In my first "post" I wrote that it is important to consider that "selection of the source data is important." I want to re-emphasize that comment.
I have a story to tell. It will exemplify what follows.
A real estate development loan officer has a bizarre life. He/she must sell up and sell down. The loan officer must "sell down" to his customers. The loan officer must convince the developer that he/she has money at the right price and can offer good service for the developer's cash needs. This is the fun part of being a loan officer. However, the loan officer must sell "up" to the loan committee. This isn't so fun. Employment is on the line. Loan committees don't want opinions, dreams, what ifs, or speculation. They want facts on why they should make a loan. Poor facts = short life employment.
In between "selling up" and "selling down" is a period called "underwriting." A loan officer is often called an underwriter. Underwriting is a function of gathering facts and data, analyzing them, and mitigating risk. This is the drudgery part of being a loan officer. A good project could easily take over 30 days to underwrite. The total underwriting process is too involved to get into here, however it basically attempts to take guesswork out of making a development loan. It is risk analysis or containment. If an underwriter gathers the right data in detail, studies it hard, makes some correct assumptions based on the facts, he/she can make an informed forecast on what the future holds in the marketplace. The loan officer can "underwrite out" substantial risk. The underwriting process will come to examplify, for example, the absorption rate of newly developed lots or the time needed to rent up a "spec" commercial building. They will build a "proforma" to prove up those absorption rates, time in market, costs, returns on investment, etc., and take them into the loan committee meeting. After a loan is made, the "proforma" is visited frequently by loan administrators to determine if the timelines are being achieved. The "presentation" of the loan officer is constantly reviewed to determine that all performance plateaus are met until the project is rented up or sold out.
End of story.
Now, I'd like for you to watch something for about 20 minutes. You don't need to watch the whole thing. You will know everything you need to observe in the first 20 minutes, although the filming lasts much longer. The observation is not about what you're going to see. It's about what you don't see. Click on to the (1 of 3) clip. All after that is just regurgitation. Same song, different verse.
http://rowletttx.swagit.com/player.php?refid=02122014-22
Are you back? I can tell you this. Any loan committee In which I have ever been involved would have ended this presentation in about three minutes. Right off the start, Erin Jones, Zoning Department manager, refers to the "market potential." Then immediately refers to "market demand." Within seconds of starting the meeting, someone on any loan committee I know would ask, "market potential based on what data?" Followed by another committee member who would say, "Market demand as defined by who?" No data was presented. That would get things off to a bad start. Later in the tape, Erin refers to the "blurred lines between office and warehouse market demands." That's a little scary. Some latitude is certainly allowed for newly obtained data, but there are very different criteria between the two types of developments. For example, office buildings have a tendency to go up. Warehouses have a tendency to go out. Because of building footprints, topo problems are quite different from office to warehouse. Ya gotta know what goes where. You gotta look at the land. You can't understand from your office chair.
Immediately after Erin, Bill Cunningham takes center stage. Bill is one of the consultants. I have met Bill and I like him. Unfortunately, I don't share his conclusions on Northshore.
There is an old, old axiom in real estate that says "commercial development follow rooftops." Our consultants have presented Northshore exactly opposite from this concept. Our consultants essentially want to wall off Northshore; mount machinegun implacements on the corners, and decree the area to be an Industrial Park. Death to any residential development unless it looks like inter city Philadelphia. Houses with picket fences and backyards are taboo. Apartments and Condos would be a nice touch.
Bill Cunningham reports that 75-80% of the demand (sez who) in Northshore is for "non-residential" development. How does he know that? Who told him? Where are the numbers? Where does this information come from? Essentially, Mr. Cunningham said "Northshore was not for residential. Northshore must be reserved for commercial development"......even if it means putting off development for many years before making a determination if they guessed right, or not. That's being pretty cavalier with your tax bill. Facts eliminate much of a chance of a miscue. Where are the facts?
Mr. Cunningham said "developers are probably looking at Rowlett." My goodness. He doesn't know? Normally you talk to developers when gathering facts. He made the comment that residential development should be done "away from Northshore"..........then 30 minutes later says that new development concepts intermix housing for all income groups amongst office towers and warehouses.......with some land left over for restaurants and shops that would be demanded by office and warehouse workers. You know........kinda like intercity Philadelpha. In the words of a very old Nepal tribal leader I once knew, "Fat Chance"......in Rowlett, Texas, anyway. I use Philadelphia a lot because I know the town a little bit, but our mayor comes from those parts. He knows if I'm lying.
Now.....I've got some observations:
GBTW is a toll road, not a freeway. Tolls are paid to use it. A mid to upper income manager can, and will, pay $7-$10 a day to commute to work if the toll substantially reduces the commute time to work. Would an entry level employee pay this? Not if it could be avoided. Any distortions so far? Everything seem reasonable to assume?
A warehouse, or distribution center is in the business of receiving goods from suppliers, storing the inventory for a while, then delivering those goods to others needing those goods. This means rolling stock both entering and leaving the facility, sometimes, perhaps most of the time 24 hours a day. These warehouses, too, have to pay a toll for each delivery vehicle......coming and going. Is it reasonable to assume they would rather not have the cost of operation called "tolls?"
