By Ray Hankamer for REDNews

 

Takeaway: While supply and demand in oil and gas seeks equilibrium, the various commercial real estate segments will adjust according to their own, different cycles.

 

Daily supply of crude oil only exceeds demand by about one per cent, and demand worldwide is growing at approximate one per cent per year-so the balance is not far off; however, only one per cent imbalance was enough to send prices plummeting from $100 to $30!

Worldwide supply has been stable for last few years and is slightly declining due to aging infrastructure and political situations in producer countries other than the US

Supply growth has been almost exclusively in the US, where “the spigot can be turned on and off quickly” in response to market forces

Shale production takes huge capital outlays during drilling and ongoing throughout the life of the well, creating lots of work for oilfield supply companies

Capital outlays have come mostly from private equity and lender services, less from banks-so “the banks are not in trouble” overall

Shale oil production got started 2009-2012 and really built momentum, zooming up in 2013-2015 causing present oversupply

With all the boom in shale oil, the US still imports about 40% of its needs, so relations with countries like Saudi Arabia are still vital to us-our exports of oil are tiny in the overall equation and it is a question of exporting certain grades to certain offshore refineries

Rig count at all-time low of 600, going to 500-this is from peak of 2,200 rigs-this represents huge hit to service companies in the Oil Patch

The “fix” to the supply/demand imbalance is already well underway, and by the end of this year prices around $60 per barrel are predicted, going to $70 in 2017…but, “this could be wrong”

Asian economies are continuing to grow and transportation and demand for fuel is growing too

Iran production will not be a big factor, but it has been a scare factor to the market

“Falling demand for petroleum products” in Asian countries means only that demand there will grow at 15% per year and not 18%, so not a consequential negative

Shale oil wells deplete 30-40% each year from the previous year, unlike conventional wells, so new drilling must continue for overall production to stay even

Demand worldwide for Liquified Natural Gas continues to grow and exports will increase

Pipelines cost half as much as rail to ship petroleum products and with lots of pipelines under construction, most basins in US will be “overpiped” by 2016

Some pipelines are being built to export natural gas to Mexico, but Pemex is experiencing managerial and financial weakness on its end, delaying progress

Office Market: vacancies rising in sub-markets where O&G layoffs are happening, and lots of sub-lease space is coming on market, putting downward pressure on rates

Hotel Market: starting to see weakness as supply of rooms catches up, just as demand from O&G business travel slacks off

Retail Market: still strong and playing catch-up; some regional malls being renovated/reconcepted

Industrial Market: still strong with vacancies up only from 4 to 5%

Multi Family:  WAY overbuilt, and net absorption at zero with almost 30,000 units still under construction-ouch!

Single Family: still only about 3.5 months inventory in re-sale market; demand for new homes and lots remains good

Construction prices still high and contractors still have backlogs

Positive job growth in Houston predicted this year in the 21,000 range-as high salaried O&G jobs shrink, lower pay hospitality and leisure and government and medical and education job openings will grow

 

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By Ray Hankamer for REDNews, January 2016

Takeaway/Summary:  Houston office market will suffer extreme weakness in those submarkets depending on the Energy Sector: The Energy Corridor, Greenspoint, Westchase, & The Woodlands.  Less pain in the CBD, but still some, and some in the Galleria.  Oil prices should be in the $60-62 range by end of 2016, but will have to stabilize for a period of many months before any new hiring by oil companies.  Mergers & acquisitions and bankruptcies will continue to throw sub-lease space into an already glutted market in these submarkets.

