Category Archives: Real Estate

Houston real estate company to be taken over in $5.9 billion transaction

Courtesy JLL

Weingarten Realty Investors, a Houston-based real estate investment trust (REIT) has agreed to be acquired by Kimco Realty Corporation, based in New York in a transaction valued at $5.9 billion.

KImco is the number two in shopping center REITs while Weingarten is number five. Weingarten primarily operates in Texas, Florida and California. It has 159 properties where it develops and leases space in centers anchored by tenants such as Kroger and TJ Maxx.

Weingarten history

Harris Weingarten, an immigrant from Poland, first came to America in the 1880s. He started a general store in the Richmond/Rosenberg area, southwest of Houston. To grow the business, he moved to Houston in 1895 and opened his first grocery store in 1901. His son founded the real estate company in 1948 to build supermarkets for his father’s business. The grocery business grew to 103 stores before being sold to Grand Union in 1980 while the real estate business went public in 1985. Harris’ grandson, Stanford Alexander, 92, is Chairman Emeritus while great-grandson, Andrew is the Chairman and CEO.

Severance and synergies

Kimco shareholders will own approximately 71% of the combined company. The company will keep the Kimco name and its headquarters in New York. The press release stated that the business would be run by Kimco senior management. It made no mention of the Weingarten executive team.

According to the recently-filed proxy, Andrew Alexander will get approx $17 million (including vested equity) if he leaves as a result of a change in control. COO Johnny Hendrix will get about $8 million, CFO Stephen Richter over $9 million. The two Alexanders still own 6% of the equity. That means the stake is worth about $200 million.

Kimco expects to make annual savings of $35-$38 million from the combination, which it  expects to close in the second half of 2021.

SEC filing – Weingarten takeover


Woodlands real estate company appoints new CFO

The Howard Hughes Corporation has appointed Correne Loeffler as its new CFO. She replaces David O’Reilly, who was promoted to CEO in December 2020. Ms. Loeffler was previously the CFO at Whiting Petroleum, based in Denver.

Howard Hughes is now based in The Woodlands, following its move from Dallas late last year. It is primarily a developer of residential master planned communities and has market capitalization of $5.4 billion.

Ms. Loeffler will receive a base salary of $500,000 and be eligible for annual cash bonuses of $900,000 and annual long-term equity awards worth up to $1.2 million, 50% of which will vest based on performance.

Ms. Loeffler was CFO at Whiting from August 2019 to September 2020. She left as Whiting exited from bankruptcy. In Chapter 11, the bondholders exchanged $3 billion of debt for 97% of the equity in the newly-reorganized company.

Ms. Loeffler was paid handsomely for her 13 months at the company

  • Base salary of $440,000
  • Signing bonus of $190,000 in 2019
  • Cash bonus of $2.2 million paid the day before Whiting filed for bankruptcy.
  • Severance payment of $880,000
  • Transition consulting services of $68,250

Whiting also paid $158,000 in relocation costs to relocate Ms. Loeffler from Houston to Denver.

Ms. Loeffler was VP, Finance and Treasurer at Houston-based Callon Petroleum from April 2017 to July 2019. Prior to that, she spent 11 years at J.P. Morgan Securities.

Howard Hughes Corp – CFO appointment

Houston luxury realtor files for bankruptcy protection

John Daugherty Realtors has filed for bankruptcy protection. This follows a dispute with its landlord over the rent for its corporate offices at 520 Post Oak Boulevard.

Historically the company has handled many of the priciest single-family home sales in Houston. However it suffered a blow in early December when two of its top agents, Laura Sweeney and Lisa Kornhauser, left for Compass, a rival real estate brokerage. Sweeney was ranked number 1 on the Houston Business Journal’s 2019 list of Top Residential Real Estate Agents by Sales volume. Kornhauser was ranked number 4. The pair generated almost 20% of the sales volume at John Daugherty Realtors.