Now let's say the executive above was charged with the responsibility of finding a new location for his rather large company. This executive willing pays for his/her own tolls for a more convenient commute to work However, if he picks a site on the tollway, unless there is also a freeway to the site, he/she know an additional $1.00 per hour will have to be paid to the employees to cover the cost of their commute. If the executive is in the distribution business, he/she will know each and every truck will have to pay a toll to get to his facility....all commercial rates. Still okay? Everything sound reasonable?
We won't even discuss land use. However, it is reasonable to observe that some topo problems exist that compliment residential use because the drainage areas can be converted to parks and wildlife areas rather than very expensive grading and drainage problems trying to make such land productive.
Now, when our executive of the search team looks at the above, I think it's reasonable to assume that Rowlett's industrial park has some problems. Contrary to Bill Cunningham's opinion that good land for commercial/industrial use is limited, (still no facts), I see a lot of land that could be "bundled" by a development "facilitator" and presented to many developers. The land between Fire Wheel and North Central is attractive because of the freeway crossroads. Murphy, Sachse, and Wylie have some sites that could even be rail served. If one is looking to put together a huge industrial park, I kinda agree with Bill. But, I don't see that as the market. There is just too much land available to our north in smaller amounts to accomodate most users.
Now, one more observation: A huge office complex is under construction on the southeast corner of North Central and the tollway. It will offer employment to thousands of employees. Many of those employees are going to make $150,000/ year, or better........and they are only about a 20-30 minute commute from Rowlett on a brand new tollway that only costs about $7-$8 a day. What a deal!! Living and working in one of the largest, neatest, cities in the USA in brand new Class A facility, and only a 25 minute commute to a smaller town with the tollway, and also DART served to access the entire Dallas area, and it on a 23,000 acre lake. Again.....what a deal!! Still okay? Does this sound reasonable?
If everything above is reasonable, it is telling me that Rowlett should seriously think about providing housing to mid to upper level executives instead of trying to convince them to build a warehouse. At the very least, some one should put the brakes on this whole thing until someone gets some facts in here.
Also, it is long known that the disposable income of the residents create the need for retail establishments. The visiting employees from other towns help, but the overwhelming muscle comes from permanent wealthier residents. These are the people we want.
The City Council is near ready to make some very important decisions based on very poor market data regarding Northshore. I think the jury is still out. Your future tax tab will pay for any miscues. You need to think about all this.
I have a story to tell. It will exemplify what follows.
A real estate development loan officer has a bizarre life. He/she must sell up and sell down. The loan officer must "sell down" to his customers. The loan officer must convince the developer that he/she has money at the right price and can offer good service for the developer's cash needs. This is the fun part of being a loan officer. However, the loan officer must sell "up" to the loan committee. This isn't so fun. Employment is on the line. Loan committees don't want opinions, dreams, what ifs, or speculation. They want facts on why they should make a loan. Poor facts = short life employment.
In between "selling up" and "selling down" is a period called "underwriting." A loan officer is often called an underwriter. Underwriting is a function of gathering facts and data, analyzing them, and mitigating risk. This is the drudgery part of being a loan officer. A good project could easily take over 30 days to underwrite. The total underwriting process is too involved to get into here, however it basically attempts to take guesswork out of making a development loan. It is risk analysis or containment. If an underwriter gathers the right data in detail, studies it hard, makes some correct assumptions based on the facts, he/she can make an informed forecast on what the future holds in the marketplace. The loan officer can "underwrite out" substantial risk. The underwriting process will come to examplify, for example, the absorption rate of newly developed lots or the time needed to rent up a "spec" commercial building. They will build a "proforma" to prove up those absorption rates, time in market, costs, returns on investment, etc., and take them into the loan committee meeting. After a loan is made, the "proforma" is visited frequently by loan administrators to determine if the timelines are being achieved. The "presentation" of the loan officer is constantly reviewed to determine that all performance plateaus are met until the project is rented up or sold out.
End of story.
Now, I'd like for you to watch something for about 20 minutes. You don't need to watch the whole thing. You will know everything you need to observe in the first 20 minutes, although the filming lasts much longer. The observation is not about what you're going to see. It's about what you don't see. Click on to the (1 of 3) clip. All after that is just regurgitation. Same song, different verse.
http://rowletttx.swagit.com/player.php?refid=02122014-22
Are you back? I can tell you this. Any loan committee In which I have ever been involved would have ended this presentation in about three minutes. Right off the start, Erin Jones, Zoning Department manager, refers to the "market potential." Then immediately refers to "market demand." Within seconds of starting the meeting, someone on any loan committee I know would ask, "market potential based on what data?" Followed by another committee member who would say, "Market demand as defined by who?" No data was presented. That would get things off to a bad start. Later in the tape, Erin refers to the "blurred lines between office and warehouse market demands." That's a little scary. Some latitude is certainly allowed for newly obtained data, but there are very different criteria between the two types of developments. For example, office buildings have a tendency to go up. Warehouses have a tendency to go out. Because of building footprints, topo problems are quite different from office to warehouse. Ya gotta know what goes where. You gotta look at the land. You can't understand from your office chair.
