How Grand Parkway land prices have changed over the past decade
Around 13 years ago, Perry Senn was looking for a land deal.
He and his business partner, Ronnie Matthews, found an 800-acre tract for sale along the Grand Parkway. The deal closed and the duo held onto the vast majority of the land for roughly a decade. Today, that land is valued as much as 3,400 percent higher than when they bought it, according to data from Houston-based Dosch Marshall Real Estate and Clay Road 628 Development LP, the entity through which Senn and Matthews do deals.
Senn and Matthews bought the 800 acres from two separate institutional investors for around $25,000 or $30,000 per square foot, Senn said. The land is located along the Grand Parkway between Clay Road and Morton Ranch Road. Senn and Matthews have since sold parcels to retailers like Arkansas-based Walmart Inc. (NYSE: WMT), retail developers such as Houston-based NewQuest Properties, national apartment developers, single-family homebuilders and others.
“When we bought it, it was … just a prairie,” Senn said of the 800-acre tract. “(There) was a great amount of work that had to be done before we could even sell it.”
There are countless investors like Senn and Matthews who bought land around the Grand Parkway when it was proposed. Now that more portions of the Grand Parkway have delivered, though, the barrier to entry is much tougher for those looking for opportunistic plays around the toll road. By some brokerages’ estimates, the value of land along the Grand Parkway has increased as much as 52 times its original value 10 years ago, according to land pricing data cited by Dosch Marshall.
And as west Houston continues to become more densely built-out, residential and commercial developers are betting on the Grand Parkway as Houston’s newest development corridor.
“What’s to stop the next CityCentres and Memorial Citys of the world being at the Grand Parkway?” Jon Silberman, managing partner of Houston-based NAI Partners, asked in the fall of 2018.
Developers have to ‘put their stake in the ground now’
When it comes to development along the Grand Parkway, the aphorism that “retail follows rooftops” is true. But because land along the thoroughfare has become so expensive, developers of all property types are spending record amounts of capital on prime pieces of land along the Parkway.
Industrial developers see Grand Parkway-adjacent land as highly desirable because it is linked to State Highway 290, Interstate 10, Interstate 45 and several other highways that connect Houston to other major Texas markets. Companies such as Memphis-based FedEx Corp. (NYSE: FDX), Houston-based Bel Furniture and Issaquah, Washington-based Costco Wholesale Corp. (Nasdaq: COST) that require such connectivity for e-commerce distribution have been leasing or developing properties along the Grand Parkway.
But industrial developers are disadvantaged against multifamily developers, for example, as multifamily properties can fit more profitable property in an acre than an industrial property can. A mid-rise multifamily property contains six floors of revenue-generating property, for example, compared to an industrial property’s single floor.
“They’re seeing that they have to go and put their stake in the ground now, because there’s so many apartment developments being announced, and so many bigger commercial developments being announced,” said Tom Dosch, co-founder of Houston-based Dosch Marshall Real Estate. He added that some industrial developers are paying unprecedented sums for land around the Grand Parkway.
‘Nobody was buying an acre’
As land along the Grand Parkway has skyrocketed in value, owners have changed the way they value and market land for sale.
When Senn and Matthews bought their 800-acre tract of land, land was priced per acre, but the general understanding was that developers and investors weren’t buying an acre of land.
“It’s a little hard to have a direct comparison,” Dosch said. He added that a developer quoting $10,000 per acre, for instance, was likely quoting to a buyer who planned to purchase 200 acres and not a single acre.
“Nobody was buying an acre before,” Dosch said.
Now, when developers are quoting land around the Grand Parkway, those quotes could range anywhere between $13 per square foot to $30 per square foot. So while land values around the Parkway have increased upward of 3,000 percent, it’s less a matter of buyers spending 30 times as much on land and more a matter of how far a buyer’s dollar goes.
Another factor to consider is the cost of installing utilities on untouched land around the Grand Parkway. Back when Senn and Matthews acquired their tract, developers were all but required to install their own water and drainage utilities. Senn estimates that it cost between $4 million and $5 million to build a water plant and connection well that would serve around 400 acres.
‘A lot of patience … and a lot of money’
Around half of the Grand Parkway is complete. The finished portions start near New Caney, snake around Cypress and Katy, and land in the Sugar Land suburb of Greatwood. For prospective retail and suburban developers, that means demand for new development will only increase over time.
“The suburbs continue to grow with the addition of the Grand Parkway. People have to shop, (and) they have to eat, so it demands more retail,” Bruce Wallace, vice president within CBRE’s retail leasing group, said in 2018 at a press luncheon. “Predominantly, grocery-anchored developments and those are mainly in and around the Grand Parkway.”
But for those same developers looking for their slice of the Grand Parkway’s pie, though, a lot has changed in 10 years.
“You need to have a lot of experience primarily, excellent consultants, and a lot of patience,” Senn said, when asked what today’s investors and developers need to acquire Grand Parkway land.
“And a lot of money,” he added.
Jan 3, 2019
Houston Business Journal