COVER STORY, NOVEMBER 2005

DEEPER IN THE HEART OF TEXAS
While Dallas/Fort Worth and Houston remain dynamic retail markets, developers and retailers are delving into other rapidly growing markets, such as Austin, San Antonio and El Paso.
Katie Foxworth

The year 2005 proved to the outside world what every developer in Texas has known for a long time: it's not all about Dallas/Fort Worth and Houston anymore. The “secondary” major markets of Austin and San Antonio have come into their own, seeing increased construction over 2004 numbers — an increase that neither Dallas nor Houston can claim, although their numbers, too, have been consistently high and steady. Even El Paso is registering in a big way on developers' radar screens, thanks in large part to its predicted influx of more than 100,000 new residents over the next 12 months.

Texas Real Estate Business recently spoke with over a dozen developers, brokers, leasing specialists, and economic development corporations to find out how new retail development is faring in the Lone Star State.

Weitzman/Cencor

In Dallas and Houston, new construction numbers are down slightly but still explosive, according to Dallas-based The Weitzman Group and Cencor Realty Services. In Dallas/Fort Worth, Weitzman/Cencor reports that the market is on track to add 4 million square feet of new retail/mixed-use construction this year, down slightly from the 4.4 million square feet added in 2004. In Houston, new retail construction in 2005 is expected to add 2 million square feet, down from 3.4 million in 2004.

In Austin and San Antonio, however, construction is on the rise. According to Weitzman/Cencor, Austin is predicted to usher in 2 million square feet of new construction this year, up from 1.5 million square feet last year. In San Antonio, new retail construction is expected to add 2.1 million square feet of new space, compared to 1.6 million square feet in 2004.

Dallas and Houston, even though construction numbers are below 2004 numbers, are still two forces to be reckoned with. And, in some ways, the two mega markets complement each other more than compete with each other.

“Both of these markets have extraordinary strengths,” notes Herbert D. Weitzman, chairman and CEO of Dallas-based The Weitzman Group and Cencor Realty Services, which focus purely on Texas. “They have similar-sized retail markets, and when retailers think about Texas, they are usually thinking about these two major markets. As Austin and San Antonio have grown, however, we're seeing major retailers see ours as a five-city market for them: Austin, Dallas, Fort Worth, Houston and San Antonio. That combined strength is unmatched in any other state.”

Weitzman/Cencor is seeing activity across the board in its markets, from small neighborhood centers to lifestyle and mixed-use projects to new malls. “Retailer demand is across the board, from new entrants to expanding retailers — thanks to our market economies that are posting record housing numbers and steady job growth,” Weitzman says. He predicts the healthy activity will continue in 2006, including new peripheral developments around the new malls that have opened in Dallas and San Antonio.

In the Dallas/Forth Worth area,   the 800,000-square-foot first phase of Simon's Firewheel Town Center opened last month in Garland. The center will span 1 million square feet upon completion. Major tenants include Foley's (soon to be Macy's), Dillard's, Barnes & Noble, Circuit City and AMC Theatres. Adjacent to Firewheel Town Center is Firewheel Market, a peripheral 106,000-square-foot center opening this month with tenants Pei Wei Asian Diner, Wolf Camera, Chase Bank, Potbelly Sandwich Works, Chipotle, Starbucks and Mattress Giant.

In Frisco, Texas, Windmill Development is expanding Stonebriar Commons on Legacy, which will include a new hotel.

In San Antonio, Weitzman reports that a major project opened in September, The Shops at La Cantera, a new open-air development of General Growth Properties located at I-10 and Loop 1604. The 1.3 million-square-foot center features more than 150 shops and restaurants, including 30 retailers who are new to San Antonio; among those are Neiman Marcus, Nordstrom, Bravo Cucina Italiana, Brooks Brothers, Burberry, Fossil, Hugo Boss, Lacoste, Landau, Tiffany & Co., Tommy Bahama and Ralph Lauren. Nearby, at the corner of Loop 1604 and Culebra Road, Weitzman/Cencor is opening the 72,000-square-foot third phase of Culebra Market. Tenants there include H-E-B, Hobby Lobby and Chili's.

United Commercial Realty

“The development activity appears to be even greater in 2005,” says Mickey Ashmore, president and CEO of Dallas-based United Commercial Realty (UCR). “In North Texas alone, six large open-air lifestyle centers have been announced. There appears to be no loss of appetite by retailers looking for new opportunities.”

