Micro-Unit Apartments, Mixed-Use Developments & More: Q&A with Sandy Aron of Huntington Properties
Sandy P. Aron
HOUSTON – (Realty News Report) – Houston’s retail real estate market remains on an upward trajectory, supported by positive job creation and robust single-family home sales. The Houston Association of Realtors reports a 2.8 percent increase in single-family home sales in May, with 8,346 closings. Year-to-date sales are 2.7 percent ahead of 2018’s record pace. The industry adage “retail follows rooftops” has long guided developers, but questions remain: will that link hold indefinitely in Houston? Will retail eventually soften? Is there too much retail construction planned? Where are the strongest retail submarkets? To explore these questions, Realty News Report spoke with Sandy P. Aron, President of Hunington Properties, a leading Houston commercial real estate broker and developer with more than 35 years’ experience. Aron has developed retail centers across Texas and other states and currently has multiple retail and multifamily projects in the pipeline, including innovative micro-unit apartments with street-level retail.
Realty News Report: Hunington Properties has completed many projects. What do you have in the development pipeline now?
Sandy P. Aron: Our firm currently has 21 multi-tenant retail centers in various stages of development across the greater Houston market, ranging from roughly 15,000 to 45,000 square feet. This level of activity will continue into 2020 with about a dozen additional projects planned. Hunington Residential, a division of Hunington Properties, entered the multifamily market in 2009. We developed The Fairmont on San Felipe—a mixed-use center with 45,000 square feet of retail and a four-story multifamily building in the Tanglewood/Memorial corridor. We also developed Vargos on the Lakes, a five-story multifamily community in the Piney Point–Memorial area, which was recently sold to an institutional buyer. Last month Hunington Residential broke ground on The Vic at Southwind, a three-story garden-style multifamily complex in Baytown. Next month we will begin work on The Interpose, a mixed-use retail center with about 25,000 square feet of street-front retail on Shepherd and Durham Drive, plus a four-story building of micro-unit apartments.
Realty News Report: Micro-unit multifamily is a newer concept for Houston. What is a mixed-use micro community, and why is Hunington pursuing it?
Sandy P. Aron: A micro-unit averages about 450 square feet. This model has consistently attracted renters in comparable markets such as Washington and the Heights. The Interpose will be a boutique setting with fewer than 200 units in a four-story building. Because micro-units are efficient, they enable renters to retain roughly 20 percent of their monthly housing budget compared with larger units. The project’s amenities will include a clubroom, fitness center, pool, dog park, summer kitchen, and unobstructed views of Greater Houston. We adopted the all–micro-unit approach after studying other markets and observing recent multifamily developments inside the Inner Loop. New four- and five-story projects that include a limited number of compact studios—typically 550 square feet or more—have often been the first to pre-lease and even produced waiting lists. Rent comparables from Texas cities like Dallas, Fort Worth, Austin, and San Antonio showed micro-unit rents in the $2.75–$3.00 per square foot range. When those rental economics are combined with retail rents exceeding $40 per square foot at street level, the build-to-cost returns are attractive. Moreover, an all–micro-unit offering differentiates our product from traditional multifamily projects that mix one-, two- and three-bedroom units.
Realty News Report: Vargos on the Lake, a 276-unit Class A infill community near Westheimer, was recently sold. Will Hunington keep developing multifamily in Houston?
Sandy P. Aron: Yes. Our focus is on irreplaceable, high barrier-to-entry locations that we believe will continue to perform well over time.
Realty News Report: Retail occupancy in Houston sits around 95 percent, with roughly 4 million square feet under development. Could supply outpace demand?
Sandy P. Aron: About four million square feet under construction is a meaningful number, but with overall occupancy near 95 percent, it does not indicate an overbuilt market at this time.
Realty News Report: Are there opportunities for the right retailers?
Sandy P. Aron: Opportunities imply exploitable circumstances. Across the Houston market today, I’m not seeing many exploitable advantages for retailers; successful expansion will depend on careful site selection and matching tenant needs to local demographics.
Realty News Report: Midyear 2019—how would you describe the broader Houston real estate market?
Sandy P. Aron: The market is solid from an occupancy standpoint, but we have concerns about rising triple-net (NNN) expenses being passed on to tenants, particularly higher property taxes.
Realty News Report: Are there retail hot spots or notable pockets of strength?
Sandy P. Aron: We focus on growth throughout Greater Houston, especially in master-planned communities. New right-of-way construction has created several retail hot spots. Driving along Grand Parkway (Highway 99), for example, you can see concentrated retail activity emerging.
Realty News Report: How is retail performing inside the Inner Loop?
Sandy P. Aron: Inner Loop retail remains highly sought after and continues to attract interest from retailers expanding in the greater Houston market.
Realty News Report: What about land? Are commercial reserves still the primary source of retail development opportunities, and how are land sales and prices evolving in Houston?
Sandy P. Aron: Inner Loop land prices continue to reach new highs per square foot, driving increased density and taller developments. Developers are still buying and building at these elevated prices. In suburban commercial reserves, land values are rising as well but remain affordable enough to support multi-tenant retail center development.
Realty News Report: Looking toward 2020, what do you expect for Houston real estate in the next year or two?
Sandy P. Aron: The trajectory for 2019 appears set, with the second half likely to complement the first. Barring a significant global negative event, 2020 should build on this year’s pace.
Realty News Report: Anything else you’d like to add?
Sandy P. Aron: I encourage everyone who is qualified to participate in the November 5 mayoral election.
