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2021 Real Estate Investment TRENDS henrysmiller.com

2020 was a life-changing year. Around this time last year, the U.S. was enjoying the longest economic expansion in history. The rapid escalation of the coronavirus pandemic brought it to an abrupt halt. No one could have imagined just how weird the world would become over the course of a year. In some ways, it will never be the same.

The pandemic caused millions of deaths and historic job losses. Life came to a standstill with lockdowns, quarantines, remote working, school closures and reduced gatherings. Who can forget the countless Zoom calls, hoarded paper products and hand sanitizer and wearing masks? Entertainment, sports and other live events, tourism, airlines, hotels and most restaurants were decimated. Fortunately, vaccines were generated in record time.

Remember the wildfires? The year began with the Australian bushfires, which raged for 80 days, killing and harming nearly three billion animals, and the west coast wildfires became the largest in California’s history.

Another historic event occurred when oil prices went negative for the first time ever with producers actually paying traders to take oil off their hands. In a stunning reversal, the 2020 bear market ended in August when the S&P 500 exceeded previous highs. With trillions of dollars in stimulus response, markets recovered in record time.

Finally, thousands of Black Lives Matter protests raged across the country following the death of George Floyd. The year ended with a tumultuous presidential election with the results called into question by President Trump. If 2020 was the year from hell, in 2021 hell froze over, beginning with an unprecedented riot at the Capitol followed by a massive and devastating winter storm.

Henry S. Miller Company: Resilient and BullishHistory has proven that the U.S. economy is amazingly resilient to horrific events such as those that occurred during the past year. According to ITR Economics, the recovery of the economy is progressing nicely - consumers are happy and businesses are buying capital equipment. However, there are concerns that excessive government stimulus spending will cause runaway inflation in the future.

There were lots of winners and losers in the pandemic. Industrial benefitted the most with the dramatic increase in e-commerce. Costar reports that the industrial market is very tight with low vacancies and increasing rents. Demand for distribution logistics space is at an all-time high. More and more warehouse space is needed closer to the consumer. As a result, Henry S. Miller Company has begun developing more industrial projects.

The office market is struggling and may take years to recover as employees continue to work remotely until they have to return to work. Many Texas office buildings were already hurting with the struggling oil and gas market. Available office space is near record highs according to Costar. While the office working environment may undergo fundamental changes, not everyone can work from home and office amenities and networking opportunities cannot be duplicated at home.

Retail real estate was hurt the most by the pandemic. We have a large portfolio of shopping centers and spent much of the year negotiating rent deferral programs for struggling tenants. In general, we agreed to defer a few months of rent or more to be paid back over a period of time.

Some retailers were hit harder than others, such as fitness and entertainment centers. Essential businesses thrived, such as grocers and home improvement stores. Online sales increased dramatically at the beginning of the pandemic. Conversely, in-store sales increased as restrictions eased. The U.S. Census Bureau reports that a record $788 billion was spent online in 2020, a 32% increase over 2019. Total annual retail sales (excluding auto, gas and restaurants) grew by 6.4% over 2019 to $4 trillion.

The International Council of Shopping Centers predicts that 62% of all online orders will be fulfilled in physical stores in 2021. Despite ever-increasing e-commerce, 80% of all sales occur in physical stores. Successful retailers must continue to increase their omnichannel sales capabilities to supplement their growing online business.

Also according to the U.S. Census Bureau, the population growth in Texas over the last decade far surpasses that of any other state. Furthermore, Texas’ population is one of the youngest in the Union. This is good news for the residential market, because this is the highest demographic for apartment renters, and they will begin purchasing homes in the coming years. Accordingly, we’re investing heavily in residential real estate, with several new single-family lot developments, a senior housing project and a multifamily apartment project underway.

We’re fortunate to live in the great state of Texas. We remain the premier state for doing business, as evidenced by all the corporate relocations. Tesla, Oracle, Hewlett Packard and CBRE, just to name a few, have recently moved their headquarters to Texas. Our measured approach to the pandemic appears to be the right one. We’re at the beginning of the end of the pandemic and our economy is poised to take off. With one party in control of the executive and legislative branches of the U.S. government, things could become difficult on the national level. However, take comfort in the fact that Texas, if it were a nation, would be the world’s ninth largest economy based on GDP as reported by the Texas EDC.

