Houston-based Midway was preparing to launch one of the city’s biggest urban redevelopment projects in recent history when the coronavirus struck.
Construction on the project — a 150-acre commercial and residential development along the banks of Buffalo Bayou east of downtown — will begin later than expected, but Midway CEO Jonathan Brinsden is optimistic that demand for space will continue and that a slight delay could work out in the company’s favor.
“A lot of times the best time to be developing is the trough in the cycle and delivering when you’re coming out of the cycle,” Brinsden said in a recent interview. “You have the opportunity to benefit from potentially better construction pricing, which has been a headwind, over the last five years especially.”
Brinsden, who leads a corporate office of about 150 employees, is taking on a new role this year as well. In July he was named chairman of the Americas for the Urban Land Institute, a Washington, D.C., real estate think tank, where his first order of business will be to address diversity in the industry.
He spoke with the Chronicle about the challenges of operating a commercial real estate company during a pandemic and what his role at the ULI will entail.
Q: How you plan to address diversity and inequity in real estate?
A: It starts with education. How do we create interest in the industry at a much broader base at a younger age, and how do we develop that talent and bring them into the real estate industry? Then there’s the more specific impact of the actual real estate and how we do things as simple as deed restrictions. If you look back in history, those have been so divisive and destructive. How do we create communities that are more inclusive and more attractive?
Q: How has the pandemic affected plans for East River, your company’s big East End redevelopment project?
A: We’re fortunate that all the predevelopment for phase one is complete. We need to finish our (Tax Increment Reinvestment Zone) agreement with the city and the Fifth Ward TIRZ. What we’re doing there is a major infrastructure project. It will effectively be 65 downtown blocks when it’s finished. And then in terms of starting phase one it’s really dependent on preleasing.
Q: How’s that going? Do you have tenants in place?
A: The tenants we had are still there, albeit some of them are dealing with their own operational issues currently. But I think everybody remains positive that there is clarity at some point about moving forward and people will start expanding again.
That’s on the retail side. On the office side it’s similar but we’re certainly seeing a trend where companies are pausing and assessing, how are we going to use our office space going forward? Do we use more space? Do we need less space? Do we want to be in a different location? So we’re seeing a trend of short-term renewals while people are figuring that out.
Q: What about the retailers at your other properties, such as CityCentre or GreenStreet? Have you lost any? And how have you dealt with those struggling to pay rent?
A: We have not lost any tenants to date. It’s been obviously a challenging environment for them. We did a lot of lease amendments and worked with a lot of tenants and our bankers for what we thought was a period of time that would get everybody through the summer and we would emerge and be reopening. Now that picture looks a little less clear so I think it’s going to take more effort on everybody’s part.
Q: What sorts of arrangements did you make with your tenants?
A: For the most part, we’ve agreed on a period of rent deferment. To the extent they were reopening generally we agreed to a percentage rent format through the end of the year.
Q: How are your lenders working ?
A: Generally the banks have been fantastic. Those are long-standing relationships so it makes the discussions that much easier. But you have other loan structures like (commercial mortgage-backed securities) where that personal relationship isn’t there. It’s a collateralized security and mechanically it’s just different to deal with. But by and large, everyone’s been very positive.
Q: Have you had to cancel any projects you were planning to move forward on due to the pandemic?
A: Out of all these types of situations comes opportunities. It’s going to be a little while, but our sense is you’re going to start to see more and more opportunities towards the end of the year and first quarter of next year. So we hope to be positioned to take advantage of those as they present themselves.
Q: Until the markets improve, how are you managing your balance sheet without rents coming in?
A: Each asset is capitalized independently, so it has its own financial capacity. We’re fortunate to have great relationships with our banks and have a lot of institutional investors that take a long-term approach as we do.
To the extent investment needs to be made in projects, we, along with our partners, are going to make those investments. Relative to Midway’s balance sheet it really hasn’t really changed that much so we’re fortunate to have the capacity to be looking at new opportunities.