Ashmore adds, however, that development of traditional grocery-anchored centers is virtually nonexistent except for a couple of players. Kroger appears to be the only traditional player active in Dallas, he says. Currently, the grocer is underway at The Pines of Flower Mound in suburban Dallas. In addition, a grocer represented by UCR, Sprouts Farmers Market, plans to open at least six more units by the end of 2007.

UCR Urban (a division of United Commercial Realty) is leasing The Shops at Highland Village, a 375,000-square-foot lifestyle center located in the Dallas suburb of Highland Village.

Nearby, in Southlake, UCR Urban is leasing Southlake Town Square – Grand Avenue District (Phase II). Located at the corner of North Carroll Avenue between Texas Highway 114 and FM 1709, also known as Southlake Boulevard, the center is under development by Cooper & Stebbins. When complete in April 2006, Grand Avenue will span 250,000 square feet and bring Southlake Town Square to 500,000 total square feet. Grand Avenue tenants include Ann Taylor Loft, Barnes & Noble, Brio Tuscan Grill, Coach, J. Crew, The Cheesecake Factory and White House|Black Market.

In Fort Worth, UCR is leasing a new 700,000-square-foot big box development, Alliance Town Center, which will open in fall 2006. So far, JC Penney has committed to anchor the project, which is a joint venture between landowner Hillwood Development Company and Fort Worth, Texas-based Trademark Property Company.

“I enjoy being in a marketplace that has endless possibilities,” Ashmore says. “Our retail growth continues. No sales tax, affordable housing and positive job growth create a great climate for development.”

Burk Collins & Company

According to Burk Collins, owner and CEO of Hurst, Texas-based Burk Collins & Co., Inc., the overall development climate in Texas in 2004 has been boosted by a good economy and national retailers in expansion mode. “I'd say it's at least 30 percent better now than in 2004,” Collins says. “The national retailers follow growth and housing, and both of those are thriving in Texas.”

In 2006, Collins predicts the retail market will enjoy similar — or even better — success. “I believe the market has another 3 years on the upswing and after that, it will steady itself out like it always does after a climb.”

Burk Collins & Co. currently has three properties under development and one that recently came online in Texas. In Hurst, the company recently completed the 140,000-square-foot Market Street Village, whose anchors include Circuit City, Jo-Ann's, Office Depot and Ross Dress For Less. In Fort Worth, the company is set to open Shops at Hulen this month. The 28,550-square-foot center will be occupied by RadioShack, Payless ShoeSource, Sally Beauty Supply and DOTS Clothing. In Katy, near Houston, Burk Collins & Co. is underway on Shops at Katy, a 29,000-square-foot center whose tenants will include Subway and Pizza Hut. In Euless, the company is under development on a premier 400,000-square-foot center, Shops at Vineyard Village, anchored by Lowe's.

To Collins, Texas isn't just a state — it's a way of life. “I don't know of one Texan who doesn't have immense pride for where they come from,” he says. “But from a personal standpoint as a developer, what I appreciate most about doing business in Texas is the year-round climate. We don't have harsh winters and deadly summers. This kind of climate is what enables us to develop year-round, and not having to limit development due to weather is a way to ensure constant growth and activity.”

Collins also points out that Texas is unique in that Dallas has an enormous broker base. “It's a hotbed for representation for the national retailers and having all these brokers within driving distance makes it a developer-friendly place to do business,” he says. “Plus, it's in the home state of the Texas Longhorns!”

So what about Houston? “Of course, I'm biased toward the Dallas/Fort Worth markets because that's where I operate [from],” Collins says. “However, I would have to say that both of these markets are hot, hot, hot right now. They are both thriving with growth and demand.”

Harvest Partners

“I believe that Texas has an extremely active development climate with developers not just pursuing but announcing and commencing new developments on retail or retail-based mixed-use projects — from small redeveloped corners to large-scale projects such as our Park Lane project,” says Tod A. Ruble, partner with Dallas-based Harvest Partners.

Located at Central Expressway and Park Lane, directly opposite NorthPark Center in Dallas, Park Lane will span an impressive 1.8 million square feet when completed in fall 2007. The mixed-use project will include 700,000 square feet of retail, 350,000 square feet of office, 600 multifamily units and 220 hotel rooms. Tenants will include Whole Foods, Sports Club LA, Strike Dallas, REI and several first-class restaurants.

“The expansion of NorthPark Center (including Park Lane); the Shops at Legacy in Plano; Victory; northeast Tarrant County; and the incredible boom in Frisco are all evidence of the dynamics and strength of the North Central Texas market,” Ruble says.

