Success in the commercial real estate world has always been about the ability to evolve. Investors are constantly looking for what’s “next,” while developers keep an eye on what the market is asking for. Retailers need to know the trends that their customers will want. And economic development organizations must be able to pivot when their community indicates a change is needed. In so many ways, the COVID-19 pandemic has tested the evolutional capacity of EDCs throughout Texas and a number of them are passing with flying colors, helping the investors, developers and companies that call their towns home weather an incredibly challenging time. At the Greater Houston Partnership (GHP), the team shifted to a strategy of remote working, online meetings and virtual events in March, according to Craig Rhodes, senior director of regional economic development. “The traditional trade shows, conferences and outbound recruitment missions have been replaced with virtual industry roadshows, site consultant outreach and targeted business outreach activities,” he said. An example of that: GHP hosted a virtual business recruitment mission with Houston Mayor Sylvester Turner in October 2020 to connect with companies in Silicon Valley. The event followed up a successful delegation trip in 2019 meeting with California tech companies about the opportunities for growth in Houston. “The project pipeline has continued to stay active with new prospects considering relocations and expansions in the region. We have had multiple new projects announce this year including Amazon, Google Cloud and Greentown Labs,” said Rhodes. “We are currently tracking over 140 active projects in the pipeline, with manufacturing and logistics leading the industry sectors.” Similarly, the pandemic has changed operations for the City of Seabrook and its economic development arm, but economic development director Paul Chavez said his team is embracing the new normal. “We are utilizing new technologies and finding innovative and creative ways to communicate with prospects,” he said. In nearby La Marque, the EDC changed its focus from business attraction to business retention, delivering nearly $1 million in COVID Business Relief Grants to business owners. The funds helped keep the doors open after state-mandated closures had a profound impact on business owners of every kind, especially retail and restaurants. “Over and over, we’ve heard our business owners say that they wouldn’t have made it through the pandemic without our COVID Business Relief program. Rather than a big project slam dunk this year, we had hundreds of small businesses survive the 2020 COVID pandemic,” said Alex Getty, executive director of La Marque EDC. “That’s something we’re proud of and we’re in a great position heading into 2021.” There’s been no slowdown in prospect activity at all in Conroe, one of Houston’s fastest-growing suburbs. If anything, Conroe Economic Development Council executive director Danielle Scheiner said things are picking up, particularly for warehousing and logistics projects but also for manufacturing of consumer products. “We are still averaging 1,000+ homes a year with more and more sites in the early stages of development,” she said. Conroe’s EDC just celebrated the signing of its first occupant in the Deison Technology Park. VGXI, Inc., a manufacturer of plasmid DNA for vaccines and gene therapies, will move its headquarters to Conroe from The Woodlands. The state-of-the-art, 240,000-square-foot facility is expected to be operational in January 2022. “On the industrial side, we have five projects currently under construction in our two parks,” said Scheiner. “We still have some retail/commercial sites under construction, although I don’t anticipate any new ones starting anytime soon.” Retail, she expects, will be the sector hit hardest by the pandemic. Scheiner said many of Conroe’s local eateries and boutiques have held on so far, but they need the continued support of the community. In Seabrook, that’s exactly what customers have been doing. Sales tax revenue there has remained healthy, while other areas have taken hits. “Both retailers and restaurants in Seabrook offered and continue to offer services to meet the current needs of our residents and visitors. This in addition to our SEDC Emergency Business Retention Incentive has helped keep our economy strong,” said Chavez. The City Council’s planning and zoning commission is currently reviewing plans for a five-level, 170-room boutique hotel that would feature an extended stay complex of 76 guest suites. “Also included in the plan is a 23,700-square-foot conference center, 24,850 square feet of retail buildings for food beverage leases and a future proposed multifamily apartment building containing approximately 260 residential units,” Chavez said. “This development will be located with waterfront views of Clear Lake and only minutes away from I-45 and NASA Space Center.” Location, he points out, is as important as ever when discussing future development plans. “Being on Galveston Bay and Clear Lake with prime commercial property that fronts the water, Seabrook has numerous opportunities that are available for planned development,” said Chavez. “In a past survey when asked what makes Seabrook attractive and distinguishable from surrounding cities, the most repeated responses received from the community survey were: the waterfront, the potential for waterfront development, opportunities for water recreation (boating, fishing, etc) and coastal living.” The value of location is something La Marque EDC’s executive director also stressed. “COVID changed things but our position is as strong as ever. Our location along 45 and proximity to the Galveston-Kemah-NASA tourism market will continue to drive commercial development in our city,” Getty said. “Over the past decade our population has grown by more than 30 percent and we don’t see it slowing down as another new neighborhood development was approved by the City Council this fall.” La Marque’s EDC is also responding to business owners who are taking advantage of this time as an opportunity to renovate and improve their properties. “We’ve seen an uptick in business improvement grants, which is encouraging. We’re seeing everything from 50-year-old buildings getting facelifts to new signs and landscaping at some of our retail centers and even complete interior remodels in some of our local restaurants,” said Getty. Chavez agreed. “Businesses and developers continue to ask for feedback on the types of projects that would qualify for incentivizing,” he said, “and our track record shows that we are aggressive with coming up with deals that provide a solid return on investment for the community that also pushes the needle towards landing the project in Seabrook.” Prospective developers in Conroe are asking about anything that will help offset their overall cost of doing business, whether that be tax incentives or fast permitting approval. “Anything that allows them to operate more efficiently to help their bottom line,” said Scheiner. “They are interested in understanding how we approach incentives for jobs that might be working remotely. In our case, if the payroll is managed out of that facility, they can count those jobs regardless of whether they are working remotely or at the physical location.” Though the pandemic has certainly created challenges, Houston-area EDCs are stepping up to face those challenges in whatever way their communities need and will continue to do so to help businesses thrive.