Oil traders, not refineries or end-users, establish the price of a barrel of oil

Supply is falling off dramatically as it becomes un-economic to produce, but demand, while slowing a little, continues to grow worldwide

China’s middle class is burgeoning and vehicle ownership will create ongoing rising demand into the foreseeable future

US has become the world’s swing producer, replacing OPEC in years past; US is very nimble in responding to market forces and can turn the spigot on or off more efficiently than many other producer countries

Some countries whose production costs are high will cease producing altogether, while American engineers are resourceful and will continue lowering the cost of bringing a barrel to market

Offshore is more expensive and development there takes a very long time; it will be the last to resume exploration after prices stabilize

For tenants, now is the time to move up to quality and to lock in long-term deals at lower rates

For landlords, lead the market down by being pro-active to get / keep the best tenants; don’t ‘follow the market down’

Energy Corridor office has 17% vacancy including sub-lease and it may be 35% by end of the year

Houston is where the core employees of the worldwide oil and gas industry are working and they are far less likely to be laid off than blue collar or other employees in far-flung branch locations

“2018” should be a super year for Houston-ongoing from there will be ups and downs but nothing so dramatic as we have experienced recently

 

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BY BRANDI SMITH

The month of January provides an opportunity to reflect on the year that was, look ahead at the year that could be and, without fail, take a punch to the gut when you open your property tax notice. Over the past few years, residential and commercial property owners in Texas have watched the amount they owe steadily increase.

“Property taxes, if you look at opinion polls, are probably one of the least popular taxes around and part of the reason is that they’re paid in a lump sum,” said Jim Popp, managing partner of Popp Hutcheson PLLC, which bills itself as “The Property Tax Firm.”

Texas is one of just nine states without a personal income tax, a benefit for its residents to be sure. However, that shifts the burden of state and municipal revenue to sales and property taxes. In fact, property tax is the largest tax assessed in Texas, generating more than $45 billion dollars for taxing units in 2013, the most recent year full data is available.

The Texas Comptroller, in its 2012 report Your Money and the Taxing Facts, reported that property taxes outgrew population by a nearly 5 to 1 margin between 1992 and 2010. The revenue shot up so much in that time that it’s now almost twice that of the second-largest tax: sales.

Texas Property Tax – By the Numbers    

The most recent complete data from the Texas Comptroller reveals that nearly half the taxes generated in Texas come from property owners.

 

“Sales taxes can vary dramatically based on the economy from year to year,” said John Hightower, partner at Olson & Olson. “Sales taxes will go up and down, but property taxes are much more consistent, much more dependable.”

According to analytics site WalletHub, the average Texan pays $3,327 in property taxes, the 6th highest rate in the country. Compare that to the national average of $2,089 or the averages of our neighboring states, such as Arkansas ($1,068), Louisiana ($832), Oklahoma ($1,499) or New Mexico ($1,249).

Voters in the Lone Star State made it known in November 2015 that they were fed up with the rising taxes, buoying Proposition 1 with 86 percent support.

Some critics of the state’s property tax system, including Senator Paul Bettencourt, label it “riddled with inconsistencies.” Bettencourt, who is CEO of Bettencourt Tax Advisors and former Harris County Tax Assessor-Collector, is chairing the governor-appointed Select Committee on Property Tax and Relief.

In our January issue, Bettencourt told REDNews, “We’re looking to make tax rates and appraisals more consistent across the state.”

However, Popp, who primarily represents commercial property owners in their fight against appraisal districts, defends how Texas does business.

“The system is really not broken. We have probably the most fair, accountable and transparent property tax system, I think, in the United States,” insisted Popp. “I’ve drafted and pushed to passage about 50 changes to the property tax law in the past three [legislative] sessions and I’m always trying to fine tune it.”

To understand how property taxation in Texas works, one must examine its two sides: the property value set by appraisal districts and the tax rate set by local jurisdictions.

According to the Texas Comptroller, “an appraisal district in each county sets the value of taxable property each year.” It does so by assessing properties at least once every three years. That means that on January 1, the 254 districts in Texas are required to set a market value for each of the parcels within their boundaries. They typically do this through a series of mass appraisals.

“It’s very expensive as it is to do a mass appraisal on that many properties, but if you sat down and hired an individual appraiser to do an individual appraisal on each piece of property, it would cost a phenomenal amount of money,” Hightower explained. “In some cases, the cost of appraisal would exceed the amount of taxes that would be generated from the property.”

