GreenStreet: Mixed-Use Development At 1201 Fannin St.

[DrLan34]

<br />Maybe once the other rail lines come online and getting around by rail alone is more practical...?<br />

<br /><br /><br />

Anyone else make it out to Andulucia's grand opening? It was excellent! and completely packed. Great drinks, great live music, and it was all free! A lot of foot traffic in this area. I think the Pavilions is coming along very well.

Also, did anyone else notice the hair cut store across the street from 3 Forks in the parking garage? I noticed it there about a month ago but I wasn't sure if it had been there before... It would be awesome if the three other store fronts in that garage open up too so they can play off the pavilions for customers...

Downtown is getting a lot better in my opinion.

[kylejack]

<br /><br /><br />

Anyone else make it out to Andulucia's grand opening? It was excellent! and completely packed. Great drinks, great live music, and it was all free! A lot of foot traffic in this area. I think the Pavilions is coming along very well.

I had been going to Andalucia for several weeks prior to the grand opening. I generally like it, and its getting crazy strong business right now. They need some happy hour specials, desperately.

[TheNiche]

Maybe once the other rail lines come online and getting around by rail alone is more practical...?

Doubtful. If white people aren't willing to ride the bus to get to light rail (in which case they could already get to HP by bus), then you're limited to small concentric circles around rail stations as the catchment area. That's very limiting with respect to METRO's Phase II implementation once you segment out the demographics to conform to the target market.

In order to attract retailers and achieve a reasonable level of occupancy, HP must overcome the fact that it is a mere community center with weak entertainment-oriented anchors and narrow demographic appeal (similar to the plight that faces the ever-beleaguered Marq-E Center, except that that one has visibility, signage, and free parking). HP would need to generate the broad appeal of a regional mall, but that's just not realistic.

[totheskies]

Doubtful. If white people aren't willing to ride the bus to get to light rail (in which case they could already get to HP by bus), then you're limited to small concentric circles around rail stations as the catchment area. That's very limiting with respect to METRO's Phase II implementation once you segment out the demographics to conform to the target market.

In order to attract retailers and achieve a reasonable level of occupancy, HP must overcome the fact that it is a mere community center with weak entertainment-oriented anchors and narrow demographic appeal (similar to the plight that faces the ever-beleaguered Marq-E Center, except that that one has visibility, signage, and free parking). HP would need to generate the broad appeal of a regional mall, but that's just not realistic.

OMG how old are you???

I guess I'm trying to reason how the House of Blues is considered a "weak entertainment-oriented anchor". It's been very successful, and hasn't had any trouble competing with the Verizon or Warehouse Live. Pete's is doing very well every time I go there, and it seems that Andalusia and LSL are off to a good start. I agree the reatil of HP is beyond weak becuase it's not well-planned and there's not a healthy retail population in downtown yet. But if you're calling the entertainment segment of this developement "weak" then you're not familiar enough with the project to be making a comment.

HOB Houston is in the plus column... so much so that it makes Live Nations 3Q profit earnings report...

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjAwNjl8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1

[TheNiche]

OMG how old are you???

I guess I'm trying to reason how the House of Blues is considered a "weak entertainment-oriented anchor". It's been very successful, and hasn't had any trouble competing with the Verizon or Warehouse Live. Pete's is doing very well every time I go there, and it seems that Andalusia and LSL are off to a good start. I agree the reatil of HP is beyond weak becuase it's not well-planned and there's not a healthy retail population in downtown yet. But if you're calling the entertainment segment of this developement "weak" then you're not familiar enough with the project to be making a comment.

HOB Houston is in the plus column... so much so that it makes Live Nations 3Q profit earnings report...

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjAwNjl8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1

My mother always told me I was born 40, so that makes me 65. Which means I'm your elder. And you should respect your elders.

I apologize for not being more clear. I'm not calling HOB weak. I'm calling entertainment-oriented anchors weak as a category, which specifically means that such anchors may take up a large chunk of space (at a significant rent discount by the square foot) and draw many people at a time, but that they have a difficult time justifying complimentary retail other than food service. Compare the traditional regional mall business model to that of an entertainment-anchored mall:

A strong mall anchor focuses on apparel and general merchandise, providing enormous draw and broad appeal across all demographics. In-line retailers then have three angles of attack: 1) they can specialize on certain products and themes that appeal to various segments of the large and diverse base of shoppers, 2) they allow comparison shopping between numerous similar stores, and 3) they can exploit convenience-oriented and impulse-driven retail.

In contrast, entertainment-oriented retail anchors start off with a fairly limited demographic appeal such as limits segmentation potentials, they draw people mostly during off hours, and they do not foster an atmosphere conducive to comparison shopping. Aside from food service, there's weak synergistic potential.

