O’Connor & Associates
2000 N. Loop West, Suite 110
Houston, TX 77018
HOUSTON REAL ESTATE TRENDS
EDITED BY PATRICK O’CONNOR, MAI $199 PER YEAR VOLUME 17 NUMBER 3 MAY 2003
Houston’s apartment market is undergoing a correction cycle, as negative job growth has stifled demand
and low mortgage rates have made single-family homes more affordable. Rents were virtually unchanged
in the first quarter and are leveling off at $0.76 per square-foot. Occupancy is down 0.87% for the quarter,
while absorption posted a loss of 2,430 units.
The construction pipeline has reacted swiftly to the uncertain marketplace by delaying a number of
projects. McCaslin Development Co., for instance, has placed its proposed apartment complex in the
Medical Center on hold until either market conditions improve or a buyer is found for the land.
Although the short-term outlook appears somewhat disheartening, the long term is considerably more
encouraging. Demographic trends suggest that demand for Houston multifamily product should be rising
substantially with the passage of time. Dr. Barton Smith of the Institute for Regional Forecasting
predicts steadily increasing population growth rates, with the Houston MSA totaling over 5.9 million
residents and 3.1 million jobs in 2020 as compared with 4.3 million residents and 2.1 million jobs at
present. This would translate to approximately 615,000 added households (averaging 36,000 per year).
Given that interest rates are likely to increase in coming years, many of these new households will find their
way into apartments.
According to the O’Connor & Associates 1st Quarter 2003 Greater Houston Apartment Data Program,
average overall occupancy for Houston area multifamily projects is 91.36% (Class A = 89.22%; Class B
= 92.24%; Class C = 93.02%; Class D = 87.70%). The overall multi-family rental rate is $0.764 per
square-foot per month.
• Commerce Equities (281-485-5100) plans to demolish Bayou on the Bend Apartments (1200) at
5201 Memorial Dr. and construct a new 242-unit multifamily project of the same name on the prior
building’s footprint. Commerce Equities must first obtain a variance from the city’s Department of
Planning and Development. The existing complex has been damaged multiple times by heavy
rains and floods, so the developer is proposing a construction method by which residences would
be elevated above the flood plain. With rents at approximately $1.50 per square-foot, units would
have one of over 100 different floor plans and most would have views of Downtown, the Galleria, or
the Buffalo Bayou. Commerce Equities is under contract to purchase the 3-acre property from
Timberline Properties, but will not do so until the variance is granted.
Houston Real Estate Trends MAY 2003 Page 1
• Maritz, Wolff & Co. (314-863-9600) is conducting a study to assess the feasibility of converting the
top five floors of their for-rent apartments in the Four Seasons Hotel (1441M) at 1111 Caroline St.
to for-sale condominiums. Condominium owners would have use of all amenities available to
guests and residents at the hotel, including concierge services, housekeeping, security, and valet
services. The Four Seasons Hotel is located at the northeast corner of Caroline and Lamar in the
Central Business District (493Q).
The following chart illustrates historical apartment rental rates.
Apartment Rent ($/SF)
Note: The multifamily projects listed below are followed by the O’Connor & Associates’ database
identification number and are included for subscriber cross-referencing. The property information
contained within the Houston Area Apartment Data Program is published on a quarterly basis.
Switzerland-based American Realty Investors (281-820-0747) purchased four Houston apartment
complexes (totaling 1,308 units) from Dallas-based Walden Residential Properties (972-788-0510). The
Polo Club on Cranbrook (0170) is a 520-unit Class B complex located at 14531 Ella Blvd. The 21-year-
old complex is 95% occupied with average rents at $0.73 per square-foot. The northwest Houston (372B)
complex features pitched roofs and is separately metered for electricity. Timbers of Cranbrook (0168) is
a 274-unit Class B complex located at 14000 Ella Blvd. The 20-year-old complex is 98% occupied with
average rents at $0.76 per square-foot. The Northwest Houston (372F) complex features pitched roofs
and is separately metered for electricity. Monticello at Cranbrook (0167) is a 244-unit Class B complex
located at 13913 Ella Blvd. The 21-year-old complex is 93% occupied with average rents at $0.72 per
square-foot. The northwest Houston (372F) complex features pitched roofs and is separately metered for
electricity. Woodchase Apartments (0999) is a 270-unit Class B complex located at 2900 S. Gessner Rd.
The 26-year-old complex is 95% occupied with average rents at $0.77 per square-foot. The west Houston
(490W) complex features flat roofs and is separately metered for electricity. G. Craig LaFollette, J. Todd
Stewart, and Todd Marix of CB Richard Ellis represented the seller.
McDonald & Associates purchased Vista Del Sol (2703), a 264-unit complex located at 701 Preston,
from TBAN Properties #1, LLC. The 40-year-old Class D complex is 82% occupied with average rents at
$0.48 per square-foot. The Pasadena (537K) complex features flat roofs and is separately metered for
electricity. The buyer plans to invest $1.3 million in renovation of the property, boosting rents to an
average of $0.60. Ed Cummins, III and Mark Hendricks of Hendricks & Partners represented the seller.
Houston Real Estate Trends MAY 2003 Page 2
Louisiana-based MBS Management Services (504-836-5075) purchased The Equinox (7113B), a 320-
unit complex located at 27600 N. Kings Manor Dr., from Martin Fein Interests. The 5-year-old Class A
complex is 94% occupied with average rents at $0.88 per square-foot. The Kingwood (296X) area
complex features pitched roofs and is separately metered for electricity.
California-based National Housing Development Corp. (800-595-6432) purchased four low-income
apartment complexes totaling 622 units. A portfolio of three complexes was purchased from KW
Affordable Housing. Countryside Village Apartments (0261) is a 182-unit Class D complex located at
625 Wilson Rd. in Humble (336W). The 31-year-old Class D complex is 88% occupied with average rents
at $0.55 per square-foot. The complex features pitched roofs and is separately metered for electricity.
Colony of Humble Apartments (0262) is a 200-unit complex located at 831 Wilson Rd. in Humble
(336W). The 25-year-old Class C complex is 100% occupied with average rents at $0.62 per square-foot.
