1. 2014 State of the Industry
REAL
ESTATE

2. Chairman’s Letter
To Our Readers,
As part of our commitment to knowing our real estate clients’
business, we collect insights from some of the best minds in
the industry. This understanding contributes to how we deliver
counsel that exceeds our clients’ expectations and our ability
to help them make strategic decisions about their business.
The information in this ebook has been invaluable to us and
to our clients, and we hope that it will benefit you as well.
Read some of the trends and best practices gathered from
industry-leading clients and our own real estate team. If you
find value in it and would like to hear more, join us for our next
BoyarMiller Breakfast Forum.
Sincerely,
Chris Hanslik
Firm Chairman
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3. TABLE OF CONTENTS
Houston – A Paragon City
THE RIGHT KIND OF JOB GROWTH
GREAT PLACE TO WORK AND LIVE
GROWTH ON THE “THIRD COAST”
Expert Insights
LAND DEVELOPMENT, HOMEBUIDING & MULTI-FAMILY MARKET
RETAIL MARKET
OFFICE MARKET & MIXED-USE DEVELOPMENT
INDUSTRIAL MARKET
Real Estate Trends
HOUSTON REAL ESTATE TRENDS
HOUSTON’S HOLISTIC APPROACH TO MIXED-USE DEVELOPMENT
2014 TRENDS IN REAL ESTATE LAW
Practice Leaders
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4. HOUSTON
A PARAGON CITY
THE RIGHT KIND OF JOB GROWTH
Houston has recovered 230% of the jobs lost in the recession.
The city leads the nation as the most powerful job engine in
the country. But it’s the type of jobs being added that are
most important to the growth of our economy, not just the
number. Because Houston is generating jobs in the education, healthcare, professional services, energy, information
technology and financial industries, the city is becoming
an even better environment for continued economic
growth. That varied job growth in vital industries leads
to more demand for residential, office, mixed-use, retail
and industrial real estate.
RECOVERED
GREAT PLACE TO WORK AND LIVE
BEST CITY
IN AMERICA
Houston has always been known as a great place to work,
but now it has also become a great place to live. One of
the reasons publications like Forbes magazine and Business
Insider are calling it “America’s Coolest City” and the
“Best City in America” is that, in addition to contributing
to country-leading job growth rates, companies in Houston
are looking at ways to improve their employees’ quality
of life outside of working hours. Mixed-use buildings –
corporate campuses like those that originated in Silicon
Valley – are growing in popularity with Houston companies
that want to provide great amenities to employees.
GROWTH ON THE “THIRD COAST”
Although the Atlantic and Pacific regions have traditionally
dominated trade in America, the recovery from the 2008
recession has proven to be the period for the rise of the
Gulf Coast. With six of the fastest-growing job markets in
the country in the Gulf region – Houston topping the list –
this is a place for growing economic vibrancy that’s
becoming very attractive to foreign investors.
3
230
%
OF JOBS LOST
IN RECESSION
6
OF THE
FASTEST
GROWING
JOB
MARKETS
IN AMERICA

