The Ralph Bivins Project: Podcast Guest Stephen Meek

HOUSTON – (Realty News Report) – The Langley, a 20-story apartment tower developed by StreetLights Residential and El Paso-based Hunt Real Estate, recently completed construction at 1717 Bissonnet nearly 20 years after first proposed.

The architecture takes inspiration from Rice University and the traditional homes in the surrounding historic neighborhoods of Boulevard Oaks and Southampton.

Steven Meek, Senior Vice President of Development at Dallas-based StreetLights Residential, has a lot to do with it getting finished. He listened to concerns of neighbors and adapted the building to fit the neighborhood while filling a void the market: high-end apartment units in a low-density setting. Extras that weren’t required by the approved permit include a 135,000-gallon underground stormwater detention vault that benefits not just the project, but homes around it, according to Meek.

Meek was a guest on the Ralph Bivins Project. Excerpts of the conversation follow.

To listen to the entire podcast Click Here for YouTube.

Ralph Bivins: We’re lucky today to have Stephen Meek as our guest. He’s senior vice president of StreetLights Residential. They do multifamily across the Sun Belt and they’ve done a lot in Texas. The big news is The Langley, which just opened. It’s at 1717 Bissonnet, a little bit west of the Museum District, a little bit north of Rice University.

Let me admit this. At one time I lived in an apartment on Bissonnet, not too many blocks away. And you know that was a while ago, but the rent was 300 bucks a month. The Langley, starting rents are $9,450 and up, a month.

Stephen Meek: It’s not very much, is it Ralph?

Bivins: (Laughs) Tell us about The Langley and how you’re able to achieve these rents.

Meek: Glad to do it. Well, first of all, we have developed more than 50 multifamily buildings, of which about half are high-rise and as a company we have more than 100 employees. We’ve had more than 200. It’s a bit of a slowdown now, but we have a lot of people at StreetLights with the one focus, which is how do we create the most beautiful multifamily building that people would want to live in. If it’s not beautiful, I can’t imagine that someone would want to pay anywhere near those rents. It may surprise you though to learn that we built a similar building in Dallas as a follow up to our first foray into the larger unit average. So, in this case, what’s not mentioned, I think, in a headline like, oh, Lowest Rents $10,000 a Month. Our average unit size is around 2,900 square feet.

So Ralph, I would guess you could have paid $300 a month. It might have been the size of a mouse trap or something.

I’m going to touch on the rent because that’s a question when you have a headline. What it doesn’t say is people are willing to pay for what they get and to have a floor plan that resembles a single-family home, not the typical apartment commodity, which is most of what represents the development industry in Houston, Dallas, and the typical major cities throughout the country. And as you go urban, obviously, you need to build up. You need to provide density.

But we started going to the larger unit average with the building in Dallas just outside of Highland Park, right next to the Katy Trail, called the McKenzie. We had one-bedroom units, we had some twos, we had some threes, and the average instead of the typical 1,000 square feet, it was 1,600 square feet. Very difficult to finance what we wanted, which was to build twos and threes and average 2,400 square feet. But back in 2015, it was difficult to finance that. So we built it, and we leased it up, and we achieved the highest rents per foot in Dallas and we achieved it at the larger unit size. And we learned, you know, there’s a lot of one bedrooms in Uptown Dallas in Knox Street. Next time we do this, let’s not have one bedrooms. We’d have no studios anyway, but let’s have all two bedrooms and threes, and let’s make them large because in our lessons learned of building 183 apartment homes at the McKenzie, we learned that the residents who are selling their house and moving to the McKenzie are really happy there, but they do wish that we had a larger floor plan average.

And so, in the case of the Langley, we have three floor plans. We have a smaller two bedroom at 2,100 thereabouts square feet, a larger two bedroom at 2,500 or so square feet, and a three bedroom that’s 3,400 square feet and large terraces which serve like an outdoor living room. There’s nothing like that. Those are penthouse style units from the first level of residential up. So when you look at the per monthly cost, it may seem high as a market average, but one needs to be reasonable and look at what’s the average square footage. And then you think about luxury. So, our sister property up here that we built and delivered a little bit earlier to the Langley, but very similar in what our goal was, how do we build the nicest residential building, condominium type building, but it’s not a condominium for sale, but for rent, and attract that empty nester or attract the professional moving in or living in Dallas, and we built the Galatyn here. That’s 56 units. Those rents are higher than the Langley.

Bivins: Oh man.