As with any process completed in bulk, Hightower said some compromises must be made.

“The process of appraising property is not an exact science,” said Hightower. “People who have looked into the issue recognize that the margin of error is something like 10 percent to 15 percent.”

Even so, Hightower argued against changing the educational process for appraisers: “There are very stringent training requirements currently and the science of doing mass appraisal is pretty well developed.”

Popp agreed: “Our chief appraisers are doing an admirable job and I think generally they’re doing a real service to the taxpayers.”

Once a value has been set and the notice mailed, the property owner has choice of paying the bill or contesting it. The latter decision, depending on which district issued the notice likely first results in an informal meeting with staff.

“Then if I’m not happy with the results, I would appear before a three-member panel of the appraisal review board,” explained Hightower, who defends districts when the dispute escalates to a lawsuit.

“We only represent local government, we have since we were created 40 years ago,” he said, referring to the firm of Olson & Olson.

A marginal number of cases make it to court. Using Harris County as an example, of the more than 1.6 million properties that are taxed each year, just a few dozen will make it to trial.

“When I talk to the Legislature, I tell them, ‘Look, if you were only completely wrong 25 times out of a million floating decisions, I think you’re doing pretty darn good,” Popp said.

Despite Hightower often being on the other side of a case from Popp, the two seem to agree that though this first branch of property taxation receives the most complaints, that is typically to blame not on appraisal districts, but on the local jurisdictions that set the tax rate.

“People complain about the values rising on their commercial property, but they’re really complaining about the increase in taxes as a result of the value rising on their commercial property,” said Popp.

His approach to solving the issue is at odds with Hightower; Popp suggests reining in the local agencies that set the rates, whereas Hightower emphatically supports local control of those rates.

“I think some of the focus is on how do we find ways to control, limit or watch growth in government spending?” Popp said. “The problem is that many of the homeowners out there don’t understand that the increase in their value is not the direct result of their taxes; what’s happened is values go up, but taxing units leave rates the same. The result is: they get more revenue.”

“Property taxes are a big part of the revenue of cities,” said Hightower. “They have money from property taxes, sales taxes, franchise fees and user fees, but the most dependable and substantial source of revenue for cities is property taxes.”

That’s why, he argues, a city’s residents should be the ones to decide whether rates are too high or, in some cases, too low.

“It would be a shame if their citizens couldn’t say, ‘OK, we’re willing to pay a little more taxes in order to get our streets rebuilt more quickly,’” said Hightower.

The issue of rate control is bound to be considered by Sen. Bettencourt’s committee as it tours the state to gather information from the taxpayers themselves. The group is also likely to hear the increasing calls for an end to Texas property tax all together. Proponents of this approach, which was laid out in a 2012 study by the Texas Public Policy Foundation would replace property taxes with an expanded sales tax. The report suggested the change could create new jobs and increase personal income.

Whatever information the committee gathers, the senators will present their results and recommendations to their fellow state legislators. Then begins an entirely new process of debate and negotiation, which, in the end, will weigh the financial needs of taxpayers with that of the cities and counties in which they live or do business.

“The system,” said Bettencourt, “is out of balance.”

 

 

 

 

 

 

 

BY BETH YOUNG
Senior Vice President
Colliers International-Houston

Many 2016 healthcare trends will continue from 2015; but some trends will be more noticeable.  Overall, medical providers want to be more accessible to patients, provide better care and lower expenses.  For real estate investors who focus on healthcare properties, here’s a list of what you may expect:

The greatest demographic factor to affect healthcare: age! Everyone knows about the Baby Boomers and the effect they will have on healthcare; but did you know 35% of all men over age 25 are considered obese.  The work/life balance is now more important than compensation.  As people age, they move closer to their children.  Family members are making choices for their parents.  The demographics in the U.S. will continue to evolve, so developers and landlords will adjust and put more emphasis on flexibility for their clients.