A week after their departure, the company announced it would be acquired by New York firm, Douglas Elliman, which has its Houston offices on Kirby Drive in the River Oaks area. The potential merger appears to have triggered the dispute.

The landlord at 520 Post Oak Boulevard, Griffin Partners, alleges that John Daugherty Realtors has breached its contract as it wants to get out of its lease (which runs to 2027) so that it can move into the offices on Kirby Drive.

The deal for Douglas Elliman to acquire John Daugherty Realtors has now collapsed. However Mr Daugherty himself and the remaining team are still expected to join the New York firm.

John Daugherty Realtors has denied the allegations made by Griffin Partners.

The company filed for Chapter 11 bankruptcy on February 27. Since then it has filed motions to pay its real estate agents outstanding commissions and to terminate its leases at both Post Oak Boulevard and its office in The Woodlands.

Griffin – Complaint v Daugherty

Chapter 11 filing

Lake Jackson attorney sentenced in $5m mortgage fraud scheme

Kirk Brannan, a 65-year-old resident of Lake Jackson, was sent to prison for defrauding Wells Fargo and other lenders in a $5 million mortgage fraud scheme.

Brannan is an attorney and real estate broker. His late father was the first Mayor of Surfside, a coastal village to the south of Lake Jackson. Brannan was an Alderman on Surfside council in the 1980’s

Brannan created false HUD-1 settlement forms (standard form in the US that lists fees and charges to the borrower in the purchase of real estate) and title documents that purported to show the sale of three of his properties to his children at grossly inflated prices. He then used these forms as comparable sales that appraisers relied upon in over-valuing the rest of Brannan’s beach home properties. He sold these properties at inflated prices.

Brannan sold 10 homes in the Freeport/Surfside area to straw buyers at two to three times the real appraised values. Other co-conspirators (to whom Brannan paid $2.4 million) recruited straw buyers who created loan applications with with fake information.  As a result, Wells Fargo and others were induced to lend the inflated amounts. All the straw buyers defaulted on the mortgages and all 10 properties ended up in foreclosure.

The scheme ran from 2005 to 2009. The lenders lost $5.3 million in the scheme. Brannan was ordered to pay this amount in restitution.

Brannan pleaded guilty in 2018. He was sentenced to 36 months. Two other co-conspirators have also been sentenced for similar terms. A third will be sentenced later this month.

Houston added 93,000 jobs in the past year

The Federal Reserve Bank of Dallas published its monthly economic outlook for Houston. Highlights were;

  • Houston employment grew 3.8% over the three months ending in August. Biggest gains were in Construction (13,600 jobs) and education and health services (5,600). Last month’s figure was 2.7%.
  • Year-over-year job growth increased to 3.1% in August (93,000). Last month the figure was 2.7%.
  • Houston unemployment rate dropped to 4.2% in August. The Texas and US unemployment rates were both 3.9%.
  • The outstanding value of loans at banks headquartered in Houston grew at 11.6% from the 2nd quarter of 2017 to the 2nd quarter of 2018. This is slightly lower than the 1st quarter figure of 13.6% but well ahead of the US lending growth of 4.3%.

The Feds conclude that the overall outlook remains positive. Houston’s economy continues to grow at a healthy pace despite signs of a slowdown in its core energy-related sectors.

Separately, JLL reported that the total office vacancy rate for Houston declined for the first time since Q4 2014. The vacancy rate dropped from 24.5% in Q2 to 24.2% in Q3, primarily due to new leasing activity in west Houston.

Houston retailer may file for bankruptcy

Source: Social Woodlands

Houston-based Mattress Firm may file for bankruptcy, according to this article in Reuters.

The company is seeking to get out of costly store leases and shut some of its 3,200 locations that are losing money. The company is working with AlixPartners, a restructuring firm.

Mattress Firm was publicly-traded until it was acquired by Steinhoff, a South African company for $3.8 billion in 2016. Back in December, the shares of the parent company plunged 80% as it disclosed accounting irregularities in its European operations.