5. EXPERT INSIGHT
Land Development, Homebuilding
& Multi-Family Markets
WHAT SETS HOUSTON APART?
Houston’s residential real estate market leads the nation in home value, quality, complexity and
finish. Relocating buyers are shocked by the value they can get for their money in this city.
2014 PREDICTIONS
Will Holder, President, Trendmaker Homes
• NDUSTRY WILL CONTINUE TO CHANGE RAPIDLY: Fast-paced change in the real estate industry
I
means quick adjustments for developers. As the leading master planned communities reach
the end of their available lots, new leaders are evolving. The area west of Beltway 8 and
north of I-10 will be experiencing a transformational change due to the opening of the
Grand Parkway. This will shift school district perceptions, the key driver of home demand.
• ERY LOW EXISTING HOME SUPPLY: With only about 3.1 months of inventory, people have to
V
make very quick decisions when it comes to buying and selling houses. Houses sell almost
instantly, and as a result, sellers are pressuring developers to build homes faster.
• ENERATIONAL DEMOGRAPHIC BUBBLES DRIVE TRENDS: Developers are asking if Millennials will
G
buy their first house and Baby Boomers will buy their last. Each group has about 75 million people, and they are driving the trends in homebuilding. For example, Trendmaker Homes is selling
houses with two suites down for young families expecting older relatives to live with them.
• REMIUM ON HUMAN TALENT IN HOMEBUILDING: A system-wide challenge to build homes
P
will continue because vendors who were burned by the recession are in no hurry to expand.
There are human talent shortages from the executive level to the level of employees, tradesmen and craftsmen. Talent is in high demand right now.
Will Holder has worked in the homebuilding and residential land development industry for more than 30 years in Houston and in several other
U.S. metro markets. He joined Trendmaker homes in 1993, and has led
the company to become the leader in luxury production homebuilding
and MPC development. Will was the 2012 president of The Greater Houston
Homebuilders Association and a guest expert on Real Estate forecasts and
homebuilding trends for local and national news, radio, TV, magazines
and newspapers, including Fox Business Report and USA Today.
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6. WHAT SETS HOUSTON APART?
Houston can be wonderful, but if the rest of the country looks bad for a retailer, they won’t
be expanding here either. Retail market is driven by job growth and consumer sentiment –
with Houston’s economy ramped up now, retail growth will continue. Houston is a landlord’s
market right now, with the lowest vacancy rate and default rate by tenants in decades.
2014 PREDICTIONS
Jay K. Sears, Managing Partner, NewQuest Properties
• NLINE PRESENCE ACTUALLY MAKES BRICK-AND-MORTAR STORES BETTER: Online shopping
O
accounts for only about 6% of retail sales, but customers are using online presence for
more than just shopping. They use the web to research products, read what peers are
saying about products and gifts, leverage the buy-online-pickup-in-store options, and
use retailers’ apps and mobile websites. All of these things help and support the physical
stores – so companies that use their web presence well perform better in person as well.
• EAL ESTATE TEAMS NEED TO MIRROR THE MARKET: Growth in Hispanic and Asian populations
R
in Houston mean that more retailers are targeting those ethnic groups. Developers will be
looking to have more ethnically diverse teams that reflect the demographics of the market.
• HE GRAND PARKWAY WILL BE A GAME CHANGER: Lot delivery and home delivery stats
T
show that the real activity is occurring around the new Grand Parkway. Katy is the fastest-growing community in the United States.
• UTURE PROJECTS WILL TRANSFORM UNDER-SERVED COMMUNITIES: People are looking for
F
safe neighborhoods, great schools and great amenities. NewQuest and many other partners are taking an anchor-based approach to community development, working to bring
better schools to and increase the safety in under-served communities to transform them.
Jay Sears is a 27-year veteran of the retail/commercial brokerage and
development industry. As a co-founder and managing partner of NewQuest
Properties, Jay focuses on new development opportunities, on the leasing
activities of NewQuest’s development pipeline and on managing key client
relationships with retailers and clients. Jay is a member of the International
Council of Shopping Centers (ICSC), a member of the Urban Land Institute,
a member of the Rice Design Alliance, and is also involved extensively with
KIPP-Houston, serving on their Board of Trustees.
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EXPERT INSIGHT
Retail Markets

7. WHAT SETS HOUSTON APART?
Houston economy continues to outperform the nation, but beyond being just a great
place to work, Houston is now also a great place to live. The city is also now perceived
as a core American investment area – a gateway market – as part of the “Third Coast.”
2014 PREDICTIONS
Jonathan Brinsden, President CEO, Midway
• HANGING EMPLOYEE TYPE IS CHANGING THE FACE OF OFFICE SPACE: As the demographics
C
of office workers shift toward more Millennials and fewer Baby Boomers, office environments
have to cater to that group’s different expectations. Their attitudes toward the environments
in which they work are different, so that new builds by corporations like ExxonMobil begin
to model their spaces on the campuses of younger companies like Google.
• NERGY INDUSTRY IS CHANGING, BRINGING OFFICE CHANGE WITH IT: The energy industry
E
is no longer focused on how to find petroleum; it’s focused on how to extract those
resources as efficiently as possible. That’s a more technology-centered job, and
as energy jobs shift to becoming more technological, they start to bring a Silicon
Valley-like feel to the office environments.
• OUSTON’S CORE OFFICE MARKETS ARE RISING OR PEAKING: The office markets in the
H
Woodlands, Katy Freeway, Overall Houston and Central Business District are peaking.
The markets in Westchase, Galleria/West Loop, Greenway Plaza and Northwest at
FM 1960 are rising. As the urban core matures, expect more office development
outside of the core markets.
• ASSIVE GROWTH WILL TAPER OFF: In 2012, Houston had 12% job growth in the energy
M
sector, and this year it saw just 6% growth. Other industries will follow energy in this area.
As the massive ramp-up begins to taper off, developers need to be careful not to see
the growth as permanent and over-commit.
Jonathan Brinsden, President and CEO of Midway, guides the company’s overall
business strategy and operations. After joining Midway’s development team
in 2001, he was named COO in 2008. Prior to joining Midway, he was President
and COO of Hamm Corporation, a Houston-based development company.
Jonathan is an Adjunct Professor in the graduate real estate programs at Texas
AM University and the University of Houston, and serves on the Executive
Advisory Board for both programs. He is a member of the Urban Land Institute
Board of Trustees, International Council of Shopping Centers and NAIQP.
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EXPERT INSIGHT
Office Market
Mixed-Use Development