Immediately after Erin, Bill Cunningham takes center stage. Bill is one of the consultants. I have met Bill and I like him. Unfortunately, I don't share his conclusions on Northshore.
There is an old, old axiom in real estate that says "commercial development follow rooftops." Our consultants have presented Northshore exactly opposite from this concept. Our consultants essentially want to wall off Northshore; mount machinegun implacements on the corners, and decree the area to be an Industrial Park. Death to any residential development unless it looks like inter city Philadelphia. Houses with picket fences and backyards are taboo. Apartments and Condos would be a nice touch.
Bill Cunningham reports that 75-80% of the demand (sez who) in Northshore is for "non-residential" development. How does he know that? Who told him? Where are the numbers? Where does this information come from? Essentially, Mr. Cunningham said "Northshore was not for residential. Northshore must be reserved for commercial development"......even if it means putting off development for many years before making a determination if they guessed right, or not. That's being pretty cavalier with your tax bill. Facts eliminate much of a chance of a miscue. Where are the facts?
Mr. Cunningham said "developers are probably looking at Rowlett." My goodness. He doesn't know? Normally you talk to developers when gathering facts. He made the comment that residential development should be done "away from Northshore"..........then 30 minutes later says that new development concepts intermix housing for all income groups amongst office towers and warehouses.......with some land left over for restaurants and shops that would be demanded by office and warehouse workers. You know........kinda like intercity Philadelpha. In the words of a very old Nepal tribal leader I once knew, "Fat Chance"......in Rowlett, Texas, anyway. I use Philadelphia a lot because I know the town a little bit, but our mayor comes from those parts. He knows if I'm lying.
Now.....I've got some observations:
GBTW is a toll road, not a freeway. Tolls are paid to use it. A mid to upper income manager can, and will, pay $7-$10 a day to commute to work if the toll substantially reduces the commute time to work. Would an entry level employee pay this? Not if it could be avoided. Any distortions so far? Everything seem reasonable to assume?
A warehouse, or distribution center is in the business of receiving goods from suppliers, storing the inventory for a while, then delivering those goods to others needing those goods. This means rolling stock both entering and leaving the facility, sometimes, perhaps most of the time 24 hours a day. These warehouses, too, have to pay a toll for each delivery vehicle......coming and going. Is it reasonable to assume they would rather not have the cost of operation called "tolls?"
Now let's say the executive above was charged with the responsibility of finding a new location for his rather large company. This executive willing pays for his/her own tolls for a more convenient commute to work However, if he picks a site on the tollway, unless there is also a freeway to the site, he/she know an additional $1.00 per hour will have to be paid to the employees to cover the cost of their commute. If the executive is in the distribution business, he/she will know each and every truck will have to pay a toll to get to his facility....all commercial rates. Still okay? Everything sound reasonable?
We won't even discuss land use. However, it is reasonable to observe that some topo problems exist that compliment residential use because the drainage areas can be converted to parks and wildlife areas rather than very expensive grading and drainage problems trying to make such land productive.
Now, when our executive of the search team looks at the above, I think it's reasonable to assume that Rowlett's industrial park has some problems. Contrary to Bill Cunningham's opinion that good land for commercial/industrial use is limited, (still no facts), I see a lot of land that could be "bundled" by a development "facilitator" and presented to many developers. The land between Fire Wheel and North Central is attractive because of the freeway crossroads. Murphy, Sachse, and Wylie have some sites that could even be rail served. If one is looking to put together a huge industrial park, I kinda agree with Bill. But, I don't see that as the market. There is just too much land available to our north in smaller amounts to accomodate most users.
Now, one more observation: A huge office complex is under construction on the southeast corner of North Central and the tollway. It will offer employment to thousands of employees. Many of those employees are going to make $150,000/ year, or better........and they are only about a 20-30 minute commute from Rowlett on a brand new tollway that only costs about $7-$8 a day. What a deal!! Living and working in one of the largest, neatest, cities in the USA in brand new Class A facility, and only a 25 minute commute to a smaller town with the tollway, and also DART served to access the entire Dallas area, and it on a 23,000 acre lake. Again.....what a deal!! Still okay? Does this sound reasonable?
If everything above is reasonable, it is telling me that Rowlett should seriously think about providing housing to mid to upper level executives instead of trying to convince them to build a warehouse. At the very least, some one should put the brakes on this whole thing until someone gets some facts in here.
Also, it is long known that the disposable income of the residents create the need for retail establishments. The visiting employees from other towns help, but the overwhelming muscle comes from permanent wealthier residents. These are the people we want.
The City Council is near ready to make some very important decisions based on very poor market data regarding Northshore. I think the jury is still out. Your future tax tab will pay for any miscues. You need to think about all this.
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