According to the unaudited half-year results through March 2018 that were filed at the end of June,  the parent company wrote off nearly $13 billion in shareholders’ equity and admitted that €3 billion of cash reported the previous year either didn’t exist or shouldn’t have been consolidated.

Although Mattress Firm wasn’t part of this accounting shenanigans, the inflated purchase price that Steinhoff paid for the business added to the pressures. The same half-yearly results paint a grim picture for Mattress Firm. For the 6 months ended March 2018, the revenues of Mattress Firm were €1.26 billion (approx $1.5 billion), down 17% on the corresponding period. The EBITDA loss increased from €33 million to €94 million in the period to March 2018.

In early 2017 Mattress Firm had a spectacular and litigious fall out with Tempur Sealy, a supplier of many of the products in the stores, that clearly impacted revenues. This caused a €1.5 billion write-off of goodwill in 2017, one year after acquisition. Surprisingly, Steinhoff still carries €1 billion of goodwill on its books for Mattress Firm, despite the EBITDA losses.

Mattress Firm CEO  Ken Murphy, appointed in March 2016, stepped down in January, to be replaced by Steve Stagner, who was CEO between 2010 and 2016.

In November 2017 Mattress Firm sued two former real estate employees and a former broker with Colliers International claiming they defrauded the company of tens of millions of dollars by signing store leases at above-market prices. The defendants were responsible for the leases for about 1,500 of the new stores. The defendants have counter-sued, claiming Mr Stagner and Mr Murphy knew about the above-market rate deals.

Just before Mr Murphy resigned, in a bizarre move, he denied conspiracy theory allegations that surfaced on Reddit that Mattress Firm was a giant money laundering scheme! More revealing is this article that appeared in the lifestyle section of the Houston Chronicle in September 2016.

The aching loneliness of the Houston mattress salesman – Houston Chronicle

My December blog entry on the Steinhoff accounting irregularities

Houston records strong employment growth in June

The Federal Reserve Bank of Dallas has issued its June report for the Houston metropolitan area and the statistics were generally positive.

Federal Reserve Bank of Dallas – Houston economic indicators

The Houston Business-Cycle Index expanded at an average rate of 3.2% so far in 2017, in line with its historical average and substantially better than the 1.8% decline throughout most of 2016. (The Business cycle index is a composite of leading and lagging indices which is used to forecast changes in the direction of the overall economy).

The Houston metro area has added 33,175 new jobs in the first 6 months of 2017 (2.2% annualized growth). The unemployment rate in June was 5.1%, below the YTD average of 5.4% and slightly below the June 2016 figure of 5.3%. Total job ads surged in June, suggesting healthy employment growth through September. The Feds noted that total job ads have been negative for 31 of the past 32 months.

The inventory of homes for sales rose from 3.6 months of supply in January to 4.1 months in June, while the median price of homes sold has been flat since peaking in February. This suggests the housing market is experiencing a modest cooling.

Construction, both commercial and multi-family are declining since peaking in 2015 and 2016 respectively. This is causing job losses for construction workers, particularly as the petrochemical construction boom is beginning to wind down.

Office vacancy rates were 21.4% in the second quarter, the highest since 1993. The apartment vacancy rate bottomed out in Q1 and was 7.8% in Q2.

Texas employment grew at a 2.8% annualized rate in the second quarter, higher than the national rate of 1.6%.

Houston apartment market will be tough in 2017 – ‘Hand to hand’ combat

Camden Property Trust, a real estate company that specializes in multi-family apartment complexes, with its head office in Greenway Plaza, made some interesting comments on its earnings call on the state of the Houston housing market in 2017.

They rate the Houston market as a ‘D’ as they expect same store revenues to decline 4% in 2017 (they declined 1.2% in 2016). Houston only produced 15,000 new jobs in 2016 and estimates are around 25,000-30,000 for this year. The problem is that another 10,000-12,000 new apartments are expected to open in 2017 (though that’s down from about 16,000 in 2016).