8. WHAT SETS HOUSTON APART?
With our advantages in location, affordable housing and people, Houston is without question the leading metropolitan area for growth. Houston’s industrial market totals more than
521 million square feet and we have another 5 million square feet in construction. Supply
continues to trail demand, leading to an industrial vacancy rate of 5% in Houston, significantly lower than the national average of 8%.
2014 PREDICTIONS
Welcome W. Wilson, Jr., President CEO, Welcome Group
• ACANCY RATES WILL CONTINUE TO DECLINE THROUGHOUT 2013
V
With the oil services sector booming, there is huge demand for crane-ready buildings. The
energy industry as a whole is very active, and a lot of buildings have gone up as a result of
energy companies relocating to Houston or expanding their operations here. This high
demand will mean continued low vacancy rates.
• ANUFACTURING WILL RELOCATE BACK TO THE U.S.: Companies are seeing that the costs to
M
have their products produced in China or other international markets and shipped back
to America for distribution are break-even with the costs to produce goods here. Expect
to see many companies begin to bring manufacturing back to the U.S.
• ANAMA CANAL WILL BE A GAME CHANGER FOR THE PORT OF HOUSTON: The Panama Canal
P
expansion will open in 2015, which will mean a boost for the petrochemical companies
located on the Gulf Coast, as the canal will be able to support bigger LNG tankers with
more cargo. The deal between ExxonMobil and Qatar Petroleum International for an
LNG export facility in Sabine Pass will mark more growth in the ship channel.
• USH TOWARD SPEC BUILDING: As supply continues to trail demand in the industrial real
R
estate market, developers have rushed to market with spec building to fill the gap.
Demand can be expected to grow in 2014, spurring more build to suit and spec projects.
As President CEO of Welcome Group, Welcome Wilson Jr. oversees
the development, leasing, construction and purchase of single tenant
office, lab, manufacturing and industrial facilities in Texas. A real estate
developer for more than 35 years, he has extensive experience in industrial
development, residential subdividing, retail centers and office buildings.
He also serves as principal of Kingham • Dalton • Wilson Ltd., a Design/
Build affiliate of Welcome and is Director of River Oaks Financial
Group, Inc.
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EXPERT INSIGHT
Industrial Market

9. REAL ESTATE TRENDS
Houston Real Estate Trends from
BoyarMiller Annual Forum
GRAND PARKWAY
A
GAME
CHANGER
1
4
ENERGY
JOB
=
MORE
JOBS
LAND
10K ACRES
20K ACRES
2
JOB GROWTH
X
THAT
OF U.S.
OFFICE
1
1.5M
of Millennials
78%
of Baby
Boomers
HOMES OWNED
INDUSTRIAL
SQ FT
UNDER
CONSTRUCTION
VACANCY
LOWER
THAN
NATIONAL
AVERAGE
RETAIL EQUALS
INDUSTRIAL
PORT OF
HOUSTON
GROWING
of builder land
owned by developers
40%
U.S. JOBS
8

10. By BoyarMiller’s Cassie Stinson
An increasingly large percentage of Houston’s workforce is comprised of
Gen Y and Gen X, the groups that tend to see all aspects of their lives as
being of equal importance. As a result, real estate developers are bringing
to the market projects that address the increased demand for “live/work/
play” environments. These projects reflect a more holistic approach to real
estate development. “Holistic” is defined as something that is “characterized
by comprehension of the parts of something as intimately interconnected
and explicable only by reference to the whole.”
The fundamental investment philosophy
for successful mixed-use is a holistic
understanding and balancing of the
interrelationship of the component parts
of the project itself, as well as the relationship of the project with its surrounding
community. When all components are
taken into account, the developer gets
the satisfaction of a successful project
and also the gratification of making a
positive impact on the community and
the lives of the people who walk into
and alongside the project every day.
Houston is now being viewed
as the “third coast” gateway
capital market. According
to Jonathan Brinsden at
Midway, this is a major shift
in the capital fueling Houston
real estate development.
In addition to live/work units, which are successful in smaller projects, horizontal or “side
by side” mixed-use projects are more successful than vertical. Early projects with vertical
stacking, with one use on top of a different use, have experienced issues with incompatibility. Multi-family spaces above food and beverage establishments can be tricky due
to noise, odors, traffic and conflicting hours. Retail establishments have learned the hard
way that they can’t capture 100% of the multi-family occupants’ business and won’t be
successful if their retail space lacks visibility and access from outside the project. Rents
and vacancy rates for upper floor commercial tenants in vertically stacked mixed use
are also not as favorable.
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REAL ESTATE TRENDS
Houston’s Holistic Approach
to Mixed-Use Development