In Garland, part of a dynamic north Dallas market, Harvest Partners and the City of Garland have created a public/private partnership to develop Harbor Point, a 220,000-square-foot center occupied by Bass Pro Shops, Isla Morada Fish House, County Line Barbeque and Texas Land & Cattle Co. The center will open summer 2006.

“The positive climate and the ‘can do' attitude that permeate Texas culture make it a good place to do business,” Ruble says. “Generally speaking, the progressive attitudes of government entities and their willingness to accommodate developers in order to bring good things to their communities means things happen here in reasonable timeframes — something which just isn't always true in other parts of the country.”

Colliers International

The Dallas office of Colliers International is representing several restaurant clients in projects that are currently being marketed and will soon be under construction. The three projects are: Arlington Heights, a 900,000-square-foot development of Retail Connection, opening summer 2007 in Arlington, Texas; The Shops at Highland Village, a 400,000-square-foot center by Regency Centers, opening spring/summer 2007 in Highland Village, Texas; and a 300,000-square-foot lifestyle shopping center opening late 2007 or early 2008 in Allen, Texas.

“In my opinion, overall retail development in Texas is as good this year as it was last year,” says Greg Pierce, executive vice president of Colliers International and a native Texan. He has been doing business in the Dallas/Fort Worth metroplex for 35 years. “However, I am a little concerned about the long term effect on retail [due to] Hurricane Katrina, Hurricane Rita and the explosion in gas prices as well as electric and natural gas. My prediction for 2006 is probably going to still be good, and we might not feel the effects of [the hurricanes] until late 2006 or early 2007.”

Trademark Property Company

“Texas is a pro-development climate with a large infrastructure of retailers, brokers and developers,” says Terry R. Montesi, president and CEO of Fort Worth-based Trademark Property Company. “It is an active, competitive and high-energy business environment with a history of economic growth.”

The Weitzman Group is in charge of leasing. Trademark Property Co. has opened the balance of Market Street, a 34-acre main street center in The Woodlands, Texas.

In Houston, Trademark is underway on Village West, a specialty retail and mixed-use center situated between Houston Galleria and Highland Village. The project, which will feature 100,000 square feet of retail and 375 multifamily units, is opening fall 2007.

This summer in The Woodlands, Trademark opened the balance of Market Street, a 34-acre, 496,000-square-foot main street-style center in the heart of The Woodlands Town Center. Baltimore-based Development Design Group served as master planner and design architect for the project, whose first phase opened in November 2004.

In Fort Worth, Trademark is developing River Plaza along University Drive. The 330,000-square-foot retail mixed-use center, located opposite University Park Village, will open fall 2007. Also in Fort Worth is the first phase of Alliance Town Center, a 600,000-square-foot power center anchored by JC Penney and opening fall 2006. Trademark is developing the center in partnership with Hillwood Development Company. United Commercial Realty is handling leasing.

Page Partners

Page Partners knows Houston. It is both its hometown and the base for much of its business. “The real estate market in Houston remains very healthy,” says Edward F. Page, manager of Page Partners. “New projects are being built to meet demand…and new and existing retail chains continue to open new stores.”

Page adds that neighborhood grocery-anchored centers and power centers remain popular, depending largely on the interest of anchor tenants. Small, unanchored centers are also being built in large numbers and, Page adds, leasing up at reasonable speeds. He also points out the growth in construction of specialty anchored lifestyle, town center and mixed-use projects — all boasting brisk leasing activity. Developers are taking note.

“Several national developers are attempting to enter the market for the first time,” Page says. “Those include CBL, Poag & McEwen, Developers Diversified Realty, Chelsea Property Group, Continental Real Estate Companies and Cousins Properties.”

Areas of high retail growth, according to Page, coincide with areas of high residential growth: Pearland, Katy/Cinco Ranch, the Northwest Freeway corridor, the FM 249/Tomball corridor and The Woodlands. Hot infill retail areas currently include River Oaks, Uptown/Galleria and the Town & Country/Memorial Villages.

“It will be interesting to see what happens in the Pearland area,” Page says. “Retail GLA has gone from virtually zero to over 1 million square feet in the last 3 years. Two million square feet of additional square footage is planned in the area for the next 2 years, without accompanying demographic growth. This could get ugly.”

Overall, however, Page predicts steady, well planned growth of anchored pre-leased centers in outlying growth areas. He also points out that Entertainment Development Group is planning a $200 million mixed-use project in downtown Houston with a sizeable retail component. “This will be the first significant attempt in leasing space to traditional retail tenants in downtown Houston,” he says.