In the past, Camden has said that the rule of thing is that it takes 5,000 new jobs to absorb 1,000 new apartments. However in 2016, Houston absorbed 15,000 units on 15,000 new jobs. The CEO, Ric Campo, attributed this to new high-rise apartment complexes being built downtown, a product that didn’t really exist in the past. As a result, many sold their homes in the suburbs and moved to the urban core.

Regarding other markets in 2017 they rated them as follows;

Market Grade Outlook
Denver A Declining (30,000 jobs, 10,000 new apartments)
Phoenix A- Stable (50,000 jobs, 7,500 apartments)
Dallas A- Declining (70,000 jobs, 20,000 apartments)
Atlanta B+ Stable (53,000 jobs, 13,000 apartments)
Southern California B+ Stable (110,000 jobs, 28,000 apartments)
Raleigh B+ Stable (20,000 jobs, 5,000 apartments)
Orlando B+ Stable (38,000 jobs, 8,000 apartments)
Tampa B+ Declining (30,000 jobs, 6,000 apartments)
Washington, DC B Improving (70,000 jobs, 10,000 apartments)
South Florida B Stable (37,000 jobs, 10,000 apartments)
Austin B Declining (20,000 jobs, 8,000 apartments)
Charlotte B- Stable (30,000 jobs, 7,000 apartments)

The CEO alluded to the slacker economy in Austin (my words, not his). He said he had been surprised at the company’s revenue growth in Austin in the past two years, despite tepid reported jobs growth. He believes that the jobs growth may be under-reported and that ‘there’s a different category of folks that show up in Austin and find their way into the tech community and find jobs and pay rent in ways that may not be conventional’.

As an aside, Ric Campo, was also the chairman of the Houston Super Bowl Host Committee. The Super Bowl was held in Houston the past weekend and the logistical planning and execution of the event was superb, and reflected well on the city of Houston.


Camden Property Trust comments on the Houston apartment market

In their earnings call on 28 Oct, Camden Property Trust CEO, Richard Campo, made some interesting comments on the Houston apartment market that has obviously been weighing down their results.

He stated that approximately 23,000 apartments have been added to the Houston market this year and a further 10,000 are planned for next year. Most have been added by merchant builders who don’t have any units pre-let before they started building. Houston is projected to add 10,000 – 20,000 jobs this year. At a ratio of 5:1 this amounts to a demand for approx 4,000 apartments at the top end of the range.

In the boom years of 2013 and 2014 Houston added over 125,000 jobs each year. Since that time the Energy business has let go approx 80,000 with new jobs being in Healthcare, Petrochemical construction and retail. Those jobs are not as high paying as the lost Energy jobs.

As a result he estimates that the 2016 new builds have an occupancy rate of 30 per cent at most. In recent weeks there has been a massive shift in the local market where the merchant builders are now offering three months’ free rental, up from two previously.

Mr Campo expects that 2017 will remain weak for Houston. In 2018 there will be a significant drop off in unit completions and with the energy job market expected to increase, 2018 should be a strong year of recovery.

Residential rental rates continue to fall

According to Axiometrics, residential rental rates in Houston dropped by 2.9% in August, primarily due to the Montrose/River Oaks area which dropped by 8%. August was the 5th straight month of rental declines.

Occupancy fell from 94.7 percent in August 2015 to 93.2 percent in August 2016. Axiometrics were surprised that the declines were not bigger given that the Houston market added almost 31,000 new properties in 2014 and 2015 and is projected to add 25,000 in 2016. Job growth in Houston was 5% in 2014 but negative in 2015 and 2016.

Nationally rents in August 2016 increased by 2.9 percent on the prior year, while the occupancy rate of 95.2 percent was slightly below the figure from a year ago (95.4 percent).