Inside the Loop: The Q&A with Mark Davis of Davis Commercial

HOUSTON – With “one of a kind” specialty retailers like Cheeky Vintage, Found, and Kuhl-Linscomb, Houston’s “inside the Loop” retail scene is thriving.  Virtually any time of day, the region is buzzing with shoppers who are partaking of the area’s eclectic shops and restaurants.  What makes the inner city scene so exciting?  What about the ever-changing shops along lower Westheimer?  Has the sector been affected by the energy downturn? To find answers to these and other questions, Realty News Report turned to Mark Davis, founder and president of Davis Commercial. Mark has over 25 years in the commercial real estate business and his company specializes in “Inside the Loop” properties. Prior to forming Davis Commercial in 2001, Mark was a top producer at Trammell Crow Company in Houston. He currently serves as president of the Museum District Business Alliance whose mission is to promote business and the arts in the Museum District of Houston.

Realty News Report: The Inner Loop of Houston has changed over the last decade. Can you describe what’s been going on?

Mark Davis:  Retail in Houston has always been kind of homogenous – almost like “anywhere” USA.  If someone dropped you out of a helicopter into a Houston suburb and you and didn’t know where you were, you’d think you might be in Omaha, Kansas City, etc. (no offense to those places!).  That’s really changed over the past decade.  You now have one of a kind chef-driven restaurants like Chris Shepard’s Underbelly and Hay Merchant, unique bistros such as Brasil, Common Bond, and Empire Café (with more opening almost weekly). Lots of cool stores like Cheeky Vintage (designer vintage clothing and accessories), Found (stylish furniture), and Kuhl-Linscomb (upscale gifts and goods). You really don’t get many of these kinds of restaurants or shops outside the 610 Loop.

Realty News Report: A lot of multifamily has been constructed in the Inner Loop and there are quite a few high-rise and mid-rise rental towers under construction now in Montrose, Downtown and the Museum District. Is there enough demand to absorb all of this supply, which is at the upper-end of the rental rate scale?

Mark Davis:  Much of the multifamily construction in the area began when Houston was creating around 100,000 jobs a year. Now the city is projected to generate only 20,000 – 30,000, if that.  Houston has an oversupply of multifamily units. That means it will take a little longer for demand to catch up with supply. No one knows how long, but those units eventually will be filled because so many people want to live close in. Marvy Finger, who has been building quality multi family in Houston for decades, recently said we’ll eventually be OK in multifamily.  There will be some free rent given out for a while, but Houston has always had cycles in the energy industry, and in the long term, everything will be fine. I strongly believe that.

Realty News Report: What about Lower Westheimer? It seems to continue to be in perpetual transition with some bright spots and some underperforming parcels. What lies ahead for Lower Westheimer?

Mark Davis:  I think continued success.  The area offers an experience that is so different from the rest of the city.  It is now concentrated with people who desire a more urban way of living (walkability, great restaurants, convenience, and so forth). These people have money to spend – and the trend shows no signs of stopping. It’s amazing that some now call Houston a ‘foodie city.’ Ten years ago, if you had said that, you’d be laughed at. No more. I guess my one fear is that since the area is doing so well, it will become too popular and the chains will move in and the neighborhood will lose its special character.

Realty News Report: You are currently president of the Museum District Business Alliance. Tell us about the growth in the Museum area and Hermann Park. Can you cite some statistics?

Mark Davis:  There is an incredible amount of activity in the area. The Museum of Fine Arts is undergoing a $450 million expansion. There have been amazing improvements to Hermann Park as part of its $123 million capital campaign. The Museum of Natural Science — one of highest-attended museums in country –is having its planetarium and theatre renovated.  All of these major institutions are thriving and growing. Most Houstonians don’t realize it, but Houston is one of the top tourist destinations in the world! Previously, the city has never been mecca for tourists, but people are discovering our museums, attractions, and restaurants. We’re already recognized as the culinary and cultural capital of the South. Added to this: the city is gearing up to host the NCAA Final Four in April and Super Bowl XI in February 2017—two events that will bring tremendous exposure

Realty News Report: Your firm recently handled the sale of the old Heights Theater on 19th Street. What’s going to happen with it?

Mark Davis:  Our client, Edwin Cabaniss, owns the Kessler Theater in Dallas. Edwin purchased the historic Heights Theater and plans to transform it into THE go-to venue for cultural arts events.  It was built in 1923 as a movie theater and was severely damaged by a fire in the 1960s. A mid-2016 opening of the new venue is planned, with the theater playing host to many events including concerts, weddings, and art openings. The theater provides the audience with an intimate venue for all of these events. It’s going to be a great draw for neighborhood.

Realty News Report: Overall, for the Greater Houston area suburbs, what lies ahead for retail real estate in 2016? There appears to be a lot of shopping centers under construction.

Mark Davis:  Houston is still under retailed.  Citywide, occupancy in general is around 90-95 percent. Retail construction never went crazy like office, so retail should be fine.  It seems like every day I hear of new entrants coming to the market looking for space, both inside the Loop and in the ‘burbs. None of the tea leaves predict retail will be overbuilt anytime soon.

Realty News Report: And the usual question: will the energy sector uncertainty affect the inner city retail market?

Mark Davis:  The short answer is “no.”  The inner city retail market is going to remain strong for years to come. There is just too much demand and too little supply.  I think the psychology is different today.  In previous economic dips, folks who wanted to expand and had the financial wherewithal to do so still decided to hit the pause button. Today, people are not hesitating and are continuing ahead with their plans. I think they feel the current situation is a bump in road and we’ve seen this movie before, and in the long run the inner loop market will continue to thrive.  We haven’t noticed a slowdown at all and are as busy as ever (and I’m not just saying that to sound rosy… it is true). Our biggest problem now in retail is finding space for tenants — especially with adequate parking — and land that is affordable enough for new retail development to make sense.

Feb. 21, 2016

Realty News Report is s Texas-based publication edited by Ralph Bivins.