River Oaks Properties

“Geographically, Texas is like doing business in several states combined,” says Chris Becker, marketing director with El Paso-based River Oaks Properties. “West, east, south and north could all be described as individual economies both independent and reliant on each other. It is exciting to see the different projects across the state — from projects tailored to a coastal region to projects tailored to a wilderness/ desert area.”

River Oaks Properties is definitely bullish on its hometown, the growing city of El Paso. More than 100,000 new residents are predicted to move into the city during 2006.

“The El Paso market has definitely seen a huge increase of activity from developers,” Becker says. “The population explosion is promising to fill up the demand quickly. 2006 will start to bear the fruit of the past years' development.”

On the east side of town, River Oaks Properties has six significant retail projects underway, including a 165,000-square-foot project that will open in April 2006.

“As more national tenants discover success in El Paso, it will appear as a gold mine of untapped potential,” Becker predicts.

MIMCO, Inc.

MIMCO, Inc. was founded in 1972 to provide real estate management and investment opportunities in El Paso, Texas. Today, the company is seeing strong interest in all areas of the city, with robust retail demand bringing an influx of new national and regional retailers entering the market as franchises or company stores.

“The activity in the El Paso market has been very good this year, and it appears that there will be a lot more going on in 2006,” says Robert S. Ayoub, president of MIMCO. Ayoub, a lifelong El Pasoan, has more than 25 years' experience in commercial real estate.

MIMCO is developing Phase II of its Zaraplex project in El Paso, Texas.

According to Ayoub, several factors are currently combining to cause a dramatic increase in jobs for the El Paso region: the expansion of Ft. Bliss, which will receive a significant increase in troops; the creation of the new Texas Tech Medical School Campus; the influx of industrial suppliers to the area; the opening of new ports of entry into Mexico and Santa Teresa, New Mexico; and dramatic growth in Las Cruces, New Mexico.

“This coupled with a revived and reenergized business community has created the convergence of many good things, which, we feel, will fuel dramatic growth in the El Paso market,” adds Ayoub.

MIMCO is also fired up about San Antonio. The company is expanding its presence in the city by adding 34,000 square feet to its Rittiman Pointe project, anchored by Piper Pizza, and developing 30,000 square feet at Potranco and Dugas in San Antonio's booming Northwest Corridor.

“In our view, San Antonio is a very exciting market,” Ayoub says. “There are lots of opportunities in that market, and the strong diverse economy really seems to be encouraging development.”

Trammell Crow Company

The San Antonio office of Trammell Crow Company says the local development climate is consistent with 2004 activity but trending upward as several large-scale projects are under construction and/or in the pipeline for short term future development. Housing growth, new job creation and business relocation/expansion all are contributing to increasing demand for retail in San Antonio. New retailers have entered the city, including Nordstrom, Neiman Marcus, Bass Pro Shops (announced), Cabellas, Gander Mountain (announced), and several specialized small shops. And because San Antonio is home to grocery goliath H-E-B, the competition is fierce for maintaining market share over Wal-Mart, Target and Costco.

“Every indication is the trend for retail growth in San Antonio will continue as the aggregate local economy continues to thrive,” says Brent Conlin, vice president of development in Trammell Crow Company's San Antonio office.

Trammell Crow Co. has a couple of new projects going on in San Antonio, both large and small, including CityView Village, an 18,000-square-foot unanchored outdoor restaurant/retail center located at Interstate 10 and Huebner Road. Tenants, which are opening now, include Fatburger, Freebird's, Panda Express, Papouli's Greek Grill, Cold Stone Creamery and Palm Beach Tan.

The company is also underway on a redevelopment of Crossroads Mall, a more than 800,000-square-foot center located at I-10 and Loop 410. Existing anchors include Super Target, Stein Mart, Jo-Ann Fabrics, Hobby Lobby, Burlington Coat Factory, Norris Conference Center, Dave & Buster's and Marriott Spring Hill Suites. The initial phases of redevelopment are expected to open in early 2007.

“There is substantial activity in San Antonio,” Conlin says. “I would add Austin and the Rio Grande Valley to the list of Texas cities where significant retail activity is [occurring] and will continue to occur.”

Texas cities continue to be among the fastest population growth markets in the country, boasting a lot of land and room to grow. “Texas is simply a great place to live, work and play,” Conlin says. “There is an unquestionable sense of pride in being a Texan regardless of which city you live in or which sports team you support.”

©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.