Houston - CityCentre

 

We met with the Midway Companies Director of Development,   Mr. Brad Houston whose duties include the oversight of acquisitions and development from start to finish. This responsibility also entails legal, architecture, construction, and capital issues.  

Mr. Houston gave us the history of Midway Companies which was incepted in 1968 with a focus of industrial development and included office properties in 1983. The company was based in Dallas and then opened offices in other cities however closed the majority of them through 1994-1998. The company moved its headquarters to Houston.

The Midway Companies raises capital for projects through traditional relationships of with wealthy individuals, banks, and insurance companies. The company typically seeks to be the general partner on all developments through their Limited Liability Company (LLC’s) or Limited Partnerships (LP). As general partner the company takes a position to do the construction, leasing, and property management, for standard development fees.

On average partners seek a rate of return in the high teens up to 20%. The Midway Companies do not act as a merchant. They take a long term position and build to generate annual income. Some would argue their approach is conservative. CityCentre appears to be Class A facility. Class A facilities will usually have no problems should a need arise to sell or receive additional investment. Midway Companies did not accept any city funds as they wanted to remain independent keeping the control of this posh product.  

The CityCentre site was originally a Town & Country Mall that cost the Midway Company a mere $30 million. The property included three parking garages. This is a huge benefit as parking garages can be quite costly to develop and take several years to recoup. A Fort Worth, Texas development company who I won’t disclose at this time paid $25 million to construct a parking garage. 

The Midway Companies knew that 2 million people could get to the CityCentre location with relative ease. Many of its end users tend to work in the oil and gas industries. The majority of the surrounding demographics consist of fairly high net individuals who work in the oil & gas industry. The city of Houston has relied on the oil and gas industry for decades. In the event of an oil and gas crisis the city itself would take severe losses. 

Although the buildings are not LEED certified they are considered sustainable. They are currently considering building another office building and would seek LEED certification for it. Companies like Exxon Mobile want their buildings to be LEED Certified therefore Midway Companies will build to suit regardless of the additional cost to go green. 

Mr. Houston stated that the City of Houston's lack of zoning is beneficial to ease of development but can be devastating as it relates to competition. He told the story of two developers building the same product next door to each other which hurt the properties performance. Zoning can create barriers of entry. 

CityCentre offers housing, entertainment, shopping, restaurants,  and a state of the art fitness facility. The property will only get better as the troubled market thaws.