11. One challenge for mixed-use development is that developers who historically have
focused on a single product type may not fully understand the complexities of the
“other” product types in their mixed-use projects. In cases where the master developer
has brought in expertise with “other” product types through joint development, when
the project is hit with challenges like a sagging economy, each developer tends to look
after his own component in the mixed-use project and has blinders on when it comes to
the other components of the overall project.
In the past, lenders have focused on single
product types, making financing a mixed-use
project more difficult. Houston is now being
viewed as the “third coast” gateway capital
market. According to Jonathan Brinsden at
Midway, this is a major shift in the capital
fueling Houston real estate development.
Sources of capital such as Canyon Capital
Realty Advisors have more of a developer
mentality and understand how to underwrite
projects with multiple uses. With this new
source of “smart money,” we are likely to see
more, better-planned and better-executed
mixed-used projects in Houston.
We can expect to start
seeing development
outside the core Inner
Loop markets soon. Areas
like Montrose, Midtown
and East End are looking
very interesting as potential development markets.
The magic number for successful mixed use seems to be at least three types of activity
generators, as long as they all interrelate. Most frequently, mixed-use projects combine
retail, residential and office. Recreational and hospitality uses are also valuable components in the right context.
The location of the project must be selected carefully. Hotels within walking distance and
nearby residential space help support a mixed-use project. In inner-city locations, existing
parking spaces are scarce and renting a parking lot is sometimes more expensive than
renting the restaurant space that uses the lot. Locating a new mixed-use project in a
walkable environment, with well-lit, well-maintained sidewalks, bike racks and proximity to
public transit is critical. Also, providing for metered on-street parking generates revenue for
the local municipality, and positive revenue generates positive support for the project with
local governments.
Integration of the mixed-use project into its surrounding environment is important to success.
For example, providing wider sidewalks and outdoor terraces for retail and hospitality uses
and allowing for private use of such spaces helps to bring the project activity generators
to the exterior of the project in a way that engages the general public and pulls it in. The
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REAL ESTATE TRENDS
Houston’s Holistic Approach to Mixed-Use Development, continued

12. second floor terrace for the State Bar at Houston’s Rice Hotel is an example of using outdoor café space effectively. Another great example near the Austin Convention Center
is a ground floor tenant that will feature sculptural displays by local artists.
An exciting new mixed-use project by Midway Companies that is now coming out of the
ground is Kirby Grove, located adjacent to Levy Park near Richmond Avenue and Eastside.
In this project, Midway is the sole developer of all components in the project. Midway
collaborated with the Upper Kirby Management District for the redevelopment of Levy
Park, and the mixed-use project is located adjacent to the park. In the same vein as
Discovery Green downtown, Kirby Grove is an example of how a good public park can
stimulate good private development.
We can expect to start seeing development outside the core Inner Loop markets soon.
Areas like Montrose, Midtown and East End are looking very interesting as potential development markets. Not coincidentally, all of these alternative markets are located within
the boundaries of established management districts. In Houston’s no-zoning environment,
these districts provide helpful tools to address issues like traffic, parking, safety and
enhanced public spaces in our inner city markets, like land-use regulation “lite”. These
districts can also be effective advocates for the developer’s project in the planning
and permitting process.
Houston’s strong economy and relatively light burden
with regard to the entitlement process, coupled with
improved capital sources, all work to make Houston
a great place for development of mixed-use projects.
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REAL ESTATE TRENDS
Houston’s Holistic Approach to Real Estate, continued

