative in the negotiations.

The following chart illustrates historical industrial facility sales activity.

Industrial Building Sales 40 Number of Buildings Sold

35 30 25 20 15 10 5

Houston Real Estate Trends

DECEMBER 2000

Page 11

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Note: The facilities listed below are followed by the O’Connor & Associates’ database identification number and are included for subscriber cross-referencing. The property information contained within the Houston Area Industrial Data Program is published on a quarterly basis. Southwell Properties, L.L.C., dba Professional Janitorial Services purchased the 10,000 SF warehouse facility at 2303 Nance Street from Jose Miranda. Albert F. Muller of Colliers International represented the buyer in the negotiations, while Howard Sims of Sims Realty represented the seller. GBDS Investments, Ltd. purchased the 132,670 SF facility on 4.4 acres at 1335 Boyles Street (3173) from Thyssen, Inc. The 35-year old facility is 27% occupied and demands an average rental rate of $0.25 per square-foot. Michael J. Taetz of Colliers International represented the buyer in the negotiations, while Ron Roberson of Caldwell Watson Real Estate represented the seller. Hempstead Highway Development, L.P. leased 23,938 square foot of industrial space in the Hempstead Highway Distribution Center (1476A) to Servco Distributing, dba Ethan Allen. Ron Robertson of Caldwell Real Estate Group represented the landlord in the negotiations, while Matt Minnis of Moody Rambin represented the tenant. Amar Cosmetics leased 9,000 square-feet of industrial warehouse space at 500 N. Shepherd Drive (2651) from Sharp & Associates. The fully leased, 40,675 square-foot facility was built in 1976 and is located in near northwest Houston. Caleb Lawson of Caldwell Watson Real Estate Group represented the tenant in the negotiations, while Bill Sharp of Sharp & Associates represented the landlord. Sural USA leased 149,750 square feet of warehouse space at 5306 Clinton Drive (3135M) from 5301 Clinton Drive Ltd. The single-tenant facility demands a rental rate of $0.13 per square-foot. B. Kelley Parker III and John Littman of Cushman & Wakefield represented the landlord in the negotiations. Southern Warehouse Corp. has leased two industrial spaces from First Industrial Realty Trust. The first is an 81,875 square-foot industrial warehouse located at 5050 Campbell (1233). Built in 1970, the 121,875 square-foot facility is now fully leased with an average rental rate of $0.28 per square-foot. The second lease is a 47,880 square foot industrial warehouse located at 4300 Pine Timbers (1303). Built in 1980, the 113,400 square-foot facility is 47% leased with an average rental rate of $0.34. Ron Roberson of Caldwell Watson Real Estate Group represented the tenant in both transactions. Con-Way Transportation Services, Inc. leased 51,870 square feet in Northwest Crossing Distribution Center III (0805O), located at 7150 Denny Road in northwest Houston, from TC NW Crossing Ltd., PTP. The year-old center is 48% occupied with an average rental rate of $0.33. Faron Wiley of Trammell Crow Co. represented the landlord in the negotiations. Maintenance Warehouse, a subsidiary of Home Depot, leased 66,752 square-feet in the West Port Industrial Park No. One (2612D) located at 7108 Old Katy Road from Connecticut General Life Insurance Company. The year-old facility is 70% leased with an average rental rate of $0.36 per squarefoot. David Hudson of Trammell Crow Co. represented the landlord in the negotiations, while Jim Foreman of Cushman & Wakefield represented the tenant. Homann Tire leased 18,404 square-feet of warehouse space at 9135C Wallisville Road (3487A) from Wallisville Partners I, Ltd. The 28-year old facility is 86% leased with an average rental rate of $0.33 per square-foot. David M. Boyd of Boyd Page represented the landlord in the negotiations, while James Stewart of San Antonio-based Excel Realty represented the tenant. Stephens Office Supply has leased 25,365 square feet of space at 1201 North Loop W (1863A) from Prologis Industrial Trust. Built in 1980, the 69,000 square-foot facility is now 54% leased. Ron Robertson of Caldwell Watson Real Estate represented the tenant in the negotiations. Houston Real Estate Trends