The complex features pitched roofs and is separately metered for electricity. Lexington Square
Apartments (4078) is an 80-unit complex located at 1324 E. Hospital in Angleton (828F). The 27-year-old
Class C complex is 100% occupied with average rents at $0.67 per square-foot. The complex features
pitched roofs and is separately metered for electricity. Sunflower Terrace Apartments (2418), a 160-unit
complex located at 5050 Sunflower in south Houston (533Z), was purchased from Jay L. Cooke. The 33-
year-old complex is 100% occupied with average rents at $0.72 per square-foot. The complex features
pitched and flat roofs and is separately metered for electricity.
Titan Management (713-532-2755) purchased Pagewood Place (1006), a 166-unit complex located at
9767 Pagewood, from Nashville-based Freeman Webb Cos. The 23-year-old Class B complex is 93%
occupied with average rents at $0.77 per square-foot. The west Houston (490W) complex features pitched
roofs and is separately metered for electricity. G. Craig LaFollette, J. Todd Stewart, and Todd Marix of
CB Richard Ellis represented the seller.
Simmons Properties (713-868-5800) purchased Bay Oaks Apartments (1770), a 146-unit complex
located at 1700 Bob Smith Rd., from a partnership between Bay Oaks Apartments, Inc. and HSR
Enterprises, LLP. The 35-year-old Class C complex is 95% occupied with average rents at $0.61 per
square-foot. The Baytown (502N) complex features pitched roofs and is separately metered for electricity.
Jeff Eisenhardt of Hendricks & Partners represented the seller.
MLS home sales increased in April, as 4,238 homes were sold, up from the 4,081 homes sold in March,
according to the Houston Association of Realtors. Sales for April 2003 were down 4% from the 4,427
homes sold in April 2002. The median price of a used single-family home sold in April was $133,650, up
3% from a year ago. Note: MLS sales include primarily used home sales throughout the Houston region.
Historical comparisons are offered solely for informational purposes and may not truly reflect growth in
According to American Metro/Study Corporation, net new home sales decreased to 2,029, or 2% under
the April 2002 net sale figure of 2,061. Realtor co-op sales represent 67% of net sales, which is up from the
April 2002 ratio of 53%. Traffic is down from last year, moving from 31,272 in 2002 to 29,647 in April 2003,
a 5% increase. The inventory of completed speculative homes (1,331) is 43% above last year’s inventory
of 930 homes. There are 2,386 spec homes under construction, which is 8% over the 2002 number of
2,201. Overall, the 3,717 specs (both completed and under construction) represent a 19% increase over
the 3,131 specs of one year ago. Note: The 23 homebuilders in the survey account for 65% of the housing
starts in Houston.
According to the U.S. Commerce Department, nationwide sales of new single-family homes increased by
1.7% in April to an annual rate of 1,028,000 from the March rate of 1,011,000. April sales are 12.2% higher
than this time last year. The median sales price was $185,100. Single-family housing starts were at an
annual rate of 1,356,000 in April, 3.0% below the March figure. Single-family housing completions were at
an annual rate of 1,391,000 in April, 5.8% above the March figure.
Houston Real Estate Trends MAY 2003 Page 3
According to the National Association of Realtors (NAR), sales of used single-family homes increased
by 5.6% in April to an annual rate of 5,840,000 units from the March rate of 5,530,000 units. The median
April sale price was $163,400, up 6.8% from last year. NAR ‘s chief economist, David Lereah, predicts
that a recovering economy and continued low mortgage rates will result in 2003 being best year on record
for home sales.
The National Association of Home Builders (NAHB) reported that the Housing Market Index, a
monthly gauge of builder sentiment, rose four points to 56 in May, regaining much of the ground it lost
earlier this year due to poor weather, war, and economic jitters. The index is derived from a survey of
builders who are asked to rate current sales, sales expectations for the next six months, and the rate of
traffic of prospective buyers.
The Texas Housing Affordability Index (THAI) shows that Texas homes are becoming more affordable
due to declines in mortgage rates and relatively stable home prices. The median household income in
Texas is 15% more than the minimum income required to purchase a home at the median price.
The Woodlands Operating Co. is planning a 500-acre addition to the Carlton Woods neighborhood that
will include an 18-hole golf course, 260 lots ranging from ¼ to 1½ acres, and a social clubhouse. The golf
course is scheduled to open in summer of 2005. Sales of lots will begin in December of this year.
Falcon Group (713-451-6310) is planning the first phase of a condominium project with two towers on
Galveston Island’s east end at Boddecker Dr. and Seawall Blvd. The 26 and 21-story towers will contain
275 units ranging in price from $200,000 to $1 million. The second phase will consist of two more towers,
resulting in a combined total of approximately 400 units.
Three midrise condominium buildings in the construction pipeline in The Woodlands are experiencing
unexpectedly high demand. The 27-unit Waterway Lofts Phase I, which will be completed this year, is
nearly sold out. The 40-unit Waterway Lofts Phase II only recently began selling units; construction is
scheduled to begin this summer. To the west of the Waterway Lofts, One Riva Row will consist of 50 units
ranging in price from $290,000 to $1 million. Construction is expected to be completed in 2004.
MDE Properties (713-993-0733) plans to develop two small new urbanist communities in the Houston
area. Borondo Pines, located in La Marque, will consist of 82 houses designed similar to the bungalows
of Montrose and West University Place. Pearland Farms will be similar in design. New Urbanism
encourages lifestyles that are less dependent of automobiles, emphasizing walking and neo-traditional
Galveston-based Fedro Custom Homes (409-744-8440) plans to construct the Lafitte Townhomes II, a
complex of 18 townhomes, at 3100 75th St. in Galveston (808A). The complex will feature high-speed
wiring, Hardiplank siding, and a pool. The 1,750 square-foot units with two-car garages are priced at
$169,900. Construction is scheduled to begin in July.
The Mews subdivision in Kingwood (336H) has been taken over by Pittsburgh-based Hillman Properties
and will undergo a shift in marketing strategy. The subdivision will be renamed Barrington Kingwood, a
greater variety of homes will be built, and the subdivision will be marketed to a wider audience. Homes on
the 200-acre development will range in price from $220,000 to $1 million.
The following chart illustrates historical used-home sale activity.
