HOUSTON – (RNR) – Reed Vestal, principal and partner at Lee & Associates – Houston, is active in Houston area land sales and the industrial real estate market. He has completed more than $500 million in transactions. In 2015, he was awarded a NAIOP “Rising Star of The Year”award. This Q&A is an excerpt from a new video podcast, THE RALPH BIVINS PROJECT.
Ralph Bivins: The suburban land market is hot. A mass exodus is occurring and it’s taking place around the country. What do you see in this trend of the suburbs coming alive and the big demand for land out there?
Reed Vestal: There’s no doubt that this is the trend right now. It’s pretty indicative of the deals that are happening now. A lot of people are thinking that because of COVID, no deals are happening. This is not so at all. A lot of people are moving to the suburb or buying second or third homes in the suburbs. I think that given the financial crunch, more and more people have the time on their hands to evaluate other properties. Taylor Schmidt, my partner, and my other partner, John Erck, are working with some of the largest real estate developers in the country. We have multiple sites under contract in the east suburbs that are fairly substantial. I think it’s because we are seeing an absorption that is record-setting. I have one client who, during the month of July, sold 100 homes in one project. July was the biggest month he’s ever had in the history of a company that goes back 50 to 60 years. Through all the home builders and home developers and lot developers, we have gotten a consistent number of phone calls – and more since COVID. There’s no question that home development is on the rise in the suburbs and the absorption amount is higher than it was pre-COVID.
Hot Commodity: Suburban Land for Housing Communities
Ralph Bivins: Tell me about the land tracts the residential developers are looking for?
Reed Vestal: It’s typically based off what their capital stack looks like. Just like any other type of developer, they have certain limits and thresholds. We have guys out their looking for 20 to 50 acres. Some need a minimum of 100 acres. It all depends on the carry costs – what makes sense and what doesn’t make sense. The size of the organization as well as what the capital stack looks like. Everyone has a different type of appetite. They must all evaluate what the price point is that we are seeing in the marketplace. We’re not seeing the $1 million-plus homes – we rarely see them as spec homes. It’s the $200,000 to $500,000 homes – the $250’s, $300’s and $350’s. I have several clients who are dealing with entitlement issues to work out. But they need lots on the ground. They want to get houses going up as soon as possible – and I don’t blame them. Because we are seeing record-breaking sales in suburban markets.
Ralph Bivins: Is this happening in any particular parts of town?
Reed Vestal: It’s the usual suspects. I’m sure that these are fairly well known in the marketplace. It’s Northwest and West Houston – it’s hard to beat these places. Like Cypress and Katy. The main draw seems to be the school districts. These are among the better school districts, not just in this area, but in the state. They have great academics as well as sports. Cypress and Katy are on fire. There’s an immense amount of volume. Also, in Rosenberg. And recently, in Willis and Conroe. Remember when the Exxon campus happened in 2012 and 2013 in Spring? There were a lot of transactions in this area, in Conroe and the Woodlands. When the oil and gas markets were not super strong, the north residential market fizzled. It was only recently that it picked up. We have done a lot of research in this area; we have refocused and re-evaluated. Willis and Conroe have a strong mix for residential – Willis and Conroe, Brookshire, Cypress, Rosenberg and Richmond. We are seeing a ton of action there for residential development purposes. In other asset classifications, we are seeing other trends that are quite interesting.
Amazon and E-commerce: Land Needed for Warehouses
Ralph Bivins: Another major trend is e-commerce. It has been pushed by COVID. Tell us about the impact this is having on industrial land as online retail sales has created the need for new warehouses and distribution center.
Reed Vestal: From a land perspective and specialization perspective, our team has been very, very involved in the industrial market. We are truly fortunate to have landed several deals for speculative purposes with major developers. Since COVID, we have continued to see a lot of action on e-commerce absorption. So, there is an immense amount of activity in a lot of markets: Southwest Houston, for example. I know of several in the West, Northwest and Northeast Houston markets. The deal is – and it is something you really must think about, it’ll blow your mind – e-commerce has only gotten a small fraction of the overall retail market. So, this is only the tip of the iceberg. Of 100 percent of the retail market, e-commerce makes up only 10 to 15 percent of it. Maybe it’s a lot less than that. I think COVID has allowed e-commerce to progress at an even more rapid pace.
Ralph Bivins: Amazon’s stock is now over $3,000 a share.
Reed Vestal: Look, I know that Amazon has gone bonkers and it continues to go bonkers. There are multiple Amazon deals going on even as we speak, with no signs of slowing down. Other e-commerce segments are jumping in. Food and clothing are looking to expand. Something that has grown is e-commerce from the grocer perspective. COVID has forced folks to order food over the phone. These are people who didn’t even know this service existed. Now, it has become convenient. This is taking market share away from grocery stores from a walk-in perspective. Cold storage and e-commerce cold storage has grown quite a bit, and we won’t see a slowdown. From an industrial perspective, from a big box distribution perspective, Houston is doing great. A lot of product will hit the market this year – and a lot of guys were nervous about it. But the absorption rate has been excellent. We will see more of his development happening. Our team is working on new deals in a market where we are dealing with buildings ranging from 100,000 SF to 250,000 SF and even up to a half-million SF. There are new projects springing up since COVID. The distribution of product looks good. COVID has spurred extra demand and activity.
Ralph Bivins: It seems like the warehouse sector has evolved quite a bit.
Reed Vestal: The size of buildings in Houston has grown quite a bit. The main reason is the growth of Houston – the last mile or next-day or same-day delivery. A lot of product used to go to Dallas. But with all the new technology and demand from consumers, there’s a move to make things happen now, now, now. We are seeing bigger buildings ion Houston than ever before, more than a half-million square footers. We have built more in the past five years than in the previous 50 years. That’s attributed to the now, now, now attitude. Maybe this is a selfish, American way, which is fine; that’s supply and demand. Today, less product goes to Dallas. More stays in Houston from the Port. Spurring a lot of activities brings a lot of money to our economy. A lot of big boxes are being built, and we will continue to see that trend as the population grows.
To hear The Ralph Bivins Project session with Reed Vestal, Click Here.
Oct. 21, 2020 Realty News Report Copyright 2020
File: The Ralph Bivins Project – The Great Suburban Land Rush with Reed Vestal of Lee & Associates – Houston
File: Houston Land. Suburban. Residential. Covid. The Ralph Bivins Project – The Great Suburban Land Rush with Reed Vestal of Lee & Associates – Houston.