Great things are happening at Henry S. Miller Company. Please consult with a Henry S. Miller agent to learn more!

Greg Miller is Chief Executive Officer and President of Henry S. Miller Companies, a family of companies that includes a full array of commercial real estate services. Greg has extensive working experience involving the acquisition, financing, development, leasing and disposition of millions of square feet of commercial real estate. As former President of Miller Realty Investment Partners and HSM Equity Partners, Greg supervised the acquisition and structuring of commercial real estate transactions for the Henry S. Miller investment portfolio, including office, multi-family, retail, hotel and industrial properties throughout the Dallas-Fort Worth area, Texas and the United States.

Greg Miller

President & CEOHenry S. Miller Companies

Greg Miller


Greg MillerPresident & CEO

EXECUTIVE BRANCH

Geraldine “Tincy” MillerChair Lady

Robert DuBoisCFO

EXECUTIVE LEADERSHIP TEAM

Jim BrownlowSr. VP / Managing Partner, Capital Markets

EQUITY PARTNERS

Darrell HurmisEVP

Mark SmithSr. VP /CommercialDevelopment

BROKERAGE

Dan SpikaEVP/Principal

Darrell HurmisEVP/Principal

Frank BullockEVP

Corporate Services Industrial/Office

Investments/ Land Retail

Dan PolanchyckEVP

DEVELOPMENT

William “Bill” BushManaging Director

Steve DonoskyPresident

Multi-Family Single-Family

APPRAISAL / CONSULTING

Craig ChristensenEVP

PROPERTY MANAGEMENT

Shelton Weeks ManagingDirector

FRANCHISE OFFICES

Shawn AckermanPrincipal

Keith CoelhoPrincipal

Houston San Antonio

BUILD TO SUIT

Mark SmithSr. VP

Commercial


TRENDSThe information contained herein represents the results of participants surveyed in the commercial real estate markets of North Texas for 2021. The respondents include local and national developers, asset managers, loan officers in local and national lending institutions, brokers, as well as appraisers/consultants, mortgage bankers and individual investors.

CAPITALIZATION RATES What capitalization rates are being achieved or do you see reflected by the market?

Capitalization Rates

Property Type Property ClassCurrent Reversion

Average Low High Average Low High

ApartmentsA 4.40% 4.25% 4.75% 4.92% 4.25% 5.25%

B 5.30% 4.75% 6.25% 5.64% 4.75% 6.25%

C 6.08% 5.25% 7.75% 6.63% 5.25% 7.75%

Office

A 6.13% 5.25% 7.75% 6.69% 6.25% 7.25%

B 6.89% 6.75% 7.25% 7.31% 6.75% 7.75%

C 8.31% 7.75% 9.25% 8.69% 7.75% 9.75%

Medical 6.75% 6.25% 7.25% 7.31% 6.75% 8.25%

RetailAnchored 6.67% 5.25% 9.25% 7.11% 5.75% 8.75%

Unanchored 7.30% 6.25% 9.25% 7.55% 6.75% 9.75%

Freestanding 6.44% 4.25% 7.75% 6.72% 5.75% 7.25%

IndustrialBulk 5.75% 4.25% 7.25% 5.88% 4.75% 7.75%

Distribution 6.00% 4.75% 7.25% 6.25% 5.25% 8.25%

Flex 6.80% 5.25% 8.25% 8.25% 7.25% 9.25%

HotelFull-Service 8.25% 7.25% 9.25% 8.75% 7.25% 9.25%

Limited-Service 9.42% 8.75% 9.75% 9.58% 8.75% 10.25%

Economy 8.38% 4.25% 10.25% 9.92% 9.25% 10.75%

Net Lease Credit

National 5.25% 4.25% 6.25% 5.88% 5.25% 6.75%

Regional 6.50% 5.75% 7.25% 6.88% 5.75% 7.75%

Local 7.25% 6.75% 7.75% 7.58% 7.25% 7.75%

Ground LeasesNational 4.75% * * 5.25% 4.75% 5.75%

Regional 5.25% * * 5.75% * *

Local 7.00% 6.75% 7.25% 7.25% * *

*Insufficient data responsesComments: Hotel:Hotel: The rate ranges presented for hotels can be misleading in current times. If cap rates are applied to pre-pandemic NOI’s, then rates are 100 to 300 basis points higher than 2019. If applied to 2020 or TTM 2021 NOI, rates are in the range of 1% to 5% particularly if the property was impacted by mitigation efforts. If applied to the forecasted stabilized NOI, a rate consistent with pre-pandemic rates are seen. Reversionary rates are from 0 to 150 basis points higher than current.Distribution:Distribution: Amazon Warehouse in Houston was 4.5%Restaurants:Restaurants: McDonald’s and Starbucks can achieve sub 4% cap rates

REQUIRED LAND YIELDS What are your IRR requirements for the following?