H o u s to n U s e d -H o m e S a le s
Number of Homes Sold
2 02 2 2 2 2 2 03 3 3 3
Houston -Real Estate Trends0
r0 y- n-
l-0 -0 M02 2003t-02
- AY -0 -0 n- -0 r-0
Page 4 r-0
Ap a Ju Ju ug ep Oc N ov ec Ja F eb M
M A S D
The City of Houston issued permits to build 374 houses and to demolish 139 houses in April 2003. Permits
were issued to build 6 multi-family buildings (13 units). Permits for privately owned new non-residential
construction totaled $20,499,398. Public sector permits for new non-residential construction totaled
$12,923,500. Additions, alterations and conversions totaled $72,617,730 for the private sector and
$6,337,933 for the public sector.
Total Building Permits, City of Houston
2001 2002 2003
April 2003 $ 306,536,663 $ 274,013,654 $ 185,199,917
Year-to-Date $ 1,357,643,127 $ 1,272,602,216 $ 1,137,389,935
New Residential Units
Number of Single-Family
2 2 2 2 02 02 2 2 2 3 3 3 3
r-0 -0 -0 l-0 g- p- t-0 v-
0 -0 -0 -0 r-0
Ap ay n Ju Oc
n b ar Ap
M Ju Au Se No De Ja Fe M
Although many indicators are showing signs of hope for the economy, it may still take time before
Houston’s office markets begin to see real gains. Overall occupancy levels continue to fall, but have
slowed their descent to a more bearable loss of 0.37% in the first quarter. Not surprisingly, average rents
have dropped to $18.02 per square-foot, a 3½ year low. Although excellent long-term deals can be had for
tenants willing to rent, few exhibit much confidence in the economy.
Although traditional office space is undergoing a correction phase, medical office space is seeing a
considerable amount of investment, with new facilities scheduled to rise from within the ever-growing
Texas Medical Center to the outer suburbs. Even the sleepy town of Sweeny is seeing medical office
construction activity. Considering that baby boomers are entering the stage of life in which medical
services are in high demand, this trend could be with us for a while.
According to the O’Connor & Associates 1st Quarter 2003 Houston Area Office Data Program, overall
occupancy for Houston area multi-tenant office buildings is 84.49% (Class A = 87.14%; Class B =
83.03%; Class C = 81.73%; and Class D = 79.75%). Meanwhile, the overall multi-tenant office building
rental rate is $18.02 per square-foot per year, a decrease of $1.39 psf over a year ago.
• Medistar Corp. (713-266-8990) is planning a medical office building containing over 500,000
square-feet on a lot owned by Hakeem Olajuwon in the 6700 block of Main St. A long-term ground
lease has been negotiated with Olajuwon. More than half of the available space will be leased to
the M.D. Anderson Cancer Center.
Houston Real Estate Trends MAY 2003 Page 5
• Advantage Development, LLC (281-296-0510) is planning College Park Professional Condos
(TWC 062), a 42,500 square-foot medical office condominium complex on College Park Dr., west of
IH-45 in The Woodlands (217R). The condo units will range from 2,500 square-feet to 12,500
square-feet when construction is complete in March 2004. The developer purchased the 4.6-acre
site from The Woodlands Operating Co. Bill Penick of Advantage Development represented
the buyer, while Greg Jordan of The Woodlands Operating Co. represented the seller in the land
• Prudential Gary Greene Realtors (713-465-6644) will construct a new owner occupied 15,000
square-foot Champions/FM 1960 Realty Building (CPQ 128) at 8817 Louetta Blvd. in northwest
• Baywood Medical Associates (281-996-7788) is developing the 11,400 square-foot Baywood
Medical Clinic (CLC 110), located at 1409 South Friendswood Dr. between Winding Way and FM
528 in the Friendswood (657E) area. Baywood Medical Associates is taking advantage of the city’s
new tax abatement program. They will receive a three-year, 100% property tax break from the City
of Friendswood on the new building. When construction is complete, the group will move from
their 5,040 square-foot location at 347 E. Parkwood.
The following chart illustrates historical office building rental rates.
Office Building Rents ($/SF)
Note: The buildings listed below are followed by the O’Connor & Associates’ database identification
number and are included for subscriber cross-referencing. The property information contained within the
Houston Area Office Data Program is published on a quarterly basis.
Global Net Lease Partners, sponsored by CB Richard Ellis Investors (212-217-6143), purchased the
Duke Energy (GAL 098) building at 5400 Westheimer Ct. for $77.5 million in a sale/leaseback
arrangement with Duke Energy Gas Transmission, LP. The 21-year-old single-tenant Class B building is
fully leased. The 625,000 net square-foot building is located on the north side of Westheimer Ct. between
Yorktown & Chimney Rock in the Galleria (491U) area.
IBM Corp. exercised a purchase option in its lease at Two Riverway (GAL 071) from Shorenstein Co.
and then flipped the asset to Radler Enterprises (713-965-9600). The 22-year-old Class B building is
74% occupied with average rents at $19.00 per square-foot. The 371,192 net square-foot building is
located on Riverway Dr. between S. Post Oak Ln. and Riverway in the Galleria (491L) area. Danny Miller
and Steve Rigby of CB Richard Ellis represented IBM Corp. and Radler Enterprises, while Robert
Williamson of Granite Partners represented Shorenstein Co.
Paris-based Perenco took a 21,657 square-foot sublease to a direct lease in One City Centre (CBD 047)
at 1021 Main St. from joint owners McCord Development (713-860-3000) and AEW Capital
Management, LP. The 43-year-old Class B building is 94% occupied with average rents at $23.00 per
square-foot. The 598,941 net square-foot building is located at the northeast corner of Main St. and Lamar
in the Central Business District (493Q). Bonnie Kelley of Songe Partners represented the landlord.
Houston Real Estate Trends MAY 2003 Page 6
Wyle Laboratories, Inc. renewed a 54,238 square-foot lease and expanded by 11,203 square-feet,
thereby leasing all of Clear Lake I (CLC 049) at 1290 Hercules Dr. and 1,531 square-feet in Clear Lake II
(CLC 045) at 1300 Hercules Dr. from McCord Development (713-860-3000). Clear Lake I is an 18-year-
old Class B building with average rents at $16.25 per square-foot. Clear Lake II is a 19-year-old Class B
building with occupancy at 72% and average rents at $16.25 per square-foot. The twin 64,000 net square-
foot buildings are located on Hercules Dr., east of Bay Area Blvd. and south of Saturn Ln. Derrell Curry of
CB Richard Ellis represented the tenant, while Michael Batts of McCord Development represented the
PSC Industrial Outsourcing, Inc. leased 50,981 square-feet in Sage Plaza One (GAL 080) at 5151 San
Felipe from Barnhart Interests (713-622-0000). The 21-year-old class A building is 95% occupied with
average rents at $20.00 per square-foot. The 519,966 net square-foot building is located on San Felipe
between Sage and Post Oak Blvd. in the Galleria (491Q) area. Sandra F. Harris, James E. Foreman and
Beau Kaleel of Cushman & Wakefield represented the tenant, while Dian Huddle of Barnhart Interests
represented the landlord.