And yes, totheskies, I realize that our generation is supposed to go gaga over this kind of thing, so sayeth the Gen-X marketing managers that promote products at us. I don't care. The fundamental rules of retail still apply, no matter how many voracious consumers or European sedans were depicted in the architects' renderings of HP.

[kylejack]

How about if the retail stores start validating parking? Obviously nobody sensible is going to pay $10 to park to go shopping at BCBG or Forever XXI but what if the parking garage were free?

[ricco67]

Well, from what I've been seeing, quite a few people are either Valeting, walking in, cabbing, or pediacabs.

Heard a nightmare from their valet service, they get swamped and is fairly surly to people that are just dropping off and they seem to have magically lost a set of keys for a hummer. The customer was not in the least bit amused.

[crunchtastic]

I apologize for not being more clear. I'm not calling HOB weak. I'm calling entertainment-oriented anchors weak as a category, which specifically means that such anchors may take up a large chunk of space (at a significant rent discount by the square foot) and draw many people at a time, but that they have a difficult time justifying complimentary retail other than food service. Compare the traditional regional mall business model to that of an entertainment-anchored mall:

A strong mall anchor focuses on apparel and general merchandise, providing enormous draw and broad appeal across all demographics. In-line retailers then have three angles of attack: 1) they can specialize on certain products and themes that appeal to various segments of the large and diverse base of shoppers, 2) they allow comparison shopping between numerous similar stores, and 3) they can exploit convenience-oriented and impulse-driven retail.

In contrast, entertainment-oriented retail anchors start off with a fairly limited demographic appeal such as limits segmentation potentials, they draw people mostly during off hours, and they do not foster an atmosphere conducive to comparison shopping. Aside from food service, there's weak synergistic potential.

Big plus 1. With bonus points since you stopped me from having to type a reply, which was going to be what you clarified--that live music is weak as a category next to dining and retail in a mall, and for the large part, there is no crossover appeal to the daytime retail consumer. I predict one of the newly opened resturants will be toast by year end, and at least one of the 'coming soons' won't open at all. Few capital-intensive, high-concept restaurants can survive on those razor-thin margins.

With regard to your number 2--there was a really good segment on NPR a few days ago about highly concentrated shopping districts, ala the jewelry district in Manhattan.

PPS. Live Nation (ands Ticketmaster, etc) is Pure Satanic Evil. MegaStreisand Evil. Just had to get that in there.....

[LTAWACS]

I had been going to Andalucia for several weeks prior to the grand opening. I generally like it, and its getting crazy strong business right now. They need some happy hour specials, desperately.

If "its getting crazy strong business right now." then why would "They need some happy hour specials, desperately."

?

[musicman]

If "its getting crazy strong business right now." then why would "They need some happy hour specials, desperately."

?

he wants to increase the riff raff to yuppie ratio.

[LTAWACS]

he wants to increase the riff raff to yuppie ratio.

You mean like the golden ratio?

[kylejack]

If "its getting crazy strong business right now." then why would "They need some happy hour specials, desperately."

?

It is crazy strong in the evenings (all evenings, weekend or not) but its pretty slow around 5-7 or so. I think they're leaving happy hour business on the table.

[KinkaidAlum]

Am I the only one that doesn't think the goal of Houston Pavilions was to be another mall?

I am fairly convinced that HP was built to give downtown workers, the small but growing residential base, convention attendees, and sports goers a place to begin and end their night. That's why the major anchors are entertainment oriented like the HOB and Lucky Strike. The HOB has exceeded expectations and I can tell just from word of mouth that Lucky Strike's reputation is starting to grow. I've been invited to two future private parties there from the downtown 40s lawyer set. These are the people who used to NEVER consider downtown as a potential party site despite working there instead focusing their attention on the always changing scene (Richmond, Shepherd Plaza, Midtown, Washington Avenue).

Additionally, in order to attract future large scale events (conventions, basketball tournies, MLB all-star games, etc... the city really needed to create a viable downtown entertainent zone. HP isn't assured of ultimate success, but I think they're on the right track.

Now, what I would like to see added are other venues that are destination oriented like the following;

1) Movie Theatre. Mainstream movies or maybe even an Alamo Drafthouse type of place.

2) Comedy Club or small performance hall.

3) Another cheesy convention-ish type of restaurant like Rainforest Cafe or Cheesecake Factory

4) Destination retailers (they missed the mark with the bookstore), but if the other venues prove to be successful, then HP should go after urban pioneering type of stores like H&M and Zara, both of whom opened in Boston in the urban outdoor entertainment areas well before they hit the regional malls.