Yields for LandLeveraged Equity Rates Unleveraged Equity Rates

Property Type Avg Low High Avg Low HighResidential Lot Development 18.83% 10.00% 30.00% 12.92% 7.00% 20.00%

Speculative Land Purchase 21.00% 12.00% 30.00% 16.43% 10.00% 30.00%


DISCOUNT RATES What leveraged yields or discount rates do you see reflected by the market?

Property Type Property Class AverageRange

Low High

ApartmentsClass A 7.1% 5.0% 8.0%

Class B 7.8% 6.0% 9.0%

Class C 8.5% 7.0% 10.0%

Office

Class A 7.9% 6.5% 10.0%

Class B 8.8% 7.5% 11.0%

Class C 9.8% 8.0% 12.0%

Medical 8.1% 7.0% 10.0%

HotelFull Service 9.3% 8.0% 10.0%

Limited Service 10.3% 9.8% 11.0%

Economy 10.6% 9.8% 12.0%


Low High

IndustrialBulk 7.8% 7.5% 8.0%

Distribution 6.4% 5.0% 7.5%

Flex 7.4% 6.0% 8.5%

Retail

Anchored 7.7% 5.0% 12.0%

Unanchored 8.5% 5.0% 12.0%

Freestanding 7.9% 7.0% 10.0%

Restaurant 8.4% 5.0% 12.0%

Net LeasesNational 5.8% 5.5% 6.0%

Regional 7.2% 6.5% 8.0%

Local 8.2% 7.5% 9.0%

DISCOUNT RATES


Low High


Class B 12.2% 6.0% 25.0%

Class C 13.8% 8.0% 28.0%

Office

Class A 11.6% 7.5% 20.0%

Class B 12.0% 8.5% 25.0%

Class C 11.4% 9.0% 15.0%

Medical 10.3% 8.0% 15.0%



Economy 14.5% 13.5% 16.0%


Low High



Flex 10.3% 8.0% 16.0%

Retail

Anchored 12.6% 7.5% 25.0%

Unanchored 13.70% 8.5% 35.0%


Restaurant 8.4% 5.0% 12.0%


Regional 9.0% 8.0% 10.0%

Local 10.0% 9.0% 11.0%

LEVERAGED EQUITY RATES


Low High


Class B 8.4% 5.0% 13.0%

Class C 9.6% 6.0% 15.0%

Office

Class A 9.7% 7.0% 20.0%

Class B 8.8% 7.0% 10.0%

Class C 9.8% 8.0% 11.0%

Medical 8.6% 6.0% 12.0%



Economy 11.0% 10.0% 12.0%


Low High



Flex 8.8% 6.5% 11.0%

Retail

Anchored 9.3% 6.5% 15.0%

Unanchored 10.0% 7.0% 15.0%


Restaurant 8.4% 5.0% 12.0%


Regional 8.5% 8.0% 9.0%

Local 9.5% 9.0% 10.0%

UNLEVERAGED EQUITY RATES


REVENUE & EXPENSE EXPECTATIONS What growth rates do you anticipate for revenue and expenses during the next few years?