OPE, Inc. leased 43,606 square-feet in the Highlands Insurance Building (WES 043) at 10370
Richmond Ave. from Alder Property Association (713-790-7243). The 21-year-old Class A building is
89% occupied with average rents at $16.50 per square-foot. The 310,296 net square-foot building is
located at the northeast corner of Richmond and the Sam Houston Parkway in west Houston (489Z).
Andrew Baker and Jason Whittington of NAI Partners Commercial represented the tenant, while Mike
Hackett of PM Realty Group represented the landlord.
Ohio-based Progressive County Mutual Insurance Co. leased a total of 49,000 square-feet in two single
tenant buildings for drive-through claims centers. 10835 Wilcrest (SW1 077) is a 27-year-old building
containing 28,500 square-feet and was leased from Mullins Epley, JV (713-622-2464). Tenant
improvements are currently under way. Will Swanson of NAI Partners Commercial represented the
tenant, while Chris Caudill and John Ferruzzo of NAI Partners Commercial represented the landlord.
505 West Canino (GNB 147) is a 25-year-old building containing 21,000 square-feet, and was leased from
Fred Haas Toyota (281-357-4000). Will Swanson of NAI Partners Commercial represented the tenant.
IFMA renewed its 16,666 square-foot lease at One Greenway Plaza (GPL 018) from Crescent Real
Estate Equities (713-840-1170). The 34-year-old Class B building is 94% occupied with average rents at
$17.00 per square-foot. The 212,232 net square-foot building is located at the northeast corner of Edloe at
the Southwest Freeway in the Greenway Plaza (492X) area. Jon Silberman of NAI Partners
Commercial represented the tenant, while Warren Savery of Crescent Real Estate Equities represented
Wells Fargo Bank leased an additional 15,830 square-feet in Wells Fargo Tower (GAL 053) at 1300 Post
Oak Blvd. from L&B Institutional Property Managers, Inc. (214-855-5888). The 20-year-old Class A
building is 84% occupied with average rents at $23.75 per square-foot. The 479,910 net square-foot
building is located in the Galleria (491R) area. Sanford Criner, Jr. and Elliot Hirshfeld of Trione &
Gordon represented the tenant, while Dave Hanusa of Trammell Crow represented the landlord.
Preston & Cowan leased 13,997 square-feet in 2 Houston Center (CBD 018), located at 909 Fannin,
from Crescent Real Estate Equities (713-840-1170). The 29-year-old Class A building is 94% occupied
with average rents at $ 22.50 per square-foot. The 1,024,956 net square-foot building is bounded by
Walker, San Jacinto, McKinney, and Fannin in the Central Business District (493Q). The firm is relocating
from 1001 Fannin. Steven Hesse and Jason Presley of Trione & Gordon represented the tenant, while
Debbie Wilson of Crescent Real Estate Equities represented the landlord.
Capstone Financial Services leased 12,896 square-feet in San Felipe Plaza (GAL 134) at 5847 San
Felipe from Equity Office Property Trust (312-466-4039). The 19-year-old Class A building is 92%
occupied with average rents at $21.00 per square-foot. The 959,466 net square-foot building is located at
the southeast corner of San Felipe and Augusta in the Galleria (491P) area. Kyle Kelley of Trione &
Gordon represented the tenant, while Steve Crawford of Equity Office Property Trust represented the
Houston Real Estate Trends MAY 2003 Page 7
The Southwestern Professional Institute leased 11,734 square-feet and expanded by an additional
1,229 square-feet at 3033 Chimney Rock (GAL 027) from R M Crowe (214-369-6192). The 21-year-old
Class B building is 86% occupied with average rents at $14.00 per square-foot. The 79,000 net square-
foot building is located at the southeast corner of Chimney Rock and Beverly Hill St. in west Houston
(491X). Bill Romane of NAI Partners Commercial represented the tenant, while Melissa Carlisle of R M
Crowe represented the landlord.
George M. Shanks, Jr., PC and American Title Company teamed to lease 11,687 square-feet at 1455
West Loop South (GAL 111) from Koswood Investments Corp. (713-957-4587). This marks the first
lease since the renovations were completed on the building in 2002. The 35-year-old Class B building is
now 6% occupied with average rents at $21.00 per square-foot. The 193,737 net square-foot building is
located on the east side of the West Loop, south of Post Oak Blvd. in the Galleria (491R) area. Rollie
Andre and Thomas Ford of Henry S. Miller represented the tenant, while Keith Lloyd of Grubb & Ellis
and Mark Preston of Moody Rambin represented the landlord.
Horn Murdock Cole extended its 11,332 square-foot lease in Millennium Tower (WES 044), at 10375
Richmond Ave., from BMS Management, Inc. (713-621-3222). The 21-year-old Class A building is 81%
occupied with average rents at $19.50 per square-foot. The 365,955 square-foot building is located on
Richmond Ave. between Westcenter Dr. and the Sam Houston Tollway in west Houston (489Z). Roddy
McAlpine of Colliers International represented the tenant, while Steve Rocher of Grubb & Ellis
represented the landlord.
North Houston Bank leased 10,101 square-feet in 5 Houston Center (CBD 123), located at 1401
McKinney from Crescent Real Estate Equities (713-840-1170). The one-year-old Class A building is 91%
occupied with average rents at $30.49 per square-foot. The 580,875 net square-foot building is bounded
by Walker, La Branch, McKinney, and Austin in the Central Business District (493Q). Debbie Wilson of
Crescent Real Estate Equities represented the landlord.
Although retail is not immune to the economic deceleration, the Houston retail market is weathering
conditions considerably better than other commercial real estate markets. Rental rates remain solid across
all types of retail centers, with an almost surprising lack of downward pressure on rents for small spaces.