DECEMBER 2000

Page 12

Accord International, an industrial supply company, leased 16,200 square feet at 4380 S. Wayside (4538) in Houston from Houston Wayside Business Center, Ltd. Accord International renewed its lease on 9,720 square-feet of existing space and expanded its facilities by 6,480 square feet. The industrial facility is now 81% leased with an average rental rate of $0.35 per square-foot. David M. Boyd of Boyd Page represented the landlord, while Matt Minnis of Moody Rambin represented the tenant. Wheel & Tire Design has leased 15,938 square-feet of industrial space at 7232 Wynnwood (1978) from ProLogis Industrial Trust. The 26-year old facility is now fully leased with an average rental rate of $0.40 per square-foot. Caleb Lawson of Caldwell Watson Real Estate Group represented the tenant in the negotiations. Adams Valves leased 20,113 square feet of space in Town & Country Business Park Center 3 (1113) from Houston North Freeway. The multi-tenant center is located in far west Houston at 10649 Haddington Rd. The 85,923 square-foot facility is 94% occupied. Joe MacDougall of Brown, Butera & MacDougall represented the tenant in the negotiations, while Mike Handel of Insite Realty represented the landlord.

ECONOMIC & FINANCIAL NEWS The number of wage and salary jobs in the 6-county Houston area increased by 8,700 jobs to 2,130,900 in December 2000 from 2,122,200 in November 2000, according to the Texas Workforce Commission. The growth was mostly attributed to the trade industry, which increased by 8,300 jobs. Houston's unemployment rate, decreased by 0.7 points to 3.0 percent in December, while the statewide unemployment rate dropped 0.6 points to 3.4 percent. The national rate fell 0.1 points to 3.7 percent. Houston’s high-tech work force continues to expand, ranking third in the nation with a 64 percent increase, according to a recent study. This puts Houston ahead of traditional tech centers, including Austin, Boston and San Jose. Houston’s 71,525 tech employees ranks 14th overall nationally, behind fifthplace Dallas with 176,633 jobs, but ahead of Austin. While Houston’s overall tech work force continues to expand, Houston is not immune from layoffs affecting the industry. Five hundred Houston-area technology workers will lose their jobs in early 2001 when Telxon Corp.’s ceases operations in The Woodlands and northwest Houston. The move is related to the finalizing this month of a merger between Telxon and its top rival, Symbol Technologies. The Dallas Branch of the Federal Reserve reports that economic activity continued to decelerate in December and early January. Manufacturing activity declined, with a considerable drop in demand for some industries. Weaker sales growth was reported in the service sector; demand for business services and retail sales decelerated. Construction and real estate activity also slowed, with a substantial slowing in the demand for residential building. Financial service firms said activity was slightly slower and, while credit quality remains stable, most respondents reported continued tightening of credit standards. The energy industry remains a bright spot, with international activity picking up, but a lack of labor and machinery is constraining drilling activity. Freezing weather hampered agricultural conditions. Galveston council approves plans for a new convention center. Houston businessman and Galveston native Tilman Fertitta plans to build and operate a new city convention center at his beachfront San Luis Resort and Conference Center. Galveston hopes that this will spur economic development on the beachfront and in the city in general. Is help on the way for traffic-weary Houston drivers? A Pennsylvania-based company, Traffic.com, under a contract with the U.S. Department of Transportation, plans to deploy a state-of-the-art digital sensor network that will track actual vehicle speeds, current travel times between points, traffic density and incident along major arteries around the clock. In the future, this data will be delivered to vehicles via digitally based on-board telematics devices, enabling drivers to better plan their escape from traffic congestion.