REVENUE AND EXPENSE EXPECTATIONS (AVERAGE)

Property TypeYear 1 Year 2 Year 3

Revenue Expense Revenue Expense Revenue ExpenseApartments 1.83% 2.00% 2.39% 2.29% 2.83% 2.36%

Office 0.27% 2.15% 1.20% 2.28% 2.40% 2.44%

Retail 0.03% 0.56% 0.65% 0.94% 1.32% 1.28%

Industrial 2.55% 2.17% 2.90% 2.11% 3.15% 2.22%

Hotel 0.50% 2.38% 1.88% 2.88% 3.13% 4.38%

EXPENSE EXPECTATIONS (RANGE)Property Type

Year 1 Year 2 Year 3Low High Low High Low High

Apartments 0.50% 3.00% 0.50% 3.00% 1.00% 3.00%

Office 0.00% 3.50% 0.50% 3.00% 1.00% 3.00%

Retail -5.00% 3.00% -5.00% 3.50% -5.00% 5.00%

Industrial 0.00% 4.00% 0.50% 3.00% 0.50% 3.00%

Hotel 2.00% 3.00% 2.50% 4.00% 2.50% 10.00%

REVENUE EXPECTATIONS (RANGE)Property Type

Year 1 Year 2 Year 3Low High Low High Low High

Apartments 0.00% 3.00% 1.50% 3.00% 1.50% 4.00%

Office -5.00% 2.50% -2.00% 2.50% 0.00% 5.00%

Retail -5.00% 3.00% -3.00% 4.00% -3.00% 5.00%

Industrial 0.00% 5.00% 2.00% 5.00% 2.00% 5.00%

Hotel -5.00% 6.00% -2.50% 5.00% 2.00% 5.00%

THREAT & EXPANSION What is the greatest threat and enhancement to expansion in North Texas?

22.22% 22.22%

2.78%

25.00%27.78%

Interest RatesCovid PandemicOversupplyNational Changes PoliticallyOther

Greatest Threat to Expansion

17.14%2.86%

80.00%

Interest RatesNational Changes PoliticallyCorporate Relocations

Greatest Enhancement to Expansion


HOLDING PERIOD What do you consider to be a reasonable holding (acquisition to resale) period?

Reasonable Holding Period (years)Property Type YEARS Property Type YEARSApartments Avg Low High Industrial Avg Low HighClass A 6.5 3.0 10.0 Bulk 7.5 3.0 10.0Class B 5.4 3.0 10.0 Distribution 7.0 3.0 10.0Class C 4.7 3.0 6.0 Flex 6.1 5.0 8.0Office RetailClass A 6.2 1.0 10.0 Anchored 5.9 3.0 10.0Class B 5.5 4.0 8.0 Unanchored 5.8 3.0 10.0Class C 5.4 3.0 8.0 Freestanding 7.3 4.0 10.0Medical 7.6 5.0 10.0 Restaurant 7.1 3.0 10.0Hotel Net LeaseFull Service 7.8 5.0 10.0 National 9.0 7.0 10.0Limited Service 7.5 5.0 9.0 Regional 8.0 7.0 10.0Economy 6.4 3.0 8.0 Local 7.3 5.0 10.0

VACANCY AND COLLECTION LOSS What stabilized vacancy and collection loss percentage do you use when analyzing the following?

Vacancy and Collection LossMulti Tenant Loss (%) Single Tenant Loss (%)Retail Avg Low High Retail Avg Low High Strip Center 9.43 5.0 20.0 Credit 4.09 0.0 10.0

Neighborhood 8.03 5.0 12.0 Non-Credit 7.16 0.0 20.0

Anchored 7.92 0.0 15.0

Multi-anchor 8.14 0.0 15.0

Office Avg Low High Office Avg Low High

Class A 8.80 5.0 12.0 Credit 3.00 0.0 5.0

Class B 9.89 6.0 15.0 Non-Credit 7.19 3.0 10.0

Class C 11.50 6.0 20.0

Small 8.50 5.0 10.0

Industrial Avg Low High Industrial Avg Low High

Bulk 5.60 0.0 10.0 Credit 2.70 0.0 5.0

Distribution 6.29 3.0 10.0 Non-Credit 7.00 5.0 10.0

Flex 9.21 3.0 15.0

Apartments Avg Low HighClass A 6.17 5.0 7.0

Class B 6.13 5.0 7.0

Class C 6.86 5.0 9.0


REASONABLE MARKETING TIME What is a reasonable marketing period?