Category: Focus November – 18
Breaking it down with Burgher Haggard: How outsourced accounting can save money
BY BRANDI SMITH
Real estate is a survival-of the-fittest kind of industry, rewarding those who are efficient with their capital and operations while punishing those who aren’t. Burgher Haggard, a firm
that specializes in outsourced accounting and administration, considers their clients to be in the former group. “Beyond providing a service platform that centers around people, process and technology, we give our clients flexibility to expand and contract their accounting function with the cycles of their business,” says Clint Haggard, President of Burgher Haggard. “This is a great alternative compared to having an internal team that you have to pay whether you’re busy or you’re still waiting for your next deal to close.”
The company is, at its core, an accounting outsourcing firm for clients across the country with complex assets, handling services in a more efficient manner than might be possible within the client’s organization. Burgher Haggard focuses on financial administration, consolidated reporting and consulting. The company is currently responsible for the accounting and administration of roughly $4 billion in assets, half of which is related to clients who are real estate investors and developers.
“From high-potential startups to companies worth hundreds of millions, our real estate clients come in all shapes and sizes,” says Jeremy Sweek, Managing Director of Real Estate Services for Burgher Haggard. “Sometimes our clients have internal resources such as a CFO or a construction coordinator that we work with, and other times we are the complete accounting solution for our clients.”
Sweek, a CPA who started his career in public accounting and then gained many years of finance and accounting experience with Crescent Real Estate, has spent the past eight years building the real estate practice for Burgher Haggard.
“I’m so proud of the team, the processes and technology we have today,” says Sweek. “Anyone who has ever established an internal accounting department can appreciate how much time and resources are required to do that well.”
Because of the incredible value found in technology that can aid in the accounting and reporting process, Burgher Haggard hasn’t skimped when it comes to making an investment in tech. “Real estate owners could spend several hundred thousand dollars or more on software, consulting and internal staff time to build out an internal solution comparable to the tools and reports that Burgher Haggard provides,” Sweek says. “This is a really important aspect of our value proposition. Burgher Haggard clients are getting the benefit of all of that technology and intellectual capital on day-one, and at a fraction of the cost.”
“A private equity fund, for example, could have 50 or 100 different investors and the general partner of that fund would be responsible for reporting discrete information to each of those investors such as capital statements and K-1s,” explains Sweek. “That’s a responsibility we handle for our clients through our technology and expertise.”
The experience of the Burgher Haggard team is something that is difficult to measure, yet it’s another valuable asset at the disposal of clients. “We have a lot of shared knowledge when it comes to real estate developers and owners that indirectly benefits our clients,” says Haggard. “For example, if a client is struggling with an issue, we’ve probably seen that before and can help them think through some possible solutions.”
“At Burgher Haggard, every client, regardless of size, benefits from our internal controls and segregation of duties,” says Haggard. “Smaller companies with an internal accounting team could have their controller paying the bills, reconciling the cash and generating the financial statements which elevates a number of financial and business continuity risks for that organization. At Burgher Haggard, we even have an outside firm audit and sign-off on our processes and controls every year.”
“Many investors like to see that separation between the general partner and the accounting function,” adds Sweek. “In fact, another benefit to paying a 3rd party to perform the accounting is the ability to pass along that expense to the limited partners of the investment, whereas it is a much harder argument for the general partner to pass along internal accounting costs that could be viewed as subjective.”