Occupancy fell slightly in first quarter, but is stabilizing. There is no indication that significant turmoil will
erupt in this sector, partly because retail tenants are less flexible to relocate, even within the same
submarket. Although some uncertainty will exist through 2003, more positive performance can be
anticipated in 2004.
Despite a number of available big boxes that once housed Service Merchandise or K-Mart, construction
activity remains strong, with the vast majority of new space being built-to-suit or preleased. Drug stores, in
particular, are undergoing an expansion phase.
According to the O'Connor & Associates 1st Quarter 2003 Houston Area Retail Data Program, overall
occupancy for Houston area multi-tenant retail centers is 85.32%, a decrease of 0.12 points from last
quarter. Meanwhile, the overall multi-tenant retail rental rate decreased $0.01 this quarter at $1.47 per
square-foot per month, unchanged from time last year.
• Property Commerce (713-668-3456) has begun construction of Clear Lake Shores Ctr. Phase II
(FSE 300) at the corner of SH 146 and FM 2094 in Kemah (620X). The 57,655 net square-foot
center is will be occupied by Office Depot, Chili’s, and Taco Cabana.
• General Growth Properties (312-960-5448) has begun renovations of Deerbrook Mall (NEA
021), located at the northwest corner of FM 1960 and the Eastex Freeway in Humble (335U). The
interior will receive a new tile color scheme, expanded restroom facilities in the food court, and soft
seating areas. The 19-year-old 1,197,266 net square-foot mall is 89% occupied with average rents
at $2.40 per square-foot.
Houston Real Estate Trends MAY 2003 Page 8
• Rice Epicurean Markets is remodeling and expanding its 34,000 square-foot store at the
Tanglewood Shopping Center (NWE 066). About 2,000 square-feet will be added to the store,
effectively doubling the size of the produce department. Construction is scheduled for completion in
September of this year. The store will remain open during renovation.
• Rhode Island-based CVS Corp. (285-481-5204) is building two new CVS Pharmacy locations. A
12,000 square-foot building will rise at the corner of FM 518 and Landing Blvd. in League City, while
another goes up at Bay Area Blvd. and El Camino Real Blvd. in Webster.
The following chart illustrates historical retail center rental rates.
Retail Center Rental Rates (per/SF)
Note: The retail centers listed below are followed by the O’Connor & Associates’ database identification
number and are included for subscriber cross-referencing. The property information contained within the
Houston Area Retail Data Program is published on a quarterly basis.
Denton Towers, Inc. purchased Dickinson Plaza (FSE 088), located at the northeast corner of FM 517
and the Gulf Freeway, from Gerardo Weinstein The 29-year-old 105,000 net square-foot center is 70%
occupied with average rents at $0.48 per square-foot. Tenants of the Dickinson (699F) center include
Radio Shack, Eckerd Drug, and H&R Block. Culver G. Stedman of Boyd Page represented the seller.
John Stacy (214-638-3311), owner of S&H Distributing, purchased 2202 FM 1960 West (FNO 207),
located west of Kuykendahl Rd. on FM 1960 in northwest Houston (331V), from Carmichael Development
Company. The 23-year-old 17,849 net square-foot single-tenant retail building is now owner occupied.
Barret Gibson and John Ferruzzo of NAI Partners Commercial represented the buyer, while David
Werlin of New Regional Planning represented the seller.
Doan and Ngoan Le (832-912-1459) purchased One Fairmont Plaza (NSE 088), located at 1001
Fairmont Parkway at Federal Rd. and Fairmont Parkway, from One Fairmont Plaza Partnership. The 17-
year-old 16,350 net square-foot center is 100% occupied with average rents at $0.90 per square-foot.
Tenants of the Pasadena (576D) center include Home Interiors, Perry Business Services, and Shear
Delight. Dominic Santilli of Gold Rush Realty and Investments represented the buyer, while Marshall
Clinkscales and Clay Rabel of MSC Properties represented the seller.
Salon Park Corp. leased 14,921 square-feet at Westheimer Commons (FWE 035), located at the
northwest corner of Dairy-Ashford and Westheimer in west Houston (488V), from New Plan Excel Realty
Trust (713-665-2511). The 22-year-old retail center is 90% occupied with average rents at $1.10 per
square-foot. Tenants include Kroger, Marshall’s, and Walgreen’s. Lily Golden of Moody Rambin
Interests represented the tenant, while Mike Parker represented the landlord.
Houston Real Estate Trends MAY 2003 Page 9
The Rouse Company (301-982-1700) purchased 8,060 acres off US 290 near House Hahl Rd. in
northwest Houston (325P) for $82.9 million from a partnership of Houston Land Development Co. and
Rose Hill Meadows Management Co., LLC. The Rouse Co. plans to develop a master-planned
community, including 17,000 single-family homes, several retail centers, and a number of apartment
complexes. Infrastructure will be laid as quickly as possible in hopes of selling the first lots to developers in
2005. The future northwest Grand Parkway segment will run through the property, with completion
scheduled for 2008. The buyer used an in-house team for negotiations.
The Galveston Wharves Board of Trustees voted to pay $1.1 million to purchase 5 city blocks of land
from Bersinger of Texas and ZHI. The land is located in Galveston (774R) south of Harborside Dr. from
30th to 33rd streets, and is currently being leased by the port for use as a parking lot.
William L. Locher purchased 27 acres for residential development at Fairlake near FM 1960 in northeast
Houston (338R) from Raymond Middleton. Keith Edwards of Caldwell Watson Real Estate Group
represented the buyer, while Keith Grothaus of Caldwell Watson Real Estate Group represented the
First American Exchange Corp. of California purchased 20.57 acres at the intersection of CE King and
Beaumont Highway from Aztec Manufacturing, Ltd. James E. Foreman, Beau Kaleel, and Sandra F.
Harris of Cushman & Wakefield handled negotiations.
JM Leightput Interests, Inc. purchased 10.14 acres for residential development on N. Eldridge near
Spring Cypress from Michel Karkour and Omar Michel Karkour. John Lightfoot represented the buyer,
while Keith Grothaus and Keith Edwards of Caldwell Watson Real Estate Group represented the
Gillman Cos. purchased 7.2 acres at the intersection of IH-45 and Parramatta in north Houston (332L)
from Northwest Realty, Inc. on which it will build three new car dealerships. The company plans to sell
the land on Rankin Rd., east of IH-45 on which sits Gillman’s current three dealerships. The new facility will
be completed in 2004.