The greatest amount of ambulatory care or outpatient care is occurring off-campus or away from the main hospital.  Acute care (inpatient/in hospitals) is shrinking; ambulatory is growing.   Urban locations are expensive – the cost is cheaper in the suburbs.

There has been a narrowing of the gap between cap rates for various healthcare property types.   The world capital markets and the lack of available properties for sale are driving this change.

Institutional investors have moved toward real estate and view medical real estate as a stable alternative.  Investors will underwrite the operator in addition to the real estate to make a good investment.  They will seek to understand the operation of the tenants/health systems (hospital systems), their ebitda, whether they are in or out of network and their ability to be a good long-term risk.

Average national cap rates are still around7 % with plenty trading higher; but some investors are dealing with cap rates in the fives. Rising interest rates will affect cap rates; but there is so much demand for this sector that the market can probably absorb 50-100 basis points before cap rates increase.  A strong health system’s hospital at a 6% cap rate for a 20-year hospital lease is priced at a cheaper value than, for instance, 4.5% cap rate for a trophy office building.   The reasoning is a hospital would decline in value due to obsolescence more quickly than a high-quality office building.

We are facing total uncertainty and an unknown revenue stream in the healthcare industry.  The government has become the majority payer in the industry, and it is expected that they don’t plan to take on more payments under the new Affordable Care Act.

Developers’ viewpoint:  Hospital campus driven deals two to three years ago were in the eight caps.  Now off-campus credit-tenant leases with a health system are in the sixes or lower.  Developers’ IRR is now going into lower teens or single digits.  Their debt cost is higher than yield in some cases.  They underwrite based on the dividend yield if held ten years.  Renewal probabilities are a big factor.  Developers are finding that an 80% chance of renewal isn’t a good assumption any longer because doctors are moving more often to new buildings with newer systems.

Lease renewals are down due to functional obsolescence for medical tenants.  The physician groups that were bought by hospital systems are in place now, but will be moved to higher quality functional MOBs in the future.   Independent physicians are being stressed on renewals based on how much they can afford to pay.  Not all doctors can handle rising lease rates. There will be more shared space for clinics or multiple doctors.  Some will want timeshare, co-locating or merging of their businesses.

Developers will act as a “trusted advisor” to health systems more often. Otherwise, they will have to compete with health systems who can develop their own buildings and then monetize them once they’re occupied.

Changes with health systems: Hospitals compete for market share by following the dollars and following the people.  By following people with great payer mix, it usually includes some high growth areas – good communities.  They’ll acquire other hospitals and take insurance whether it’s private or government based. They are providing cancer care, imaging, and other specialized care in the suburbs, although the cost is high for the systems.  One system executive said that in 2008-2009, there were twice as many patients in their hospitals compared to their hospice care locations.  In 2015, there were more in the hospice care because systems can’t get reimbursed for services thru the hospitals as well as through hospice care

Financing – there will be more joint ventures between systems and providers.

Net-leased sales by physicians for surgery centers and other medical properties require the right buyer because the doctors want a good long-term relationship. Sophisticated buyers and sellers find it very interesting that there are so many buyers buying LTACHs (long-term acute care hospital), SNiFs (skilled nursing facilities), and post-acute care facilities without really knowing the operators, which is key to the long-term success of the facility.

Other hot property types: free-standing ED’s (emergency departments/centers).  Texas and Colorado are expanding in this area quickly.  The idea is to grab the patient, brand them as your client, and keep them in the health systems’ in circle.  These properties are here to stay.  They are like specialty hospitals were ten years ago – no one understood them.   However, they must have good coverage ratio and a strong operator to last in the long run.

Freestanding EDs (FEDs) and urgent care centers seem fragmented and you could see some consolidation long term if they don’t have a health system backing.  It’s the retailing of healthcare.  They are in strip centers, in front of big box retail, and the care is getting closer to the patients’ homes.  It’s a ten million dollar investment to open an ED and grab market share.  ED rents need to be in a lease-rate range that could be backed up with a retailer if the ED or urgent care operator fails.  Investors must check rent comps.