I still think it's a shame the city didn't try and work harder with the developers to get a hotel in the original build. The Embassy Suites going up a few blocks away and the rumored LaQuinta also in the same vicinity prove that a hotel could have worked. It would have been great to have a Hampton Inn type of place attached to the Pavilions.

[ricco67]

I agree, it is a shame that the hotel element couldn't be built, if only the car/people ratio thing could have been eased a bit. It would be interesting to know what percentage of people that book rooms downtown DON'T have cars.

Once the ESD is finished, I'm sure quite a few people will mosey over to HP for something to do.

[musicman]

You mean like the golden ratio?

maybe the inverse.

[LTAWACS]

maybe the inverse.

Ah... Hubble's constant then.

[TheNiche]

Am I the only one that doesn't think the goal of Houston Pavilions was to be another mall?

Depends on whose goal you're talking about.

The City's goal was to have a thriving downtown entertainment-oriented mecca, serving the populations that you identified. The City specifically denied funding for any uses that were not considered sufficiently "public", including residential, hotel, or office space. The subsidies were provided to the developer on the basis that the developer build shell space and were in no way dependent upon the developer hitting an occupancy threshold or successfully attracting the tenants that were initially targeted, nor were there any incentives put forward to benefit prospective tenants.

The developer, working from 2006 rental rates and 2006 cap rates, didn't much have to care if occupancy problems persisted as had been the case in so many similarly-themed projects because they were able to make the project appear sexy enough to arrange for a huge lump sum subsidy. Their assumptions were wrong.

In summary: 1) The City got what it paid for, shell retail space, and would've been better off directly courting retailers such as HOB with incentives to open up shop downtown, letting the retailer determine which is the best location for a new venue. 2) The developer is likely stuck with HP for a good long while, not a good position to be in if the mortgage comes due at any point over the next several years. 3) Downtown promoters have lost the opportunity to point to a successful and transformative project, which is what they were desperately hoping for. Instead they got a rehashed Bayou Place. 4) Convention-goers, out-of-town visitors, and suburbanites get to enjoy the handful of facilities that the City of Houston's subsidies made possible. Houstonians get that enjoyment, too, but overpaid for it. We shouldn't brag about it.

[LTAWACS]

This is true. I guess we will make the best of it.

[livincinco]

This is true. I guess we will make the best of it.

IMO, the success of HP is going to depend on the development of the blocks immediately to the southeast. Right now, you have several blocks of surface parking that separate HP from Toyota Center, Discovery Green, and the surrounding new development.

It would make a big difference if that area could be developed with street level retail that would allow visitors to shop as they walked from the Hilton or the Embassy Suites to HP.

[LTAWACS]

IMO, the success of HP is going to depend on the development of the blocks immediately to the southeast. Right now, you have several blocks of surface parking that separate HP from Toyota Center, Discovery Green, and the surrounding new development.

It would make a big difference if that area could be developed with street level retail that would allow visitors to shop as they walked from the Hilton or the Embassy Suites to HP.

It would be even better if we could throw an 80+ story tower on some and 30+ story towers on others.

[kylejack]

We need more residential to drive demand for goods and services.

[AtticaFlinch]

We need more residential to drive demand for goods and services.

Yep. As long as the suburban tourists can inexpensively purchase their goods near their homes, they won't pay premium prices just because a store in conveniently located close to where they work.

[LTAWACS]

Yep. As long as the suburban tourists can inexpensively purchase their goods near their homes, they won't pay premium prices just because a store in conveniently located close to where they work.

Ok so then make some of those towers residential and hotels.

[AtticaFlinch]

Ok so then make some of those towers residential and hotels.

This:

The City's goal was to have a thriving downtown entertainment-oriented mecca, serving the populations that you identified. The City specifically denied funding for any uses that were not considered sufficiently "public", including residential, hotel, or office space.

There's really no reason for developers to build residential downtown if there's little demand for it and no financial incentives to do it. Don't get me wrong. I'm sure there are plenty of people who'd love to live there, but the cost to do so currently is too prohibitive to make it a reality.

[totheskies]

My mother always told me I was born 40, so that makes me 65. Which means I'm your elder. And you should respect your elders.

I apologize for not being more clear. I'm not calling HOB weak. I'm calling entertainment-oriented anchors weak as a category, which specifically means that such anchors may take up a large chunk of space (at a significant rent discount by the square foot) and draw many people at a time, but that they have a difficult time justifying complimentary retail other than food service. Compare the traditional regional mall business model to that of an entertainment-anchored mall:

A strong mall anchor focuses on apparel and general merchandise, providing enormous draw and broad appeal across all demographics. In-line retailers then have three angles of attack: 1) they can specialize on certain products and themes that appeal to various segments of the large and diverse base of shoppers, 2) they allow comparison shopping between numerous similar stores, and 3) they can exploit convenience-oriented and impulse-driven retail.