The Methodist Board of Missions in Houston purchased 5.773 acres in Settlers Village Section 1 from
Johnson-Matejek Development, LLC. Jearald Dyer of Grubb & Ellis represented the buyer, while Bill
Heavin and Matthew Herring of Grubb & Ellis represented the buyer.
Stafford Business Center, Inc. purchased 4.9 acres at Stafford-Bellaire Rd. and Green Ridge St. in
Stafford (569R) from Robert Lee Hudson Irrev. Trust. Vahe Asadourian of Vatco Properties, Inc.
represented the buyer, while James H. Glanville of Colliers International represented the seller.
Diamond Gear Management, LLC purchased 4.83 acres at the intersection of Hollister and Bluff Point in
northwest Houston (370V) from Freeport Tech Insite, LP. Mike Taetz and Cody Smoot of Colliers
International represented the buyer, while Mike Annino of Insite Realty represented the seller.
Marshall, Neil & Pauley purchased 4.3 acres at the southeast corner of Fallbrook and Windfern in
northwest Houston (370W) from Berkley Capital. David Boyd of Boyd Page represented the buyer,
while Dick Gould of McDade, Smith, Gould, Johnston, Mason & Co. represented the seller.
24-Hour Self Storage, Inc. purchased 3.8 acres for the development of climate-controlled storage at the
intersection of FM 1960 and Fallbrook in northwest Houston (369W) from Terry W. Ward, Trustee. Kersi
Engineer represented the buyer, while Keith Grothaus of Caldwell Watson Real Estate Group
represented the seller.
Weaver Capital Management, LP purchased 3.7 acres at 6287 Long Dr., near Hobby Airport, from
Midwesco Industries, Inc. It is likely that the property will be used for a built-to-suit industrial project.
Scott Ison of Axis Property Advisors represented the seller.
Houston Real Estate Trends MAY 2003 Page 10
Truck Nation purchased 3.6 acres in East 10 Business Park near the intersection of Gellhorn and the
East Loop from Amega Corp. Truck Nation will relocate from their existing facility, and will build a show
room. Conrad Bernard and Mike Boyd of Boyd Page represented the seller.
Riba Foods purchased 3.5 acres in the Sugar Land Business Park at the intersection of Park West Dr.
and Gillingham Ln. (568G) from Sugarland Properties. In three years, Riba Foods will construct a new
headquarters location and manufacturing facility. Mark Nicholas of Staubach Co. represented the buyer,
while Don Janssen, Jr. of Sugarland Properties represented the seller.
AOR Real Estate, Inc. purchased 3.4 acres at the intersection of First Colony Blvd. and Soldier’s Field Dr.
in First Colony (568W) from Sugarland Properties. Construction has already begun on the16,000 square-
foot Texas Onocology Cancer Center - Sugar Land. Thomas Alexander of CB Richard Ellis
represented the buyer, while Don Janssen, Jr. of Sugarland Properties represented the seller.
GSL Constructors, Ltd. purchased 3 acres in Seaco Business Park on behalf of Weir Pump from GSG,
Inc. James E. Foreman, Beau Kaleel, and Sandra F. Harris of Cushman & Wakefield handled
Coastal Banc, SSB purchased 1.13 acres in League City from Pennington Company. Dan F. Boyles,
Jr. of NAI Partners Commercial and Tom Bell of Reliant Commercial represented the buyer, while J.
Edward Pennington of The Pennington Company represented the seller.
Houston Industrial markets linger in the doldrums, showing a gradual increase in occupancy albeit without
change in rents. Owners are resorting to concessions, some of which can range from 15 to 18 months of
free rent in long-term leases, to maintain occupancy figures. Rent growth is unlikely for 2003, but on that
note, it is also unlikely that rents will decrease by any significant amount.
With markets that are relatively inactive with little foreseeable short-term growth in demand, a number of
proposed industrial projects have been postponed to later dates. Large corporations, in the meantime, are
looking to consolidate industrial operations to single facilities that can meet a wide variety of needs more
efficiently. As a result, there has been some growth in the volume of sales and leases of single tenant
facilities, but little activity overall.
According to the O’Connor & Associates 1st Quarter 2003 Houston Area Industrial Data Program,
overall occupancy for Houston area operating industrial facilities is 84.95%, while the overall multi-tenant
industrial rental rate is $0.38 per square-foot.
• American AC Supply (832-912-7020) plans to build a 10,000 net square-foot office/warehouse at
the intersection of Jones Rd. and Tower Oaks. The company purchased the 2.3 acres from 4.4076
Ltd. Keith Edwards of Caldwell Watson Real Estate Group represented the buyer, while Keith
Grothaus of Caldwell Watson Real Estate Group represented the seller.
• Trammell Crow (713-963-1000) has commenced construction of the 180,000 net square-foot East
Belt Business Park Ph. I (4810M) located at 1455 and 1465 East Sam Houston Parkway South.
The office/warehouse facilities will be concrete tilt-wall buildings with dock-high loading. They are
scheduled to be completed in January 2004.
Houston Real Estate Trends MAY 2003 Page 11
The following chart illustrates historical industrial facility rental rates.
Industrial Rent ($/SF)
Note: The facilities listed below are followed by the O’Connor & Associates’ database identification number
and are included for subscriber cross-referencing. The property information contained within the Houston
Area Industrial Data Program is published on a quarterly basis.
Highlands Pines Corp. purchased a 189,000 net square-foot single tenant distribution facility at 6555
Pine Vista Ln. (0806M) from 1 Pine Vista GP, Inc. The 2-year-old northwest Houston (411W) facility is
100% occupied and features 12 to 30-foot clearances. Mike Handel of Insite Commercial Real Estate
was the listing agent.
Regnum Management, LLC purchased North Shepherd Business Center (0849), a 141,937 net square-
foot service center at 7801 and 7811 N. Shepherd Dr. from Deutsche Bank. The 21-year-old north
Houston (412V) facility is 95% occupied with average rents at $0.41 per square-foot. The facility features
14 to 16-foot clearances with dock-high loading. Bill Ingram of The Ingram Companies represented the
buyer, while Conrad Bernard and Mike Boyd of Boyd Page represented the seller.
