TEXAS SNAPSHOT, DECEMBER 2005

McAllen/Mission Retail Market

The retail market has been strong along the United States/Mexico border, with the McAllen and Mission, Texas, MSA having the largest increase in activity. Retail sales in the McAllen/Mission market continue to increase, and Mexican shoppers, which continue to flock to the U.S. border, are driving retail sales even higher.

All of the retail developments are in various stages of marketing and accepting letters of intent. It is anticipated that all the developments will break ground within the next 12 to 18 months. The explosive population growth, plus the continued strong shoppers from Mexico, have made this area an attractive market for retailers. Vacancy rates in the prime retail centers in McAllen and Mission are less than 10 percent, which is creating demand for new retail development in the region. The Mexican peso has remained stable so that shopping in the McAllen/Mission area has benefited.

Several large retail centers are underway as the growth of South Texas and Northern Mexico have started the cycle of new development in the McAllen/Mission area.

The Sharyland area, which is located in between Mission and McAllen, is seeing several new developments either planned or underway. The anticipation of the new Anzalduas International Bridge linking Reynosa, Mexico, and the McAllen/Mission area, plus the success of the Hunt master-planned community of residential and industrial development, have showcased the Expressway 83 and Shary Road submarket. The northeast quadrant of this submarket has a 500,000-square-foot retail power center being developed by Weingarten/RIOCO. The center is an-chored by a Super HEB, Target and Hobby Lobby.

The northwest quadrant of Expressway 83 and Shary Road has a new The Home Depot with pads including a national bank and a Denny's Restaurant as a neighbor. This property was developed by Property Commerce. To the west, Commercial Net Lease has planned several large boxes in-line with The Home Depot. Marketing has commenced on the 250,000 square feet of retail space with a future opening date to be announced. The hard northwest corner is being developed into a pad site for Chase Bank. The frontage of the northwest quadrant also will bring several large boxes with pads on Expressway 83.

The southeast quadrant has attracted a Bed Bath & Beyond contiguous east of the Wal-Mart Supercenter. There are more than 500 acres just south of Wal-Mart that are being positioned for commercial development. This is the site of the future World Trade Center for South Texas and Northern Mexico.

The new Anzalduas International Bridge is projected to be completed by the fourth quarter of 2007. This will facilitate the northbound crossing for shoppers from Monterrey, Mexico, with a population of more than 5 million that is 2 and a half hours south of the McAllen/Mission area. The city of Reynosa, Mexico, has a population of about 1 million. A new loop from the Monterrey-Reynosa Toll Road to this bridge will expedite the crossing time for Mexican shoppers coming to the McAllen/Mission area.

The city of McAllen has sold off the northeast corner of the Expressway 83 and Ware Road intersection for a Simon power center. The city has retained the northern portion for a state-of-the-art convention center complex. The southern portion fronting the expressway will have prime retail space that is being master-planned and marketed by the Simon Group. The McAllen Civic Center property has planned a major hotel site to complement the civic center.

The southwest corner of Expressway 83 and Ware Road has a 16-acre tract that is under contract and being developed into a hotel/retail site with more than 250,000 square feet to be leased or sold.

The southwest quadrant development at Expressway 83 and Jackson Road started with the Wal-Mart/Sam's Club complex 15 years ago. This area now includes the Las Tiendas Shopping Center (Target, Mervyn's and Academy) and McAllen Pavillion (Bed Bath & Beyond, OfficeMax, Burlington Coat Factory and PetsMart). This past year, a new Lowe's Home Improvement Warehouse opened up as the anchor of a 40-acre development on the northeast corner of Jackson and Jackson just south of Expressway 83. This year, a new commercial strip center opened with Best Buy, Linens ‘n Things and David's Bridal between Jackson and Expressway 83, across from the Lowe's complex to the west of Jackson Street. New activity is expected on a 12-acre tract being marketed by a local hospital on the northwest corner of Jackson and Jackson, to the north of Best Buy. This area is accessible to Mexico through the Pharr International Bridge.

Two years ago, Jay Palmer developed the northeast corner of North 10th and Trenton. The 80-acre site has more than 500,000 square feet and growing. This power center is anchored by Target, Kohl's, Bealls, Hobby Lobby and Marshalls with pad sites and shadow boxes.

HEB and The Home Depot anchor the southeast corner of this intersection. The southwest corner is a new strip retail center with approximately 80,000 square feet of national and local retailers. The northwest corner, with about 40 acres, is being marketed and should develop into a retail center with large boxes and accompanying pad sites.

The northwest corner of North McColl and Trenton is being developed by Davis Real Estate and will be anchored by a Wal-Mart Supercenter with shadow boxes and pad sites. This area will have more than 250,000 square feet of retail space.

Weingarten/RIOCO is developing the northeast corner of Nolana and North 29th Street, which spans 40 acres. A Wal-Mart Supercenter is relocating from the Nolana and 23rd Street site to anchor the center. The other three corners of this site are vacant and will quickly develop into retail centers.

AMREIT is developing a 30-acre tract on the northeast corner of North 10th and Dove. It is in the process of being marketed and has not announced any tenants.

In Mission, on the new North Conway Corridor, a 40-acre tract has been developed at North Conway and Three Mile Line. A new Wal-Mart that opened earlier this year anchors the center. This development will open the way for future retail in north Mission.

The more active and successful developers in the area have been Jay Palmer with major developments in southeast and north McAllen. RIOCO has partnered up with Weingarten and has several tracts that it is marketing. Davis Real Estate has been successful in retail development in the region for the past 10 years.

The McAllen downtown retail market continues to be strong due to the International Bus Station that the city of McAllen developed a couple of years ago. The city also initiated a new downtown development effort that should assist with the redevelopment of downtown. This area has been the foundation of McAllen retail.

Weslaco is an emerging retail market. An 80-acre outlet mall and sports entertainment complex is the newest commercial project in Weslaco. Developers broke ground July 2005 and are in the process of pre-leasing retail space.

Mercedes is also an area to watch, with a new outlet center being developed by Chelsea on the east side of town. The center will break ground within the next 12 months.

In Edinburg, on the northeast corner of Expressway North 281 and Monte Cristo , the La Sienna master-planned community will be developed on 740 acres. La Sienna will be the northernmost development comparable to the Hunt development in South Mission. This community, which is being developed by the Burns Brothers from South Texas, will have more than 1,900 home sites and about 100 acres of commercial development. La Sienna is in the middle of one of the fastest growth corridors in Hidalgo County.

In the near future, the retail market will continue to be strong in McAllen and Mission. The peso has continued to be stable and is predicted to continue into the 2006 presidential elections in Mexico. It is anticipated that the Mexican economy will continue to be vibrant and growing. This will continue to provide a positive impact to the retail market in the McAllen/Mission area and along U.S./Mexico border.

— Adrian A. Arriaga is broker and owner of AAA Real Estate Investments in McAllen, Texas.

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