REASONABLE MARKETING TIME (MONTHS)Property Type MONTHS Property Type MONTHS Property Type MONTHSApartments Avg Low High Land Avg Low High IndustrialClass A 3.6 1.0 6.0 Ground Leases 9.2 6.0 12.0 Bulk Warehouse 5.8 2.0 9.0Class B 3.6 1.0 6.0 Fee Simple Land 11.5 8.0 18.0 Distribution 6.4 3.0 9.0Other 4.6 1.0 12.0 Flex 8.6 6.0 12.0Office Retail Hotels High Rise 9.8 5.0 18.0 Anchored 7.4 3.0 18.0 Full Service 12.7 11.0 15.0 Class A Suburban 8.6 6.0 12.0 Unanchored 9.9 3.0 16.0 Limited Service 11.7 10.0 15.0 Class B 8.8 6.0 12.0 Freestanding 7.0 2.0 12.0 Economy 10.0 6.0 15.0

Class C 10.6 6.0 12.0 Restaurant 8.0 3.0 12.0

*Insufficient data responses

FINISH-OUT COSTS What are typical finish-out costs per square foot for the following?

FINISH-OUT (PER SQUARE FOOT) OFFICE & INDUSTRIALShell New Renewal

Property Type Avg Low High Avg Low High Avg Low HighOffice $54.50 $35.00 $75.00 $38.50 $20.00 $50.00 $12.60 $0.00 $25.00

Office/Medical $82.22 $50.00 $110.00 $43.50 $10.00 $75.00 $13.67 $0.00 $25.00

Industrial Flex $45.00 $15.00 $125.00 $26.31 $5.00 $100.00 $12.06 $0.00 $70.00

Industrial Bulk $34.44 $2.50 $100.00 $22.81 $1.50 $100.00 $9.64 $0.00 $70.00

FINISH-OUT (PER SQUARE FOOT) RETAILShell New Renewal

Property Type Avg Low High Avg Low High Avg Low HighRetail/Anchored $47.33 $20.00 $100.00 $33.85 $0.00 $60.00 $10.33 $0.00 $25.00

Retail/Unanchored $45.00 $20.00 $100.00 $31.33 $0.00 $60.00 $9.59 $0.00 $25.00

Restaurant $84.88 $25.00 $200.00 $68.75 $0.00 $300.00 $17.35 $0.00 $50.00

Henry S. Miller Realty Services, LLC is a full service Real Estate Company providing brokerage, leasing, asset and property management, corporate services, investment banking, development, construction management, consulting and appraisal services. Since 1914, the Henry S. Miller family of companies has been building a reputation on strong leadership, great integrity and wise investment.

Cycle and ThreatHow will the change in the Administration impact the North Texas CRE market?

NEAR TERM OUTLOOK FOR THE NORTH TEXAS CRE MARKET

CHANGE IN THE ADMINISTRATION’S IMPACT ON THE NORTH TEXAS MARKET

66% Optimistic29% Neutral3% Pessimistic

31% Decline61% Remain Stable8% Improve

What is your near-term outlook for the North Texas CRE market?


REGIONAL MALLS

Have you heard a colleague say, “Malls are dead”? That’s not true. Malls are not dead—they are evolving. They are having new life breathed into them. Malls have always been a destination, but now they offer amenities, experiences, and entertainment that together are called “experiential retail.”

As Millennials’ and Gen Zers’ purchasing power has evolved and increased, the traditional department store anchored mall is readapting. While the lives of these generations are rooted in digital experiences, they still demand and enjoy a physical environment in which to interact. Traditionally, malls have relied on the department store anchor as their draw. Now, however, they must adapt the vacating big boxes with other uses that complement the destination experience, such as motels, self-storage facilities or fulfillment centers.

The 2020 COVID pandemic has tested that desire during a time when we all had to work and play from home…the live, work, play singular environment was tested.

RETHINKING LONG TERM TACTICS FOR MALLS

Property management has had to re-think merchandising strategies in an environment where so many retail store closures have occurred. For us at Henry S. Miller Co., these closures are an opportunity to provide new pop-up retail concepts that enable entrepreneurs to test a market and location before committing to a long-term lease. These activations can be an enhancement to an existing online presence, combining the digital and physical in the experiential realm. Thus, shoppers/consumers are offered an even more diverse selection of retail choices than previously existed. Gone are the days of the mall’s center court with a jewelry store on each corner.

So rather than resignedly let properties succumb to the rumor of dead malls, we choose to help them evolve. Other approaches can include exploring alternative uses for a mall site that further address the need for physical

human interaction. For example, adding multi-family living spaces creates an urban environment in which people can live, work, shop and play. This option especially can sustain and adapt to the evolving demands of an evolving society.