REITS are bigger now, so they need to buy bigger transactions.  Some REITs say they’re carrying elephant guns – but there aren’t many elephants out there.

The triple aim:  better access to higher quality healthcare at a lower cost.

Health systems have sophisticated real estate departments; however, they may require help dealing with the need for cash.  There’s a real “speed to market” need to get on a good corner, because a competitive health system will be planning to be on the opposite corner.

Additional parking solutions:  When beds increase, parking needs increase.  Onsite is not going to be an option in many cases, so hospitals are getting leases or easements to increase parking.

The pure multi-tenant building is a dinosaur.  It will be replaced with hybrid buildings:  50% system-employee space, 50% independent private doctors.  It gives the independent doctors flexibility, and the ability to transition to hospital employment on a gradual basis so they can be comfortable with the change.  The interior design is very different: one receptionist will escort patients to their appointments in the building for the day.  Patients will be in a full continuum of care.

Many developers are doing large single-tenant projects.

The focus is shifting toward health and wellness from fees for services such as surgery and treatment of illnesses.  Some healthcare companies are partnering with others that focus on wellness rather than making operational changes.

Biggest mistakes in Wellness – doing a lot of homework on the market and then not paying attention to it.  Many operators take the surveys and study them, find out they may need a gym or basketball court, and then decide the cost is too high to ever pay off – which may not be the wisest decision for the long-term.

Indication of an uptick for development:  Attorneys are seeing more rights of first refusal on land, options to buy, etc.

Overall, we’ll continue to see plenty of money for healthcare property investments, but not enough high-quality properties on the market for all of the investors.  That will encourage some investors to take more chances, and perhaps try out some value-add opportunities.  The challenge will be to educate the sellers of challenged investments to be realistic about their pricing.

BY BRANDI SMITH

Independent. Experienced. Resourceful. Diverse.

They’re words one could certainly use to describe the city of Houston, but they’re just as well suited for Allegiance Title Company.

The Dallas-based title services firm truly got its start back in 1995 when Dawn Moore formed the company with two others. After selling in 2003, she bought the name back five years later and started over.

“She started over again in 2009 and we have now grown to 20 offices,” said John Hall, Allegiance’s executive vice president of business and strategic development.

In the late ‘00s, while other companies were still cost cutting, Moore rapidly expanded Allegiance’s reach throughout Dallas by scooping up employees whose value she easily recognized.

“During that down time, it had to do with the fact that Allegiance is a privately owned company that bases its business decisions on long-term growth. We know the value of our employees,” Hall said.

Within a short time, Allegiance had built a solid foothold in the real estate industry just in time for the current building boom.  “The commercial market returned in 2011 and our Dallas commercial division, led by 35 year veteran Traci Miller, was already in place to capitalize on its return.” said Hall.

“As an independent agent, we were top 10 in the state, conceivably the third largest,” said Hall. “It’s a team effort. Every office is helping us grow as a company and all the offices assist one another in their individual growth.”

Because Moore didn’t want to stack those offices on top of each other in the Dallas market, the company started looking at opportunities for expansion in other parts of the state. Houston moved up to the top of the list very quickly, according to Hall.

“It just seemed natural. The only way we were going to be able to continue our growth was to move into additional cities. We committed to Houston. It was the most logical choice due to its diversity, opportunity and potential. Houston is one of a kind and we are thrilled to be here,” he explained.

While the choice was simple, the move itself proved to be a challenge. Many players in the Houston title industry were gun shy about joining a new firm. All too recently, an out-of-state company had made the same move and, after just more than a year, bailed on the Bayou City and its employees.

“A year ago, I began to visit with several folks in the industry and they all had the same reaction, ‘We’d love to go work for a company that’s like the one you described, but we don’t want to be the first,’” Hall recalled, which prompted a heart-to-heart discussion with Moore.