13. In this QA, BoyarMiller attorneys
Stephen Johnson and Cassie Stinson
weigh in on what Houstonians can
expect in the coming year in regards
to real estate law and the real estate
industry as a whole.
WHAT TRENDS DO YOU EXPECT TO EMERGE IN 2014 FOR THE REAL ESTATE INDUSTRY?
JOHNSON: We expect to see new office building development start to slow down.
There are quite a few projects underway and, at some point, supply will satisfy demand.
The energy market is a significant driver in the demand for Houston real estate, but the
unknown is how much longer this energy boom cycle will last. When it slows, the demand
for office space will likely slow as well.
Represented Midway
in the redevelopment
of Levy Park into the
Kirby Grove project
WHAT SURPRISED YOU ABOUT 2013 IN THE INDUSTRY?
JOHNSON: The amount of transactions involving homebuilders and development of master
planned residential communities. Lot supply is dwindling and homebuilders are trying to
purchase (or contract for purchase) their lot supply for the foreseeable future. In addition,
residential developers are purchasing any available tracts of land in new development
areas (i.e. west and northwest of Houston with close access to the new Grand Parkway,
and on the north side of town near the new Exxon campus). Some homebuilders are
obtaining lot supply by purchasing developers or other builders with strong lot inventory
and lot pipelines. Lot supply will continue to be an issue over the coming years.
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REAL ESTATE TRENDS
2014 Trends in Real Estate Law

14. WHAT HAS CHANGED IN REAL ESTATE LAW RECENTLY?
STINSON: The 2013 Legislative Session was comparatively quiet regarding legislation
affecting real estate. One interesting change is a statute that now allows home-rule cities
like Houston to sell real property by MLS listings with real estate brokers. Unfortunately, this
streamlined procedure is not available to other types of governmental entities, which must
still use the public auction process of the local government code.
WERE THERE ANY SIGNIFICANT PROJECT YOU OR BOYARMILLER UNDERTOOK
IN THE PAST YEAR?
JOHNSON: BoyarMiller represents Midway in the redevelopment of Levy Park into the Kirby
Grove project. Kirby Grove, as part of a joint venture with institutional investors, will have a
248,000 square foot office building, anchored by Vitol Inc., and a 300-unit multi-family
development, each surrounding a park that will be redeveloped by Midway in conjunction
with the Upper Kirby Redevelopment Authority. Amegy Bank is providing the financing for
the office construction and Cadence Bank is financing the multi-family.
STINSON: Another significant project at BoyarMiller relates to our public-private practice.
We represented the non-profit developer, Houston Parks Board, in the Bayou Greenways
2020 project. This $205 million project contemplates the acquisition and development of
more than 150 miles of hike and bike trails and related greenbelts to form linear parks
along the nine major bayou systems that flow through the city limits of Houston. Long-term
funding for maintenance was approved only as recently as mid-October and reports are
that developers are already contacting local land planners for sites along the bayous,
including sites in previously overlooked but near-in areas on the east side of the central
business district.
From the Houston Business Journal BizBlog:
http://www.bizjournals.com/houston/blog/2013/12/residential-developers-hunting-for-new.html
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REAL ESTATE TRENDS
2014 Trends in Real Estate Law, continued

15. REAL ESTATE
PRACTICE LEADERS
Bill Boyar
Founding Shareholder, Business Group
My practice focuses on representing the various parties involved in
the acquisition, disposition, capitalization and financing of assets
and businesses on a national and international level. I have served
as lead counsel on numerous complex, multi-party acquisitions
and project financings, with significant experience in real estate,
hospitality, corporate finance, healthcare, and private equity
mergers and acquisitions.
Cassie B. Stinson
Counsel, Business Group
My practice is focused on commercial real estate and finance,
public/private projects, business transactions and public law,
with a particular emphasis on complex projects and multi-party
transactions. I have significant experience with office, heavy
industrial and manufacturing, multi-family, hospitality and
restaurants, institutional facilities and governmental infrastructure.
Stephen Johnson
Shareholder, Business Group
My practice is devoted to commercial real estate law, transactional
law, commercial transactions and general corporate representation.
My real estate practice includes the financing, acquisition,
development and disposition of commercial real estate, with
an emphasis on master-planned communities, commercial
office and retail, land and hospitality.
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16. PRACTICE LEADERS
Real Estate Practice Leaders, continued
Timothy J. Heinrich
Shareholder, Business Group
My real estate practice is devoted primarily to the acquisition,
development, financing and disposition of all product types
of commercial real estate. In addition to various land, office,
multi-family and retail projects, in the past 12 years, I’ve managed
the acquisition and financing of over 75 light industrial facilities.
Lee A. Collins
Shareholder, Litigation Group
A significant focus of my practice relates to the representation
of developers, owners and managers of commercial real estate
in state and federal court, including tenant disputes, easement
and restrictive covenant enforcement, condemnation, adverse
possession, construction litigation, lien enforcement and creditor
bankruptcy representation.
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17. BoyarMiller
4265 San Felipe, Suite 1200
Houston, Texas 77027
TEL 713.850.7766
FAX 713.552.1758
boyarmiller.com