OFFICE BUILDINGS

With work from home becoming commonplace as a result of the 2020 COVID pandemic, property owners and managers have had to adapt and respond. Just like malls, the workplace is evolving. Co-working, the latest approach to take down large Class A office space floors, has even evolved with new strategies in response to the pandemic; virtual work-from-home memberships include the terms flex or hybrid. Floor plans and space design are being changed to respond to the way we must work in this new socially distanced society. Large companies are now embracing fully or partially remote teams, while still providing a place where distributed teams can meet and collaborate physically. Just like mall environments that now combine digital and physical interactions, offices must provide digital and physical workspace.

Within physical office communities, amenities are important. These include reliable and fast Wi-Fi; socially distanced conference space; easy access to parking and transportation; dining options; and outdoor spaces such as patios or scenic rooftops that are good for recharging.

Finally, integrating coworking and retail in urban areas is yet another approach for the evolving mall and office building. Those vacated big box retail spaces in malls can be backfilled with a new office environment. There are significant benefits to the density of occupying space that is both commercial, retail and close to residential areas. To ensure work-life quality, everything needed for digital and human interaction will remain essential during the next cycle of long-term growth and adaptation. This is the new future.

Let our teams at Henry S. Miller help you adapt and evolve as we find your new future, and explore new, highest and best uses for your real estate.

NEW TRENDS FOR ENCLOSED MALLS AND OFFICE BUILDINGS: HOW IS PROPERTY MANAGEMENT ADAPTING?

By Shelton Weeks Managing Director

PANDEMIC EFFECT AND REMAINING LENGTH OF ADVERSITYProperty Type Property Type Property TypeApartments Primary Impact Hotels Primary Impact Net Lease Primary ImpactClass A 0-6 months Full Service 12 - 24 months; up to 42 months National 0-6 monthsClass B No Adverse Impact Limited Service 6 -24 months; up to 36 months Regional 0-6 monthsClass C No Adverse Impact - 6 months Economy 6 -24 months; up to 36 months Local 6-24 monthsOffice Primary Impact Retail Primary Impact Ground Lease Primary ImpactClass A 6 - 18 months Anchored 6 - 12 months Class A No Adverse Impact - 6 monthsClass B 6 - 12 months Unanchored 6 - 12 months Class B No Adverse Impact - 6 monthsClass C 6 - 12 months Freestanding No adverse Impact Class C No Adverse Impact - 6 months

Medical 0 - 6 months Restaurant 6 - 18 months

Industrial Primary ImpactBulk Positively Influenced

Distribution Positively Influenced

Flex 6 - 12 months

PANDEMIC LENGTH How much longer do you anticipate the Pandemic to adversely impact by property type?


People in the Know

Dan Spika, SIOREVP/PrincipalIndustrial/Office Division

The Hot industrial market is all about land, land, land! Online shopping has increased dramatically within the last year due to social distancing and this is a trend that will remain. Soaring demand for E Commerce and 3rd party Logistics property is overwhelming. Everyone and their brother would like to jump into the warehouse development business whether they have experience or not.

Cold storage is a hot commodity; particularly specialty foods and niche products. Whereas developers want to do the largest warehouse they can build cold storage is usually found in smaller facilities.

Prices PSF on 2nd gen warehouse have soared in the DFW area. $110-140.00 psf is not uncommon. This is for unairconditioned space. Finding buildings to purchase is impossible. Sellers may want to sell the building they paid $40.00 psf several years ago but there is no place for them to move. Companies needing outside storage of a few acres is also impossible to find. Cities don’t like outside storage even in Heavy industrial zoned areas.

Hot Areas are Forney, Terrell, Haslet, McKinney and Denton and clearly south Dallas. PSF for land prices have doubled!

Industrial will remain at the top along with residential dirt. Very difficult working with understaffed cities while working on Zoom. Office will clearly lag as many companies will allow people to remain working from home.