Royal White Cement Company (713-920-0200) purchased a 100,000 net square-foot manufacturing
facility at 8316 East Freeway (3499) from Western Financial Services, Inc. The 22-year-old east
Houston (496G) facility is 100% occupied with average rents at $0.25 per square-foot. The crane-served
facility features 15 to 25-foot clearances with grade-level loading. C.A. Rousser of The Rousser
Companies represented the buyer, while Doyle Toups of Grubb & Ellis represented the seller.
DTE Investments, LLC purchased a 77,496 net square-foot single tenant distribution facility at 8019
Kempwood (1543) from International Paper Company (901-763-7800). The 29-year-old northwest
Houston (451P) facility was vacant at the time of the sale. The facility features 22-foot clearance with
dock-high and grade-level loading. Sandy Yang represented the buyer, while John Ferruzzo of NAI
Partners Commercial represented the seller.
JIL, LLC purchased a 14,200 net square-foot single tenant office/warehouse at 15 Drennan (3258A) from
Donald A. Ghiz (713-661-6049). The 33-year-old southeast Houston (494P) facility features 24-foot
clearance and grade-high loading. Andrew W. Sowell and David Boyd of Boyd Page represented the
buyer, while Clay Peeples of Boyd Page represented the seller, who will now occupy the formerly vacant
Southern Worldwide Logistics leased 256,435 square-feet at 9649 W. Wingfoot Rd. (1294) from Equity
Industrial IV, Inc. The 24-year-old distribution center is 59% occupied with average rents at $0.24 per
square-foot. The 435,881 net square-foot northwest Houston facility features 30-foot clearance with dock-
high loading. Ron Roberson of Caldwell Watson Real Estate Group represented the tenant, while Jeff
Everist of CB Richard Ellis represented the landlord.
Houston Real Estate Trends MAY 2003 Page 12
Home Depot, Inc. leased 200,007 square-feet at 11931 Hwy. 225 (4881) from Heller Industrial Parks,
Inc. The 19-year-old single tenant warehouse is located in east Houston (540N). The facility features 10
to 60-foot clearances. Mike Taetz and Walker Barnett of Colliers International represented the tenant,
while Fred Kurtz of Heller Industrial Parks, Inc. represented the landlord.
Monterrey, Mexico-based Interceramic, Inc. leased 146,340 square-feet in Clay Distribution Center Ph. I
(1334P) from Invesco Realty Advisors (972-715-7400). The 1-year-old distribution center is 70%
occupied with average rents at $0.33 per square-foot. The northwest Houston (450H) facility features 24-
foot clearance and dock-high loading. David Boyd and Mike Boyd of Boyd Page and Matt Blaugrund
and Mark Blaugrund of Recon Real Estate Consultants represented the tenant, while Darryl Noon and
Brian Gammill of Transwestern Commercial Services represented the landlord.
CV Logistics leased 82,945 square-feet in Legacy Center I (0289K) from Liberty Property, LP (610-647-
7300). The 3-year-old distribution center is 100% occupied with average rents between $0.30 and $0.34
per square-foot. The 348,300 net square-foot north Houston (370W) facility features 24 to 30-foot
clearances with dock-high loading. Bill Ginder of Caldwell Watson Real Estate Group represented the
tenant, while Andrew Mele of Liberty Property, LP represented the landlord.
Carruth Doggett, doing business as Toyota Lift of Houston, leased 52,940 square-feet in the
Wallisville/610 Business Center (3487A), located at 9133-9159 Wallisville Rd. from MacFarlan Real
Estate (713-972-0162). The 31-year-old 201,784 net square-foot office/warehouse is 78% occupied with
average rents at $0.29 per square-foot. The northeast Houston (495C) facility features 16 to 24 foot
clearances and grade-level loading. Bill Ginder of Caldwell Watson Real Estate Group represented the
MC Distributors leased 38,400 square-feet in the Market-McCarty Distribution Center (3502A) at 8000
Market in southeast Houston (495E) from Teachers Insurance Annuity (212-490-9000). The 355,404 net
square-foot distribution center is 84% occupied with average rents at $0.30 per square-foot. The 26-year-
old facility features 23-foot clearance and dock-high loading. Bill Ginder of Caldwell Watson Real Estate
Group represented the tenant, while Jim Nelson of Dienna, Nelson, Augustine Co. represented the
Dealer Direct, Inc. leased 30,420 square-feet at 7111 Perimeter Park (0601) from ProLogis Trust (713-
682-2292). The 23-year-old office/warehouse is 100% occupied with average rents at $0.30 per square-
foot. The 190,926 net square-foot northwest Houston (409V) facility features 22-foot clearance with dock-
high loading. Caleb Lawson of Caldwell Watson Real Estate Group represented the tenant, while
Jeremy Giles of ProLogis Trust represented the landlord.
Airborne Express leased 20,400 square-feet at 5048 Timber Creek (4676A) from GSL Industrial
Partners (713-772-1393). The 9-year-old single tenant warehouse is fully leased. The 20,400 net square-
foot southeast Houston (535V) facility features 18-foot clearance with dock-high loading. John Ferruzzo
and Jason Whittington of NAI Partners Commercial represented the tenant, while Welcome Wilson, Jr.
of GSL Industrial Partners represented the landlord.
Smit International (Americas) Inc. leased 14,529 square-feet in the North Belt Technology 1, 2, 3
(0374), located at 15402 Vantage Parkway E, from Praedium II Star Two, LP (512-451-5555). The 86,580
net square-foot office/warehouse is 81% occupied with average rents at $0.40 per square-foot. The 19-
year-old facility features 18-foot clearance and dock-high loading. Bobbie Bozarth of Axis Property
represented the tenant, while Bill Ginder of Caldwell Watson Real Estate Group represented the
Houston Real Estate Trends MAY 2003 Page 13
ECONOMIC & FINANCIAL NEWS
The number of wage and salary jobs in the 6-county Houston area increased by 1,000 jobs to
2,098,300 in April 2003, according to the Texas Workforce Commission. Leisure & Hospitality posted
the largest gains, with 1,900 jobs. This month’s total is 9,900 jobs less than the 2,108,200 jobs at this time
last year. Houston's unemployment rate decreased to 6.2% in April, while the statewide unemployment
rate also decreased to 6.2%.