In contrast, entertainment-oriented retail anchors start off with a fairly limited demographic appeal such as limits segmentation potentials, they draw people mostly during off hours, and they do not foster an atmosphere conducive to comparison shopping. Aside from food service, there's weak synergistic potential.

And yes, totheskies, I realize that our generation is supposed to go gaga over this kind of thing, so sayeth the Gen-X marketing managers that promote products at us. I don't care. The fundamental rules of retail still apply, no matter how many voracious consumers or European sedans were depicted in the architects' renderings of HP.

Right so that's the textbook difference between successful retail, successful entertainment venues and the advantages of one over another. Got it. HP's current retail scheme is sub-standard (being kind there)... I hope they are trying to recruit more variety for that end of the development.

Depends on whose goal you're talking about.

The City's goal was to have a thriving downtown entertainment-oriented mecca, serving the populations that you identified. The City specifically denied funding for any uses that were not considered sufficiently "public", including residential, hotel, or office space. The subsidies were provided to the developer on the basis that the developer build shell space and were in no way dependent upon the developer hitting an occupancy threshold or successfully attracting the tenants that were initially targeted, nor were there any incentives put forward to benefit prospective tenants.

The developer, working from 2006 rental rates and 2006 cap rates, didn't much have to care if occupancy problems persisted as had been the case in so many similarly-themed projects because they were able to make the project appear sexy enough to arrange for a huge lump sum subsidy. Their assumptions were wrong.

In summary: 1) The City got what it paid for, shell retail space, and would've been better off directly courting retailers such as HOB with incentives to open up shop downtown, letting the retailer determine which is the best location for a new venue. 2) The developer is likely stuck with HP for a good long while, not a good position to be in if the mortgage comes due at any point over the next several years. 3) Downtown promoters have lost the opportunity to point to a successful and transformative project, which is what they were desperately hoping for. Instead they got a rehashed Bayou Place. 4) Convention-goers, out-of-town visitors, and suburbanites get to enjoy the handful of facilities that the City of Houston's subsidies made possible. Houstonians get that enjoyment, too, but overpaid for it. We shouldn't brag about it.

Ok, but 2006 was a world of crazy-ass speculation anyway, and no one could have predicted how bad things were going to get when HP was ready to open. I'm sure that the developers faced some ridiculously hard decisions to get this thing off the ground, and now thanks to so many businesses backing out or stalling, we're left with a half-empty development. Sounds like a story that virtually every city in the United States could tell about it's malls or shopping venues right now. No one is healthy, and we're not even sure what healthy is anymore.

IMO, HP should narrow in its focus first and choose who's more important. They've got the hipster Gen-Y crowd on lock with the entertainment venues. Now they need to go for some things that will appeal more to conventioneers and general Houstonians... a Houston-themed gift shop, a Metro RideStore, a nice Western wear shop like Cavender's. These are places that will appeal to both the tourist crowd and the "downtown tourists" that aren't as familiar with the inner city. It would be a nice way to foster retail interest without trying to redefine what is already working.

[N Judah]

a Houston-themed gift shop, a Metro RideStore, a nice Western wear shop like Cavender's.

I agree. Also, a U. of Houston "bookstore" (merchandise store) could work as long as the football team is successful.

[RedScare]

I don't think evaluating developments 1 year old in the midst of a massive recession is the best time to declare victory or defeat. Abd, while Niche's numbers may be correct, his assessment of what the City "wanted" may or may not be correct. There are many ways to decide if the City got its money's worth. If I remember correctly, the City gave the developer about $7 million for infrastructure upgrades. The property is currently on the tax rolls at $130 million, drawing $850,000 in property tax revenue PLUS the sales and liquor tax revenue that the retailers draw. The subsidy works out to roughly an 8 year tax abatement. Compare this to the hundreds of millions of dollars that the City of Dallas is giving to developers to renovate several downtown structures. While it is unlikely that Dallas will ever recoup the money paid to reinvigorate its CBD, Houston's investment will be paid relatively quickly.

It is not hard to figure out what Houston "wanted". Over the last 10 years or so, the City has helped to build 2 stadiums, expand its convention center, build a hotel, build a park, repave streets and sidewalks, install artwork, and give incentives to build a 3 block entertainment center. All of these projects have one thing in common. They bring new faces to downtown and encourage those already downtown to stay longer. In that respect, the $7 million looks to be money well spent. Certainly, one could take a cold look at the numbers and make a case otherwise, but clearly, the City had other ideas in mind than simply a cold analytical accounting. But, as I stated in the first paragraph, even by Niche's cold accounting standards, the money will be repaid in time.

