HOUSTON – (Realty News Report) – Although there is currently too much office space chasing too few tenants, Houston’s real estate sector appears relatively healthy, with strong performances in the industrial, retail and hospitality segments. Will this trend continue into 2019? And is new product the only component of the sector? Is adaptive reuse gaining speed? To find out more where the industry is headed, Realty News Report spoke with Michael G. Scheurich, CEO, Arch-Con Construction, one of the city’s most active construction firms. Arch-Con has a well-diversified project portfolio in the Houston and Dallas areas with nearly 9.4 million square feet of projects currently under contract and 2018 revenues expected to reach $370 million this year. In Houston, Arch-Con recently broke ground on Tower 5040 luxury apartments, a 147-unit complex next to the University of Houston. Additionally, renovation has kicked off at the storied Palace Bowling Lanes which will become Southside Commons, a two-story building with retail, entertainment, office and medical offices. As those projects get started, the first phase of the Buffalo Heights District, a mixed-use, multifamily complex has topped out.
Realty News Report: Looking ahead to 2019, will there be an increase in construction activity in southeast Texas next year?
Michael G. Scheurich: Yes. We expect to see a new wave of multifamily, hospitality and industrial projects. Healthcare will see a significant uptick after being mostly flat for the past three years. Medical office buildings and emergency care centers will lead the way.
Realty News Report: In terms of new development being planned in Houston, are there any surprising trends?
Michael G. Scheurich: Nothing is surprising. Redevelopment of existing properties is trending, as are mixed-use projects with retail, office and/or healthcare. There are still quite a few national tenant developments in outlying areas.
Realty News Report: Arch-Con has done quite a few adaptive re-use projects and redeveloped several historic buildings. Do you see this continuing, or has Houston used up most of the inventory of redevelopment candidates?
Michael G. Scheurich: There is very limited inventory, and the inventory that would still qualify will take much more imagination to make these projects attractive for adaptive re-use. We are currently working on the AC Marriott in downtown Houston, built in 1914 as the headquarters of Gulf Oil by Houston entrepreneur Jesse Jones. What is particularly exciting about this project is that the ballroom was once a silent movie theater in the early 1900’s and will transform into a ballroom and restaurant with a grand barrel ceiling.
Realty News Report: Your firm recently completed the redevelopment of the Stowers Furniture Building, which was constructed in downtown Houston in 1913. It’s now the Aloft hotel. Can you tell us about that project?
Michael G. Scheurich: The Aloft Houston Downtown is listed in the National Register of Historic Places, so it was important to leverage techniques and processes to protect and restore historical items. Historic renovations are known for having a myriad of obstacles, so ensuring the project would stay within the guidelines of historic designation locally and nationally was a rewarding, global challenge. Adding a rooftop pool, the most distinguishing feature, was also the most challenging as it needed to meet not only state, but also federal guidelines. I’m so proud of our team! Last month we received an APEX Award from AGC Houston for this project.
Realty News Report: Arch-Con is handling the redevelopment of the old Palace Lanes bowling alley on Bellaire Boulevard in Southside Place in the Inner Loop. Can you describe what you are doing there?
Michael G. Scheurich: We are reviving this iconic 1955 building with a fantastic history of bowling on the first floor and offices on the second. The removal of the entire front façade as well as the second level will create a fresh new look. The second level will be raised by four feet to accommodate modern office design. The first floor will keep to the life and legacy of Palace Bowling Lanes with a reset of retail, restaurant and entertainment… and yes, that does include bowling.
Realty News Report: The redevelopment of the farmers market, which opened in 1942 on Airline Drive in the Heights area, is an anticipated project. Can you update us?
Michael G. Scheurich: Current plans are in for permitting and final pricing. The redevelopment will convert the existing market place into a fresh new market environment with 150,000 square feet of open-aired and closed retail shops and restaurants.
Realty News Report: What about high-rise and mid-rise residential? There seems to be a lot more of these types of apartment projects being constructed in recent years.
Michael G. Scheurich: Urban-infill, multifamily projects will continue to trend. This is being pushed since more people are willing to become long-term renters as opposed to buyers. New inventory that will deliver this year and into the beginning of next year is also on the decline. Inflation and construction prices have been fairly stable over the last several years and occupancy rates and rents are up from this time last year and Houston’s economy is rebounding. All of these factors will push more proposed developments into the pipeline. Two urban infill projects that are in the pipeline for us are:
Sunrise Montrose is a Class A, multifamily community in Houston that is comprised of 224 units totaling approximately 203,257 square feet of net rentable area. The 1.84-acre site has an eight-story building with three levels of parking on grade and five levels of apartments on top. It will offer efficiency, one-bedroom units, two-bedroom units and townhome units on the mezzanine level. Two courtyards will highlight the amenity package that will include an outdoor swimming pool on the fourth level with an adjacent cyber café and residents’ room, a leasing conference room, private offices for residents’ use, a fitness center on the street level and a rooftop terrace. A pretty impressive project and it is just a few blocks away from Arch-Con’s headquarters, so we are excited for it to come to fruition.
Tower 5040 is a privately owned and funded eight-story apartment complex located next door to the University of Houston. It will be 147 units with a total of 404 bedrooms geared toward student life. The first three stories will be a cast-in-place parking garage and the five floors on top of the garage will be wood-framed apartments. The amenities will include a pool, dog park, interior courtyard and an overall enhanced living environment.
Realty News Report: What lies ahead for Houston in the next decade? How will the city change in the next 10 years?
Michael G. Scheurich: The city of Houston will continue to densify inside the loop with numerous multifamily and mixed-use projects. Especially in the midtown, Montrose and Washington corridors. Co-working office will continue to grow with new ground-up projects and adaptive re-use projects. Also, the city will continue to expand westward, stretching the suburbs further and further out. Our city will be tested with this sprawl extending past Fulshear. The extension of the Westpark Tollway will aid this development further and further west.