Burgher Haggard also helps with another business-related challenge: managing and maintaining an internal accounting staff.
We have a team of about 40 professionals including 16 CPAs, so managing an accounting staff is central to what we do, but it doesn’t have to be the focus for our clients,” says Haggard. “Let us worry about recruiting, hiring, and training accountants.” In the dog-eat-dog world of real estate, it helps to have a stable of specialists to lean on when needed. Burgher Haggard provides that stable, along with technology and other assets that would be near impossible to match.
“We’re very good at what we do,” Haggard says. “And this frees our clients to work on what they do best – managing and growing their business.”
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Nick Massad Interview: American Liberty Hospitality
BY RAY HANKAMER
RN: Nick, you and I met back in the ‘80s when we were trying our best to weather the Oil Depression and the horrible hotel slump. I never thought to ask you: How did you first come to be in the hotel industry?
Nick: I cooked, waited tables, and worked night audit in hotels in high school and college. I heard about the UH Hilton School of Hotel & Restaurant Management about that time. I moved to Houston, graduated from the Hilton School, and was hired as Food and Beverage Manager at a Sheraton hotel, and was promoted to General Manager there in 1975.
RN: When did you first go out on your own? What were your first developments?
Nick: The owner of American Liberty Hospitality sold the business to me in 1990, twenty-eight years ago. We began managing hotels for others, and then began to acquire hotels. In 1999 we built our first hotel from ground up, Cypress Bend, a golf resort in central Louisiana.
RN: I know one of your hugely successful hotels is the Hilton Garden Inn on Sage in the Galleria. Wasn’t it one of the first Garden Inns to be built? I know you have always been active and have been a big donor of time and money to the UH Hilton School. When did your first relationship with Hilton as a franchisee begin?
Nick: Yes, the Hilton Galleria Garden Inn was one of the first, and it ramped up to break even in only five months, faster than any other hotel we have built. It continues to be very successful, and it was our first hotel under any Hilton brand. The UH Hilton School changed my life and I had always hoped to do business with the Hilton brand. In 2007 our family made a large donation to the college, which was used to build the Massad Family Library and Hospitality Industry Archives, the only one of its kind in the world.
RN: Can you give us a run-down of the existing Houston hotels and brands in your portfolio, and was there any one which was especially challenging to develop?
Nick: In 2010 we began developing hotels in the Houston CBD, including the Embassy Suites, the Sam Houston Hotel, and the Hampton Inn-Homewood Suites. The Embassy Suites next to Discovery Green, with 262 suites, was especially challenging, because it was on a tiny site of 17,500 SF. Our Houston architects Mitchell Carlson Stone ‘shoe-spooned’ the hotel onto the site and it was so accepted by the traveling public that it has won Hilton’s “Connie Award” three times, the highest honor within the Hilton system, named after the founder, Conrad Hilton.
RN: You have a bunch of new developments in the pipeline, including in the Medical Center and the Galleria. Can you give us an early peek at what is on the drawing board?
Nick: Following the success of our dual branded Hampton Inn and Homewood Suites in downtown Houston, we plan to break ground on two new dual brands: one in the Galleria and one in the Texas Medical Center. Combining two hotels within one building is more efficient to build and to operate, since the concept combines two distinctly different hotel products to the traveler-i.e. a regular room and an extended stay room.
RN: Some hotel developer-owners are just asset flippers, but operations are the heart of our industry. The most successful developers love operations instead of thinking of them as a necessary evil. I know you are a family company. Do you have a family member coming up through the ranks?
Nick: You are right-hotels are part real estate and part an operating business, and without a good operator, the ground and building have less value. We are operators at the core. We build for the long hold, selling 5-10 years following stabilization, or longer if a hotel becomes a legacy asset. Vicki and I have three children and they all have active roles in our corporate development and operations teams. We are thrilled that our children all want to follow us in the business, and…all three are graduates of the University of Houston!
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Marketing to Millennials: How retailers are shifting to catch up
BY BRANDI SMITH
As news sinks in that generational mainstay Sears has filed for bankruptcy protection, it’s prompting a renewed examination of the impact younger generations are having on the retail industry and how retailers are responding.
Sears will close 142 stores near the end of the year, along with the 42 it already planned to shutter. The filing is a kind of last-ditch effort to save the company that made it through the Great Depression after getting its start in Chicago more than 130 years ago.
There’s no one identifiable nail in the coffin for Sears; rather a number of factors (and lessons for other large retailers) in an ever-shifting retail landscape.