In the end, they made the call to demonstrate their commitment to the market by purchasing an existing company. Shortly thereafter, Hall met William V. “Vic” Condrey, then the owner of Houston’s Riverway Title Company. Condrey did end up selling his company, though not to Allegiance. Instead, he and his team opted to come on board with Hall and Moore to open Allegiance’s first Houston office.

“We’re starting with six people who just have stellar reputations in Houston and we couldn’t be more excited,” Hall said.

Those six people include Condrey, as well as Alicia Hicks, Katie Guillory, David Ratchford, Hap Peyton and Chuck Townsend.

“The thing I like about Allegiance is that it’s not a mom and pop shop and it’s not a huge conglomerate,” said Townsend. “It’s just right.”

“Allegiance values each of our staff members for their abilities and diversity. Often you’ll see larger, national companies advertise, ‘Join our team, you will have more job security.’ But in reality, it isn’t the size of the company that renders security or stability; it is the company that values and invest in its employees. Allegiance does just that,” Hall said.

That’s something Condrey, Allegiance’s executive vice president and director of Houston operations, knows all too well. After many years of practicing real estate law, he ventured into title insurance when Chicago Title brought him on as a fee attorney. He went on to start his own business in 2000 when he opened First American Title – Tanglewood, then launched Riverway in 2012. The next step: Allegiance.

“It is truly a first-rate organization that excels in professionalism, integrity and hard work,” he said. “I am honored to have the opportunity to grow their Houston division.”

Peyton, a native Houstonian, has spent the majority of his career in commercial real estate. Allegiance’s new vice president of business development said the title insurance industry in Houston comes with its share of challenges, such as uncertainty, but those are far outweighed by the opportunities it provides.

“Local investors are now in position to make competitive offers without the institutional players jumping in with significantly higher bids,” Peyton said. “In addition, refinances have been a significant source of business for title work in the current market.”

Vice president and senior escrow officer Hicks agreed, saying, “The current market is great for purchasers. It’s a good time to buy now.”

An Aggie, Hicks has lived in Houston almost her entire life – all but those four years spent at Texas A&M University – bringing considerable market insight to Allegiance.

“I love the complexity of the title insurance industry in Houston,” she said. “There are so many different types of transactions here.”

Townsend echoed that: “Almost every real estate and financing transaction requires title insurance. With such a diverse city, you get to see all types of real estate transactions.”

Along with variety, Allegiance’s Houston team said the third largest city in the country is booming, despite the current fears over oil prices.

“With the long-range projections of continued growth of Houston and Texas, the demand for real estate should grow with it,” said Ratchford, Allegiance’s commercial examiner and escrow officer.

“Right now, industrial seems to be a very hot market on the east side,” said Townsend, who has nearly 40 years of experience in Texas commercial real estate industry. “You hear about the doom and gloom with energy and oil – and there is some truth to that – however, there are other areas within energy that are doing very well.”

Along with their vast knowledge of the town they call home, the Houston staff brings considerable experience in the commercial real estate world to the table, which complements Allegiance’s reputational strength in the residential market.

“To start with a commercial department and then grow residentially is the perfect combination for us,” Hall said. “We have a residential office opening in the first quarter and will continue to grow our residential moving forward.”

Now that its Houston office is staffed, Allegiance is ready to demonstrate what has made it so successful in Dallas.

“The Allegiance Title family is comprised of the best in the industry,” said Peyton. “There is a long term vision for where we want to be in the future and I am excited and honored to be a part of that vision.”

“It’s a great organization and I’ve been pleasantly surprised by how well everyone works together to produce great customer service for our clients and future clients,” Hicks said. “I’ve been impressed by the camaraderie and professionalism.”

As an independent agency, Allegiance is able to work with many of the top title companies in the country, an important and invaluable tool for its clients.

“That’s the sizzle that I personally love: you have a lot of options to get the deal done,” Townsend said. “We write for the top five companies that insure title. We have access to options that company-owned operations do not.”