In Freddie Mac’s Primary Mortgage Market Survey, the 30-year fixed-rate mortgage (FRM) averaged
5.31%, with an average 0.6 point, for the week ending May 30, 2003, down from 5.34 percent last week.
Last year at this time, the 30-year FRM averaged 6.76%. The average for the 15-year FRM is 4.73%, with
an average 0.6 point, unchanged from last week’s average. A year ago, the 15-year FRM averaged
6.22%. One-year Treasury-indexed adjustable-rate mortgages (ARMs) averaged 3.63% this week, with an
average 0.6 point, up from 3.61% last week. At the same time last year, the one-year ARM averaged
The Harris County Toll Road Authority is conducting traffic and cost studies on five potential tollways.
The Northwest Corridor Tollway would stretch 20 miles from the North Loop to the Grand Parkway near
Tomball, with a price tag of $300 million. The Grand Parkway Tollway sections would circle through
north Houston from the Katy Freeway to the East Freeway and would circle through south Houston from
the Southwest Freeway to the Hartman Bridge at a combined cost of $1.16 billion. The Beltway 8 East
Tollway would close the gap in the Sam Houston Parkway from the Eastex Freeway to the Beaumont
Freeway at a cost of $72 million. Northwest Freeway toll lanes, the most likely addition to the system,
would follow Hempstead Hwy. 22 miles from Loop 610 to the Grand Parkway at a cost of $100 million. A
toll road is also being considered for the Southern Pacific railroad corridor that parallels the West Loop
for 8 miles from the North Loop to the South Loop, cutting through Memorial Park. The price tag would be
The proposed Bayport Container Terminal has passed the environmental study conducted by the U.S.
Army Corps of Engineers. The 1,043-acre port would generate nearly 12,000 new jobs, more than $1
billion in new business revenues, and over $40 million in new tax revenues per year. Opponents to the
project claim that traffic, noise, and environmental pollutants would adversely affect nearby neighborhoods.
The Surface Transportation Board in Washington D.C. voted unanimously to approve the construction of
a 12.9-mile Burlington Northern and Santa Fe Railway Company rail line through the Clear Lake area.
The second line would allow greater competition, resulting in lower transportation costs for local chemical
plants. Residents of the area are less enthusiastic, citing noise pollution and the danger of derailment of
hazardous cargos in residential areas as a concern. The city of Houston is giving consideration to legal
action against the ruling.
The ACCRA Cost of Living Index shows that of 27 metropolitan areas with population in excess of 1.7
million, Houston is 25% below the median cost of living for professional and managerial workers in the top
quartile of income. Houston boasts the lowest cost of housing (44% below the large-metro average), the
lowest cost of grocery items (22% below the large-metro average), and the lowest cost of miscellaneous
goods and services (12% below the large-metro average).
Forbes’ 2003 list of the Best Places for Business & Careers ranked Houston at 15th best city in the
United States out of 150 metropolitan areas. Austin ranked 1st while Dallas came in 9th on the list. To
determine the rankings, income, job growth, cost of doing business, housing affordability, education, and
crime rates are taken into consideration.
The Conference Board reported that the Index of Leading Economic Indicators rose by a meager 0.1
points in April, to 110.6. Although bolstered by a rising stock market and higher consumer expectations,
weakness in the labor market and manufacturing offset most of the gains.
According to the U.S. Department of Commerce, personal income increased less than 0.1% in April 2003,
while disposable personal income increased 0.1%. Meanwhile, personal consumption expenditures (PCE)
Houston Real Estate Trends MAY 2003 Page 14
Advance estimates from the U.S. Department of Commerce show that retail and food services sales fell
0.1% in April, to $309.5 billion. Sales are up 4.1% from April 2002. Much of the decrease was caused by
lower prices for oil. After factoring out the sales of gasoline, retail sales increased by 0.4%.
The Federal Reserve reports that industrial production fell 0.5% in both April and March and that
production in April was 0.4% lower than in April 2002. Manufacturing output decreased 0.6% in April.
Utilities output rose 0.1%. Mining production rose 0.4%. Overall industrial capacity utilization dropped
0.5% in April to 74.4%.
The City of Houston is bidding against three other Texas cities and cities in Illinois, Arizona, Arkansas,
Georgia, and Alabama for a new Boeing Co. assembly plant used to construct fuel-efficient long-range
aircraft. The facility would employ approximately 1,000 people. Due to the financially pressed nature of
the deregulated airline industry, Boeing has specified that keeping costs as low as possible is of a high
priority, and is seeking tax breaks and from local governments. The company has not yet announced a
schedule for construction.
Imperial Sugar closed its distribution and packaging facility on US 90A in Sugar Land due to logistical
disadvantages and an inflexible union, but will keep its headquarters in the city. The company plans to sell
the factory and 100 acres of land on which it sits.
The Houston Independent School District (HISD) is requesting bids for the purchase of a 24.25-acre
tract at the corner of Richmond Ave. and Weslayan on which the obsolete 30-year-old administration
building and an elementary school currently sit. Sealed bids for the tract are due at the end of September
2003. Phil Arnett and Doug Elliot of Trione & Gordon are representing HISD.
The Harris County Sports and Convention Corp. is soliciting proposals for the redevelopment of the
Astrodome. The owners still owe $50 million on the 38-year-old Houston landmark, and are very open to
ideas, so long as they are financially sound. Speculation on the Astrodome’s future ranges from a
residential, hotel, retail, or entertainment facility.
The City of Houston is drafting a request for proposals for the 16,000 square-foot Fire Alarm Building at
333 Preston at Bagby. The RFP will be issued in summer of this year for what will likely be a long-term
lease. The 30-year-old building is not designated as historical, so redevelopment of the property is a viable
A new $50 million lab building has been approved for the University of Texas Research Park in the
Texas Medical Center. The 147,000 square-foot building, dubbed the South Campus Research Building
II, will contain research facilities for molecular therapeutics, molecular pathology, gastrointestinal
pathology, and gastrointestinal medical oncology. Construction is slated to begin in July 2003, with
occupancy scheduled for April 2005.
The following chart illustrates total nonagricultural employment.
Total Nonagricultural Employment, Houston MSA
Jobs, in thousands
Please direct any questions regarding content in the Houston Real Estate Trends to Richard Zigler at 713-
686-9955 or email@example.com.
Houston Real Estate Trends MAY 2003 Page 15
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Houston Real Estate Trends MAY 2003 Page 16