Houston Real Estate Trends

DECEMBER 2000

Page 13

The nation enjoys six consecutive quarters of declining office vacancies. The nation’s office vacancy rate declined for the sixth consecutive quarter, according to Grubb & Ellis’ winter 2000-2001 market report. Continuing declines in vacancy have occurred despite signs of trouble on the horizon, as dot.com failures, a bearish stock market, and a slowing economy all suggest that this streak may not reach seven quarters. Interloch Management, headed by Houston businessman Sam Lutfak, purchased the long vacant St. Anthony Center hospital property located at 6301 Almeda from Windsor Residential. The 11-story, 318,000 square-foot building sits on 5.7 acres of land. Interloch is considering three options for the property’s redevelopment: hotel, office, and medical. Lutfak feels the best use for the property would be as a hotel, as the remodeled building could provide approximately 300 hotel rooms and 80,000 square-feet of ballroom or meeting space. The building already includes an auditorium, a chapel, underground parking spaces, and a basement. In related news, prominent Houston homebuilder Lovett Homes purchased 10 acres of land that had been part of the St. Anthony Center property. Lovett’s plans for the property include the construction of 98 freestanding-homes and a lake, with all the sites having a lakeside view.

The following chart illustrates total nonagricultural employment. T o ta l N o n a g r ic u ltu r a l E m p lo y m e n t, H o u s to n M S A 2 ,2 0 0

2 ,1 6 0 2 ,1 4 0 2 ,1 2 0 2 ,1 0 0 2 ,0 8 0 2 ,0 6 0 2 ,0 4 0 2 ,0 2 0

Houston Real Estate Trends

DECEMBER 2000

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THIRD-PARTY LENDERS Lender(s) Apartments

Phone

Units, SF, acreage Amount, $000

Bank of Houston Coastal Bank Column Financial Inc. Column Financial Inc. Column Financial Inc. Debis Financial Svcs., Inc. Jefferson Pilot Financial Sterling Bank Office Buildings

713-529-4881 713-592-6337 404-239-5300 404-239-5300 404-239-5300 704-374-6494 212-483-2323 212-483-2323

117 248 356 336 244 266 152 264

$983.04 $5,000.00 $42,500.33 $48,096.87 $49,683,96 $15,300.00 $6,700.00 $2,200.00

Column Financial Inc. Metro Bank Southwest Bank of Texas UBS Principal Finance, LLC Retail Centers

404-239-5300 713-924-4500 713-759-9086 212-821-4000

48,143 54,744 19,910 78,369

$2,700.00 $2,977.00 $860.00 $2,986.00

1 Choice Bank Bank One Texas Bank United Bank of West University General Electric Capital Corp Principal Commercial Funding Sterling Bank Vacant Land

713-943-8833 713-751-6100 214-328-8100 713-668-1333 972-728-7555 515-248-3944 713-952-6055

85,973 139,145 14,204 10,907 21,900 25,000 116,500

$3,140.00 $3,132.50 $600.00 $960.00 $6,235.00 $2,500.00 $2,684.25

Coastal Banc International Bank of Commerce International Bank of Commerce New South Federal Savings Bank Riverway Bank Southwest Bank of Texas Wells Fargo Bank Texas, NA Woodforest National Bank Industrial Facilities st 1 Choice Bank Bank One Texas NA Community Bank & Trust Hibernia National Bank Lone Star Bank

713-592-6337 713-526-1211 713-526-1211 205-951-4000 713-552-9000 713-895-1366 713-250-1911 713-455-7000

6.10 0.93 1.35 93.58 57.29 3.50 10.02 4.08

$1,650.00 $1,930.00 $2,560.00 $5,700.00 $4,962.50 $4,650.00 $2,590.00 $2,642.25

713-943-8833 713-751-6100 281-578-8000 504-533-5533 281-421-2844

28,000 40,586 74,783 17,020 21,030

$625.00 $1,000.00 $2,800.00 $2,800.00 $1,680.00

st

Represents selected transactions Information in Houston Real Estate Trends is derived from primary and secondary sources.

O’Connor &

Associates is not responsible for nor does it guarantee the accuracy of the information. Houston Real Estate Trends  is compiled and prepared by Richard Zigler, Director of Research, [email protected].

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