Frank BullockEVP, Retail Division

The retail sector of commercial real estate in DFW and nationally has been significantly impacted over the past 12 months. The pandemic caused by the COVID 19 virus has shuttered tens of thousands of retail and restaurant and bar businesses. Coupled with over forty retail chains filing for bankruptcy both Chapter 7 and 11, including Lord & Taylor, Sears, Brooks Brothers, Pier I, Neiman Marcus, 24-Hour Fitness, Forever-21, and Payless Shoes, the prospects for backfilling these spaces is bleak. Granted, several of these companies’ futures were tenuous at best and this ultimate demise was inevitable, the pandemic expedited their closure. It is akin to “shooting the horse before it suffers too badly.”

The two PPP stimuli are a band-aid, rather than a true economic stimulus. They are a bridge to a hopeful future, nothing more. Time will tell.

There are several concerns for the prospects of a retail recovery in 2022… not 2021… 2022. Primarily, the lost revenue from city, county and state sales taxes, plus a deviation on the ad valorem taxes due to vacancies and declining rents, will cause these governments to cut badly needed services to help those greatly affected by closings, layoffs and the pandemic.

Another real concern on the part of users and tenants in retail CRE is governmental uncertainty on future COVID-related closings. Any new lease negotiated in 2021, will have an extensive “COVID Provision” explaining how rents will be either deferred or abated during a future shut down. This is something lenders are not fond of including but a necessary evil in a COVID world.

On the bright side, as always, properties with the best locations, even in secondary or tertiary submarkets, will generally out-perform their competitors in an inferior location (bad access, visibility, parking issues). Location is more important than ever, even more important than the credit worthiness of the tenants.

Retail generally operates on a seven-year cycle with the exception of grocery, home improvement and automobiles. So landlords need to grab these retailors early in their life cycle and make hay while the sun is shining.

Darrell HurmisPrincipal / EVP – Land / Investments DivisionEVP – HSM Equities

The pandemic of 2020 obviously affected all phases of every day life and took a toll on the investments and land side of commercial real estate. Several income properties we had LOI’s or contracts on were withdrawn from buyers concerned of the unknown length of the crisis. Many purchasers assumed that there would be massive foreclosures on retail and office properties and great deals would be coming shortly. Luckily, several lenders have been reluctant to overreact and, in most cases, have worked with the owners to prevent taking back properties and extending the term of the loans.

2021 has already started with much more activity especially on land properties with single family and multi-family land leading the way. Low interest rates have also prompted the investment purchasers back towards retail properties which have shown resilience or (pandemic proof) tenants. Restaurant owners stayed open with curbside and “to go” business to cover overhead. I feel the hardest hit sector will be office properties. The pandemic forced many companies to have employees work from home and have discovered that they work just as efficiently as if in the office using Zoom conferencing. Office tenants might continue this process in the future when all things get back to normal resulting in cutbacks on total square footage requirements.

As of this article, Moderna, Pfizer and Johnson & Johnson are providing the vaccine to the public and hopefully things will slowly but surely return to some resemblance of normalcy by the last quarter of the year. If interest rates stay low, I anticipate a wonderful recovery in 2021. The new political administration will definitely have a say in the future as there are talks of tax and capital gains adjustments. Hopefully, the changes won’t be too significant – we will wait and see!

HSM Equities Division

We have been very active on the equity side with three projects in 2020. We closed on two single family land properties that we are developing lots pre-sold to builders and one industrial build-to-suit for a trucking company headquarters. We see tremendous opportunity in the near future for more of these types of property to purchase and hope to also find opportunities on some income deals.


HOUSTON9434 Katy FreewaySuite 180Houston, Texas 77055713.626.2828

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CORPORATE OFFICE

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Methods Change. Principles Endure. Service and Integrity since 1914.

Appraisal & Consulting Staff

Craig Christensen, MAI EVP (35+)

Kyle Dieterich Appraiser (12+)

Blake Gaddy VP (7+)

Spencer Gerhart Analyst (4+)

TRENDS is published annually by Henry S. Miller Companies. The information contained herein represents the results of participants surveyed in the commercial real estate markets of North Texas in First Quarter 2021 reflecting data as of Year-End 2020.

The respondents include:• local and national developers• asset managers• loan officers in local and national lending institutions• brokers• appraisers/consultants• mortgage bankers• individual investors The Appraisal & Consulting Division uses this information as a tool

to support the expectations of buyers and sellers based upon data obtained from the market.

henry s. miller company 2021...henry s. miller companies greg miller 2021 real estate investment...

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