ONLINE VS. BRICK-AND MORTAR
It’s easy to look at Sears as an example of a brick-and-mortar behemoth that was unable to successfully answer demand when it comes to e-commerce. It did well in specific areas. Its tool sales, for example, landed it as the No. 5 domain in that category in 2017. However, that didn’t translate to big ticket items, such as appliances.
Toys R Us struggled with the same challenges, leading to a bankruptcy filing and the closure of all its locations earlier this year. It barely even attempted to woo online customers. Rather than build a platform of its own, the toy chain shelled out $50 million to Amazon to market its products. That left it with hardly any digital presence.
There is plenty of evidence that a change in approach is not only possible, but rewarded by consumers. Online sales have grown to 25 percent of all business for highend department stores Neiman Marcus and Nordstrom.
According to CBRE, Williams Sonoma now does 52 percent of its sales online. To accomodate that, the chain that offers gourmet foods and professionalquality cookware, had to modernize its supply chain.
Even Walmart, which was predicted to be an early victim of “the Amazon effect,” has learned how to thrive by offering online customers the same variety (or often more) they would find in a physical location with the ease of online shopping.
This does not suggest the death of brick-and-mortar retailers. Receipts don’t lie; people still prefer to buy products in-store. A number
of online retailers (Amazon via Whole Foods, Warby Parker, Huckberry and others) have opted for physical locations to supplement online sales.
NICHE VS. VARIETY
Another challenge for Sears was that it became such a juggernaut, it was nearly impossible to change its course. Along with the tools and appliances for which it was known, Sears sold clothing, home decor, shoes, accessories and beauty products. It started offering banking and real estate services.
There was a time when the one-stop shop approach lured consumers. They appreciated the variety and ease that went along with it and we saw retailers such as Walmart and Target capitalize on that.
The shopping habits of millennials, we’ve learned, are considerably different from their parents and
grandparents. They prefer to shop at boutiques, specializing in a specific niche̒. That’s given rise to a new era of mom-and-pop shops opening up and thriving.
EXPERIENCE VS. CONVENIENCE
In that same vein, younger shoppers are foregoing the promise of convenience and opting instead for retailers that offer an experience. It can be personalized, immersive, responsive or, ideally, all of that. Retailers competing with the online market have to be able to provide something the internet can’t.
Sears failed in this light by refusing to invest a significant amount to spruce up its stores. It ended in a middle-of-the-road scenario: not high-end like Nordstrom and not discount like Walmart.
Even the retailers that have succeeded in creating a niche̒ brand or experience are continuing to evolve. As an example, Barneys New York collaborated with an interior designer to revamp the ninth floor of its flagship Madison Avenue location. The area is now a showcase for Barneys Home and Barneys Kids, even featuring a pop-up space. Walmart, Target and Macy’s have also made considerable investments into refurbishing their stores.
Consider this: the influence of Instagram. If the social media generation can gather post-worthy content in a store, they will visit. That’s also an opportunity for
retailers to let customers do the marketing.
IDENTITY VS. BRAND
If you examine those department store retailers that have struggled, they also share a crisis of identity. It could be hard to differentiate what makes JC Penney a more contrasting shopping experience than Sears. They both offered a wide range (possibly too wide) of mid-level priced products. They also appealed to older shoppers, but failed to connect with the younger generation.
On the other hand, you have brands such as Neiman Marcus, Nordstrom and Barneys that have staked a claim on the higher-priced end of the shopping experience. Swing to the other side of the pendulum and you’ll find discount retailers such as Walmart, Target and Dollar Tree. Those stores all embrace and foster their identity more than any one brand.
To come back from the brink, Sears would have significant choices to make. Should it give consumers the deals they’re looking for? Will it invest in creating an experience for customers? What kind of online presence can it offer for consumer convenience?
In reality, those are the same questions all of America’s retailers need to answer, if they haven’t already. They are learning that they must find a balance between all of these elements to succeed in an industry that, while having always shifted with the times, has never seen a sea change of these proportions. To survive, they’ll cater to online customers while creating an experience
in their stores. They’ll distinguish themselves as a discount option or a high-end splurge. They’ll create a persona that’s easily marketed, identified and, let’s be absolutely honest, social-media worthy.
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Making it big in McAllen: Why the South Texas city is booming
BY BRANDI SMITH
Nestled on the Texas side of the southern U.S. border with Mexico, what is now the state’s fifth-largest city is in the midst of a development boom. McAllen, often (and mistakenly) labeled a typical border town, was recently named one of the Top 10 Biggest Boomtowns in America by Magnify Money. A review of the city’s population, earnings and business growth led CNBC to rank McAllen No. 1 for cities with rising salaries.