Meek: And the only reason is, to me, the Langley’s location being where it is between Boulevard Oaks and Southampton. None of the views will ever be impeded by other development going high-rise there. We’re next to Central Expressway where the Galatyn is and we have great views of downtown and north and east and west, but you know, it’s a block from the McKenzie. So, the customer learned about what the quality was of the Galatyn through the McKenzie. Our rents are several thousand higher per month on our three-bedroom units there than at The Langley. But how did we get there? It was the success of the McKenzie. We have to build to a customer, Ralph. We’re not building just to go step back and try to win an architectural award and it is a beautiful building. A beautiful empty building is not beautiful on your income statement.

Bivins: Yeah, not too good.

Meek: No, it’s not. What we’ve learned is instead of 183 apartment homes at the McKenzie, our first foray in what we call the platinum or a five-star building, we only built 134 at The Langley. Originally, the Ashby, which was the controversial development that didn’t start, or finish at least, was 232 apartment homes, plus a 10,000 square foot restaurant on the ground level. So, when you take that same building envelope and change your interior to only have 134 (units), maybe 55 to 60% of what was planned of units, and then no restaurants.

You know, one of the controversies I remember from the Ashby when I’d first drive through the neighborhood and see 300 signs: “Stop the Ashby Tower of Traffic.” There was this “Tower of Traffic” sign, and I have one in my office by the way, but it’s this tall tower looming over these little tiny homes.

Bivins: It kind of had a monster head.

Meek: It had a monster head. So, that’s terrible, right? Well, it turns out that the settlement agreement allowed 104 cars per hour as the traffic impact study. That was what was approved. We have 58. I mean, we have halved the traffic impact, which was one of the key points. I think when we did have an interview years ago, what were the concerns of the neighborhood? I think we tried to overcome the concerns by reducing the unit count by about half, increasing the unit average, building at the highest cost. I mean, this is a seven-figure cost per unit building. Seven figures. So, we’re not trying to diminish the quality of their experience if they’re selling their home in Boulevard Oaks, Southampton, or coming over from a penthouse from one of the other high-rises.

Bivins: Okay, you finished this one. You have anything else on the drawing boards?

Meek: Well, we always have things on the drawing boards and in this market, where it’s much more difficult to have a development start, we have landowners that come to us since we are vertically integrated at StreetLights where we have our architects, we have interior designers, we have our construction which is self-performing, and we’ve developed several billion dollars of multifamily since we started in 2011. That’s what’s coming. So, I’m working on something in Austin. In Houston, I have some opportunities that I’m looking at. In Dallas, obviously, we have pursuits there as well. But we will be selective and given the oversupply that people in our industry tend to create.

Those are the cycles that happen not just the macro economy but cycles we create as developers. The case in point is Austin where it gets overbuilt enough in many pockets that they’re offering 12 weeks free rent to sign a lease. That’s not an easy market to say, “Yeah, I want to invest in a new multifamily start.”

If you’re a developer, you’re using your imagination. You’re thinking, I see this parking lot or I see this old building. What could it be that would lift up this neighborhood and draw people to live there? So, you start with your imagination, but you’re always running to where the ball is. The ball’s going to be fantastic in Austin, I think, in two or three years. It’s not today. I’m looking there and I’m trying to say, if we start now or in the next 6 months, the costs will be lower because subcontractors are hungry. And this may be true in Houston as well. By the time we deliver in 2 and-a-half, 3 years those first units, I think the market will have recovered. Those leases that are 12 weeks free will drop down to eight, four and zero and rents will be flat a little bit, and it’ll come back up.

Bivins: Tell me about your other Houston projects.

Meek: So, we developed in Houston three concrete buildings prior to The Langley. One is The James. It was 344 units on Mid Lane between Westheimer and west of Highland Village. And then the sister property, The Ivy, which we planned and designed in context of The James and that is 297 units. That was done with a capital partner in Dallas, Stonelake Capital. Those buildings have sold. We also developed The Carter by Montrose by Museum Tower as well. We could have developed in front of The Carter, right on Montrose (Boulevard), but Houston is affected by the cyclical price of oil. There was a big drop in the price of oil from $110 to $26 a barrel back when we were thinking about starting this second phase on Montrose.

Every market is different. I’ll take the major markets, Dallas, Austin, Houston. Every market, like Houston, is made up of micro markets. It’s where do you want to plant your flag? In the case of The Langley, we wouldn’t develop the Langley on say Kirby, or a busy street, even Montrose. We wouldn’t do it there. It has to be a very special location to provide the kind of building quality that we would build and the unit sizes that we would build and attract the type of resident we’d build to. And what we have found, and we learned this first with the McKenzie, we’ve seen it at the Galatyn, we’ve seen it here at The Langley. These are people that have accomplished a lot in their life financially, and they can pick and choose wherever they want to live. They can go look at one of the other high-rises in Houston and live there. We happen to provide a different type of building experience.