“The neat thing about title insurance is we touch so many different parts of the real estate transaction. It’s never boring and no two days are the same,” Hall said. “That’s what I like about it the most. We say the one constant in the title business is change. The people who have been in it forever will tell you it’s in their blood. They thrive on the constant challenge and unexpected”

Allegiance officially opened its Houston office on Dec. 1 and is working out of a temporary office while it puts the finishing touches on its Uptown office. Already a major player in Texas, Allegiance hopes to now prove that in addition to being independent, experienced, resourceful and diverse, it can add wide-reaching to its already impressive résumé.

Said Hicks: “We look forward to a successful year!”

BY BRANDI SMITH

Its terrain might be as flat as its name suggests, but Plano’s stock is rising as fast or faster than any other city in Texas. The community of 270,000 added a staggering 11,000 job to its economy in 2014 and 2015 with an onslaught of corporate relocations guaranteed to add to that total in the years to come.

“We’re a big city and we’re a strong community,” said Plano Mayor Harry LaRosiliere. “Despite being the ninth largest city in Texas and 72 square miles in size, we still have a sense of community and that really is a difference maker.”

“Plano 3.0”

Plano got its start in the 1840s, with its name coming from the Spanish word for “flat” (“llano”). Railroads helped the city thrive into the early 1900s, but the population exploded to 72,000 in 1980 from just 17,872 a decade before.

“In the 1980s, we were a bedroom community of about 80,000. All the jobs went to Dallas during the day,” explained Mayor LaRosiliere.

In addition to a growing roster of residential residents, Plano began to add corporations as well, including JC Penney and Frito Lay. By 1990, the city’s population had passed that of the Collin County seat, McKinney, and it continues to grow.

“In the next two decades, we grew from 125,000 to 250,000. We were one of the fastest growing cities in America and we were known as the big suburb of Dallas,” Rosiliere said. “Plano is rated one the safest cities in America. Our schools graduate 98 percent of our kids. Accessibility, mobility around town is great. We have a very educated workforce. Two thirds of our adults have a bachelor’s or master’s degree.”

The mayor, who took office in May 2013, describes the latest phase of development and growth “Plano 3.0.”

“We are now our own city. We have our own identity. We’re vibrant and safe,” he said. “We offer our citizens a varied, various cultural and educational opportunities. We’re comfortable to compete on the global stage for any business, family or individual that’s looking for a home.”

With its own identity comes the challenge of balancing development needs, something the city started preparing for years in advance.

“We’ve done things like hire more people on our planning and building inspections, so that the ease and facility of the construction and the projects are moved along in a manner that is conducive, because we all know in business time is money,” LaRosiliere said. “We even created a position of special projects director for major projects of a certain size, or square footage, or scope.”

“Best of both worlds”

Plano’s special projects director is no doubt busy with one corporation after another announcing its move to the city.

“Plano is experiencing unprecedented growth from a corporate side,” said Mayor LaRosiliere. “As of the end of last year, before we had the last two announcements of JP Morgan and Fannie Mae, we’ve created nearly 11,000 jobs in the past two years, with a median salary of a little $75,000 per job.”

Because the city is surrounded by other municipalities, it cannot expand its boundaries. It is, however, making use of what little undeveloped land remains within its limits with the help of companies such as KDC, a commercial real estate company that got its start in Texas back in 1989.

“KDC is very customer-focused and tenant-driven, so our clients kind of tell us where to go,” said Colin Fitzgibbons, the company’s vice president. KDC is currently working on the Legacy West project, which already has several big names attached to it.

“The corporations that we’re fortunate to do business with have been attracted to that best of both worlds scenario where you get the convenience of the suburbs but the vibrancy of an urban area,” Fitzgibbons said, explaining why its clients chose Texas’ ninth-largest city over some of its peers.

Plano currently has 33 companies with 500 or more employees, of which 15 have at least 1,000 employees. Those corporations include FedEx Office, Hilti North America, Toyota, Liberty Mutual and Capital One.

It was far from the first to move its headquarters to Plano, but Toyota’s decision to relocate its North American headquarters there seemed to usher in a new wave of development.