“McAllen is a powerhouse fueled by international trade, medical tourism, retail and higher education,” says Rebecca Olaguibel, the city’s director of retail and business development. “As a matter of fact, McAllen generates more than $3 billion in gross retail sales tax for the state of Texas every year.”
One element of the city’s success is its visiting population of 39,000 people every day.
“Because of the influx of visitors from across the region, from both sides of the border, I call McAllen a geographic jackpot,” says Olaguibel. The city owns and operates two international bridges with over 4 million northbound travelers a year. Additionally, roughly 700,000 travelers utilize the McAllen-Miller International Airport annually. Combine all that with an international bus terminal and it’s easy to see how those visitor numbers add up to a whopping 18 million a year. “Beyond the daily influx of visitors, we have a thriving Winter Texan season between October and February,” Olaguibel adds. “Retirees from the midwest love to winter in McAllen because of our mild winter climate, low cost of living, and hospitality; it makes for an interesting cultural experience.”
The city boasts more than 700 restaurants, ranging from Japanese, Peruvian, and Italian every style of Mexican
including regional Tex-Mex. The choices also range from local flavors offerings the taste of South Texas, to impressive destination restaurants like Buddy V’s, Carlo’s Bakery, Texas de Brazil and Yard House.
McAllen is also a hub for retail and entertainment development. Topgolf will build its 11th Texas location in the area, adding 500 new jobs to the McAllen market.
“They’ll bring in their opening teams, top administrative staff and operations team from outside of the market and have them relocate here either permanently or temporarily”, explains Olaguibel.
“We experienced the same moves by Dave & Buster’s last year.”
The woman who just might be McAllen’s biggest development champion moved to the city 11 years ago.
“It’s been an amazing journey,” Olaguibel says. “I’ve learned so much about McAllen, including many unique attributes to the city. There is an intriguing historical and cultural side of McAllen, in addition to the quality of life elements and diverse industries. It really is an amazing city.”
An example of that can be found in the Tres Lagos development, which is currently under construction. When it’s complete, it will feature an estimated 5,000
single-family homes, 1,000 townhouses, 2,000 multi- family units and 1.5 million square feet of retail space.
“Part of the vision behind Tres Lagos was to expand McAllen’s footprint to the north. We wanted to make sure that we had growth opportunities for our city, so we worked with a private developer, annexed the land into the city of McAllen and collaborated with the developer to create a city within the city at Tres Lagos,” says Olaguibel.
Already, Tres Lagos is home to Texas A&M’s Higher Education Center. Initial enrollment this fall was expected to be around 50, but more than 200 people signed up for classes. That simply adds to the area’s educational options, which include University of Texas Rio Grande Valley and South Texas College.
“This is a point of pride for us because, in the past, our high school graduates left the area, heading to San Antonio, Houston, Dallas or beyond,” Olaguibel explains. “Now with the opportunities we have here in higher education, they can stay close to home and have an incredible opportunity for quality higher education. We’re really proud to offer this option because we feel our kids will power McAllen’s future.”
Other projects in the area include Simon’s La Plaza redevelopment, which featured a 250,000 square foot expansion along with two parking garages, new restaurants and new tenants. The Shops at 29 offer 200,000 square feet of new retail space with anchor tenants such as Dave & Busters, Burlington and Ulta. Now in phase 3, the Palms Crossing shopping center continues to add new options.
“We’re a well-rounded family friendly city, deep in south Texas,” adds Olaguibel.
The McAllen Convention Center, which books about 300 events a year, draws people from at least a 200-mile radius, says Olaguibel. The property includes the McAllen Performing Arts Center, host of the Broadway series.
“It’s a truly walkable district where you can enjoy yourself. There are great restaurants and high-end hotels all around the convention center,” Olaguibel adds.
She says the city, as part of its strategic plan, wants to offer the best quality-of-life experiences it can, including cultural events and experiences.
“Our City wants to ensure that we provide the best experience for people who live and work in McAllen, in addition to the 39,000 people who visit us every day,” says Olaguibel. “We want to make sure that when you enter McAllen city limits, you know you are in a very special place.”
McAllen’s growth and successes are propelling it to achieve more, led by city management and elected officials who are pro-business.
“That’s been our goal and we’ve worked really hard toward creating amazing experiences and providing the best quality of life for our citizens and guests,” Olaguibel says. “And we’re not stopping. We’ve really just started and we’re excited for what’s next.”
That means there’s an open door for developers with the right ideas.
Says Olaguibel: “McAllen is a place where they can make an investment, knowing the return on their investment will exceed expectations.”
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