And the rent check, I can tell you, some people may care about it. For most, it doesn’t matter. There is a value proposition. Do I want to live in a 2,500-SF condominium or 3,400-SF condominium? And whatever that price is, which now if it’s a great location, it’s going to be $900, $1,000 a foot. I’m seeing $2,000 a foot on the branded condominiums. If you take $1,000, let’s just take $1,000 a foot; that’s about what Randall Davis I think’s asking over there on Rice Boulevard, 3,400 SF, that’s $3.4 million. The taxes alone will be $6,000 a month, right? Then you have HOA dues. I don’t know what they’re charging there, but up here at The Knox Street Auberge is $2 a foot. That’s another $6,800 there. You’re at $15,000. And then you’ve got your investment. Do you want to have your $3.4 million in the condominium or would you like to take the money and invest it somewhere else and let that grow while you’re just paying rent? We’re not having any problems with the price point. I mean, you have to adjust based on level of floor or unit type, but we’re not having resistance that I’ve heard.

Bivins: How is the leasing velocity at The Langley?

Meek: It’s right what we thought it would be in a pro forma, which would be under 10 a month. These are people that will take five, six times to walk through the building and look at the floor plan and measure rooms and bring their interior designer. We have no look and lease deals.

Bivins: What are these people like? Are they work still working? Are they empty nesters?

Meek: They own businesses, they’re investors. I would say we built it with at least 50% of the resident profile being baby boomers. Empty nesters who they’ve lived in the neighborhood, Boulevard Oaks, Southampton, West U. We have them come over from River Oaks as well. And then we have people from out of town. We have people that are in the medical center, of course, that’s a natural place. People moving in from California. We’ve had some international.

Bivins: Tell me about these big penthouses. What do you get for a penthouse in the Langley? (A Realtor said the penthouses may rent for around $25,000 per month.)

Meek: I can’t tell you, because we haven’t started leasing those. We’re just now finishing those. But I will tell you this. First of all, it’s not a penthouse like you might say it’s a penthouse in every other building in Houston. It’s the same floor plan you’d have below you, but you do have higher ceilings. Instead of 10-foot ceilings, you have 12-foot ceilings. And the finishes may be a little bit upgraded over what is in the other units. Now the typical high-rise would have 300 units and they average 1,100 square feet and then you take your elevator up to the penthouse floor and there’s fewer units there, and there’s eight penthouse units. You can just name a building. This is what it’s like. Eight, 12, 16 units. Maybe there’s two levels. Every unit at The Langley is a penthouse. It’s a penthouse design. Every unit at the Langley has a second door which is a service entry. It has a separate kitchen with a washer, dryer, refrigerator, ice maker, sink. You can have your maid come in and store her stuff there and go in and clean the unit, shut the door. You could have your caterer come in and work from that back area and then come into the kitchen area and serve the food. Eight units per floor. There’s only eight units. The other the other reason why we get people from other high-rises to come in, there was an old rule of thumb. You build a high-rise and you’d have (about) one elevator per 75 units. At the Langley, you have one elevator per two units per floor. It’s a lot more convenient. It’s rare you’re going to ever be on the elevator with somebody.

The building is designed to promote community. But if you want privacy, you don’t have to get into an elevator with eight other people, six other people, whatever it is.

To listen to the entire podcast Click Here for YouTube.

Mark Your Calendar:

CommGate will host its Economic Outlook –Wednesday, Sept. 23 from 3 to 6 p.m. at the Houston Country Club. Economist Ted C. Jones, PhD, will present an economic forecast examining trends that will shape the real estate market in the coming year. Following the presentation, connect at a networking social with beverages and hors d’oeuvres. Free for members of CommGate, CCIM, and SIOR. Non-members $50. Link to Registration

THE RALPH BIVINS PROJECT PODCAST

LISTEN THE RALPH BIVINS PROJECT with Stephen Meek of StreetLights Residential

LISTEN: THE RALPH BIVINS PROJECT with Mike Spears of Lee & Associates Houston

LISTEN: THE RALPH BIVINS PROJECT with Bob Parsley of Colliers Houston

LISTEN: THE RALPH BIVINS PROJECT with Mark Davis of Davis Commercial

LISTEN: THE RALPH BIVINS PROJECT with David Hightower of Midway

LISTEN: THE RALPH BIVINS PROJECT with Alex Kamkar of Bold Fox Development

LISTEN: THE RALPH BIVINS PROJECT with Brad McWhirter of Trahan Architects

LISTEN: THE RALPH BIVINS PROJECT with Lacee Jacobs of Rebel Retail Advisors

LISTEN: THE RALPH BIVINS PROJECT with Danny Rice of Colliers

LISTEN: THE RALPH BIVINS PROJECT with Trey Odom of Avera

LISTEN: THE RALPH BIVINS PROJECT with Kris Larson of Downtown Houston +