The automaker is currently building its $350 million facilities, which include seven towers, in KDC’s Legacy West development. The project, initially set for 1.3 million square feet, has grown in scale substantially and is now up to 2 million square feet.

“We’re just about done with the final, final estimates,” Jim Lentz, Toyota North America’s CEO, told The Dallas Morning News. “In the next 90 days, we will nail that down.”

Construction on the massive complex is set to be complete in early 2017, even as the company tries to determine just how many of its employees will relocate to the Lone Star State.

“Toyota sent about 400 of what they call ‘pioneers’ to live here and kind of scout the area out for the rest of the company,” Fitzgibbons explained. “The company maybe felt that 40 or 50 percent of the folks would make the move from California to Texas, but because those pioneers have had such a great experience here, [Toyota] really thinks that maybe 75 or 80 percent of the folks will make the move.”

Just months after Toyota North America announced its decision to call Plano home, Hilti North America opened the doors to its new corporate offices there. The company, which specializes in tools and fastening systems for the construction industry, has roughly 250 employees working in the two floors it leased in the 23-story Legacy Tower.

CEO Cary Evert told the Dallas Business Journal: “While we wanted to relocate the headquarters to a city with a thriving business environment, we also wanted to ensure that our team members had a great place to live. We feel that Plano is that city.”

FedEx Office’s managers obviously felt the same, opening their new 265,000-square-foot headquarters in October 2015. The $40 million space provided the company and its 1,200 employees with room to grow as needed, according to Ari Spitzer, vice president of real estate and development for FedEx Office.

“The facility brings our team members together under one roof, increasing collaboration and enabling us to provide even better support for our internal and external customers,” said Brian Philips, the company’s chief executive officer.

“We are a mature city”

A question that may stand out to those outside of Plano might be: why? Why are so many of these international corporations relocating to a city that typically flies under the radar. The answer is a list of qualities that, city leaders say, makes Plano stand out.

“We’re a safe city. We have a fantastic school district and we have a terrific infrastructure. Those are the three key components. The fourth one is what I call the secret sauce, which is our people,” said Mayor LaRosiliere. “The labor pool here is really deep. The companies that are moving large numbers of jobs here or even small numbers of jobs are having no problem at all filling those positions and finding the talent that they came here to seek.” Not only does Plano provide an excellent area for employees to live, it cultivates an environment where businesses can thrive.

“There’s no state income tax. There’s a right to work state so that makes it a little bit easier to do business. Most of the municipalities here are very business friendly and have a can-do attitude in terms of helping companies get things done. It’s in the Central time zone, which seems to be pretty attractive to businesses. We’ve got 2 major airports that can get you anywhere virtually,” explained Fitzgibbons.

Those attributes only mean the city can expect more attention from international corporations in the years to come. Barely a few weeks into 2016, Plano city leaders were already celebrating relocation announcements from Fannie Mae and JP Morgan Chase, which will bring an estimated 8,000 more jobs to the community.

“Companies are consolidating here and they’re able to find the talent that they need to run their business so it’s been great to see the explosive growth in the past three to five years and I do hope it continues,” Fitzgibbons said, though he admitted that it’s difficult to predict if and when lightning will strike again.

“These kind of mega-projects seems to fall out of the sky,” he said. KDC’s Legacy West, however, is expected to blossom in 2016 and buildings finally start to take shape. “This is going to be a construction year for Legacy West,” Fitzgibbons said, “but in 2017, we’ll have grand openings for the retail, the hotel and a couple of the office buildings.”

Plano city leaders also admit continued corporate growth at the the current level is likely unsustainable.

“I don’t know that we’ll grow exponentially from here because as of last year we had maybe about seven percent of our undeveloped commercial property left, but enough to still make an impact on the community,” said Mayor LaRosiliere. “From there, it’s redevelopment because we are a mature city. There are going to be places that may need to change from what it was to something new.”

There are many ways to describe the evolution that lies ahead for Plano – explosive, captivating, astounding, exponential – but flat is certainly not one of them.

 

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