Multi-Unit Housing Reigns In Last Decade
As you read this, the year is 2020. We will have welcomed a new year and a new decade. From what I’ve seen via my limited time on social media, there seems to be some debate on if ’20 is the first year of a new decade or the last year of the current decade. I’m going with the former and I’ll let other people sort out such important questions.
As I looked over lists of transactions over the past year and the past decade, I was struck by how many big-ticket transactions are multi-unit housing. There are some office complexes and shopping centers sprinkled in. There are very few properties that are industrial, manufacturing, distribution or the like. I’m not stating this as a bad thing. It is an observation, no more and no less. Economic drivers of the 21st century don’t all require manufacturing plants, distribution centers or production facilities. Often all that is needed is some smart kids, computing power and high-speed internet. Nonetheless, a list of largest transactions in Pulaski County is dominated by apartment complexes. They provide housing for thousands and thousands of residents. They also provide jobs for hundreds of employees and vendors. These properties are vital to providing a stable workforce for economic growth.
Single-family residential development is vital also. Quality residential development not only offers homes, it also adds to the sense of place that is so often referenced these days as a deciding factor in why people choose to live where they live. Given the importance and the economic impact of residential development, I was more than surprised to see only one representative of that industry included on the Little Rock Infrastructure Study Group. As a matter of fact, of the 40 or so members of the study group only a handful were private-sector representatives. Many regular readers of this column are familiar with my concerns with public infrastructure in Little Rock. If you are interested in seeing improvements in how Little Rock addresses storm water runoff, sidewalks, street lights, bicycle lanes, multi-use paths or streets, I hope you will shoot a note to a Little Rock City Director or Mayor Scott and ask for some additions to the study group. Maybe you’ll volunteer even. Let me take a quick aside to the infrastructure comments to close a loop from last month’s column. Based on responses to December’s question, it seems that most people consider Interstate 430, or thereabouts, the delineation point for referring to Cantrell Road as Highway Ten and vice-versa.
Pulaski County recorded a sale on Dec. 17 of The Promenade at Chenal from Little Rock Land Development Co., LLC to an entity named TOCU I, LLC. Public details on the transaction were few at deadline time for this column. The Assessor’s office lists a warranty deed and a transfer value of $10. So, there’s a piece missing. The deed wasn’t showing up online with the County Clerk’s by the time this column came together. What did show up was assignments of a couple of mortgages that included an Original Lender, a First Interim Lender, a Second Interim Lender and a Third Interim Lender. To me this makes me wonder if the folks making the most money on this deal might be attorneys.
There is a genuinely ironic twist to the sale of The Promenade. Many readers will remember back to around 2005 or so that the property that became The Promenade was competing for tenants with the property that became Shackleford Crossing. Well, Shackleford Crossing also sold on Dec. 17. The price on that transaction was $10,500,000. Neither of these sales were for the full original property. For that matter, the buildings on the property were far from full. The “big boxes” at Shackleford have significant vacancy. And some of the shop space there never was leased despite having multiple firms make concerted efforts to fill the space. Both properties were divided into multiple lots. At Shackleford Crossing the Walmart tract and the JC Penney tract were sold separately at the time of development. The restaurants along Shackleford Road were all done as separate out lots. A similar thing was done at The Promenade with the lots along Chenal Parkway. Some of those lots along Chenal transferred in the sale and some didn’t. Any way you slice it, these properties were cut up in efforts to make the deals work and to maximize value where possible.
The irony, to me anyway, is that both of these properties competed for the same tenants at the time of development and construction. Over time, tenants at both of these properties competed for customers. Both of these properties struggled to lease, and to refill vacated spaces. And now, it appears, both of these properties have sold at discounts to the original expectations of the properties. I say appears since I don’t have the actual value of the transaction yet, but it appears that it may be for no more than the assumption of the existing debt. And, who knows, that paper may have been traded at some sort of discount at the end of the day. Regardless of what turns up in the details, both of these properties failed to meet the expectations of those that developed them. The performance of both properties offers a cautionary tale of bringing too much product, and arguably some of the wrong product in the wrong place, to the market at the same time. It will be interesting to see what happens with these properties, and others, over the next decade. Brick-and-mortar retail is not dead. Shopping centers of today, and the future, are evolving and the formula for success of the past holds little promise for the near future.
I’m out of space and time for this month. Shoot me an email anytime. I appreciate the feedback. Tips and suggestions, well most of them anyway, are appreciated. Hope you found something interesting in the column this month. Check back again next month for the things that didn’t get included here this time and that pop up between now and then.