[Montrose1100]

Yep. As long as the suburban tourists can inexpensively purchase their goods near their homes, they won't pay premium prices just because a store in conveniently located close to where they work.

Yeah, but only with heavy duty shopping, not quickly picking up something on your lunch break. How hassle free to go a few blocks, pick up a gift for someone's birthday or whatever you forgot, all on your lunch break. Instead of driving another (+/-), 10-15minutes after a long rush hour commute, to go to a mall to buy something. Which sounds more appealing? Why not be able to have lunch & purchase stuff in one place, only blocks away? HP is like the Houston Center, except it's more touristy, and easier to get to, even if you don't work at HP.

his assessment of what the City "wanted" may or may not be correct.

Thank you for giving us the only two options in the universe. I'm just kidding.

Edited December 19, 2009 by Montrose1100

[TheNiche]

I don't think evaluating developments 1 year old in the midst of a massive recession is the best time to declare victory or defeat. Abd, while Niche's numbers may be correct, his assessment of what the City "wanted" may or may not be correct. There are many ways to decide if the City got its money's worth. If I remember correctly, the City gave the developer about $7 million for infrastructure upgrades. The property is currently on the tax rolls at $130 million, drawing $850,000 in property tax revenue PLUS the sales and liquor tax revenue that the retailers draw. The subsidy works out to roughly an 8 year tax abatement. Compare this to the hundreds of millions of dollars that the City of Dallas is giving to developers to renovate several downtown structures. While it is unlikely that Dallas will ever recoup the money paid to reinvigorate its CBD, Houston's investment will be paid relatively quickly.

Nope, it is not the same thing as a tax abatement. The City of Houston paid the subsidy in an up-front lump sum, and nearly two years before the project was actually completed and fully on the tax rolls. Also, ad valorem tax collections (i.e. sales & liquor) should not be considered in a fiscal analysis (and wasn't by the City for evaluating HP or other proposed projects) because new retail merely cannibalizes sales from existing retail. To his credit, Mayor Bill White does understand these concepts and was personally involved in reviewing these kinds of deals.

The City of Dallas has a knack for voting fools into office; I'd agree with you there. They're so easily "influenced", it's just pitiful. What Dallas does is not germane to this conversation, however, and it does not reflect on the efficacy of our own downtown revitalization investments.

Clearly the subsidy to HP is not an unmitigated disaster, however my point from before (as it pertained to the City) was that the City's strategy in this case was suboptimal. And I stand by that assessment.

[RedScare]

Nope, it is not the same thing as a tax abatement. The City of Houston paid the subsidy in an up-front lump sum, and nearly two years before the project was actually completed and fully on the tax rolls. Also, ad valorem tax collections (i.e. sales & liquor) should not be considered in a fiscal analysis (and wasn't by the City for evaluating HP or other proposed projects) because new retail merely cannibalizes sales from existing retail. To his credit, Mayor Bill White does understand these concepts and was personally involved in reviewing these kinds of deals.

The City of Dallas has a knack for voting fools into office; I'd agree with you there. They're so easily "influenced", it's just pitiful. What Dallas does is not germane to this conversation, however, and it does not reflect on the efficacy of our own downtown revitalization investments.

Clearly the subsidy to HP is not an unmitigated disaster, however my point from before (as it pertained to the City) was that the City's strategy in this case was suboptimal. And I stand by that assessment.

I did not call it a tax abatement. I merely pointed out that the cost worked out the same as an 8 year abatement. Sales taxes certainly are cannibalized from city dwellers who come downtown from other locations in the city. However, as the development draws from the suburbs, and certainly as it draws out of towners or conventioneers that might not have come to a less active downtown, the taxes are new rather than cannibalized. And, given the number of suburban fans of the baseball and basketball teams who might normally just drive back home after the game, and given the amount of money and effort given to improving the convention center, hotel and areas around them, it is likely that thought was given to the effect this development might have on convention business, even if the numbers were not included in the analysis.

I do not intend to change your mind. I merely intended to point out that while other cities have given away subsidies that cannot hope to be recouped, at least the money given away here induced $200 million of investment that will pay dividends in the form of increased property taxes. Perhaps it is suboptimal. But, perhaps optimal (whatever that may be) was not an option. In that case, this was better than the parking lots that preceded it. Frankly, given the effect that the recession has had on commercial development, getting this thing built when it was is looking more optimal than before.