Westwood Financial acquired Eastway Square, a 130,156-square-foot grocery-anchored neighborhood center in Charlotte. In addition to Eastway Square, Westwood Financial owns several top-performing grocery-anchored properties in Charlotte, including Prosperity Village Square, Steele Creek Crossing, Steelecroft Shopping Center, and The Arbors at Mallard Creek.

Eastway Square is anchored by Food Lion. Other tenants include Ross, America’s Best, Papa Johns, Subway, WingStop, Rainbow, Dental Works, Hibbett Sports, Showmars, and more. Berkley Capital Advisors facilitated the sale.

Westwood’s Juyuan Wei added, “Grocery-anchored retail continues to thrive, and we’re eager to pursue additional opportunities that strengthen our portfolio.”

As Westwood Financial manages over 125 properties with a dominant presence in the Sunbelt region. Grocers and leading service and experiential-based operators primarily anchor the centers.

Fuquay-Varina had 18,000 people in 2010. Now it’s near 40,000, and town leaders are moving fast to accommodate the growth. A rezoning was for nine parcels totaling 87.98 acres that went from residential agriculture to commercial mixed-use.

A development, to be called Vaughan Park, will include a medical building, two multifamily buildings, six commercial buildings and six mixed-use buildings. The multifamily projects will consist of 742 units. DR Horton is the lead developer. In addition to the commercial component, the company will also build hundreds of homes.

The project will be divided into two distinct developments, each with its own unique features. Amenities for the west side will include a swimming pool, a promenade with public art, two playgrounds and a greenway around the wetlands and ponds.

The east side’s amenities include a swimming pool, clubhouse, a playground, food truck area with shelter and a dog park.

Houston is the only Texas metro with growing multifamily rents at the moment. But seeing its apartment market as in the clear would require rose-colored glasses.

Houston’s multifamily rental rate has grown 1.2% in the last year, according to a July report from MRI ApartmentData, a market insights product from MRI Software. This brings the average apartment price in the city to $1,279 per month.

The growth is in contrast to the rest of Texas, where multifamily rents are starting to fall, and to a national trend that saw year-over-year drops averaging 1.8% as of this month.

Zooming out, however, this won’t put Houston’s multifamily market ahead of other cities anytime soon. Houston is playing some short-term catch-up, but good times are unlikely to keep rolling as the same headwinds impacting other markets blow in.

Sun Belt markets like Phoenix and Tampa, Jacksonville and Orlando, Florida, all enjoyed rent growth of more than 30% from the start of 2020 through the end of 2022, according to MRI ApartmentData. In Texas, Dallas-Fort Worth’s average rent grew 26.9% and Austin’s grew 24.5%.

Houston trailed at 18.5% growth over that period. 

“Houston was the runt of the rent growth litter for the years coming out of the pandemic when the economy reopened,” Bruce McClenny, industry principal for MRI ApartmentData, said in a statement to Bisnow.

While Houston still had strong job growth and in-migration, it wasn’t as popular as Florida and Arizona or cities like Atlanta, Nashville, Tennessee, or Charlotte and Raleigh-Durham, North Carolina, he said. Within Texas, DFW and Austin were the “darling destinations,” McClenny said.

Now, Houston’s rent has grown 1.2% in a year, the only Sun Belt city among 11 others tracked by MRI ApartmentData to do so. Tampa remained flat, and Austin and Phoenix-Tucson dropped more than 4%.

McClenny said that this year, “those markets that were some of the hottest are now the coolest.”

Renters are behaving as they traditionally do under threat of recession, he said — moving in with relatives, finding roommates and turning to shadow rentals, including mom-and-pop single-family units.

But while Houston appears to be holding its own, it is more that it never rose as high and hasn’t fallen as fast as other cities.

“Houston has done a reversal from last to first, but this is a dubious honor,” McClenny said. “It’s the old adage that the highest fliers have the most to fall.”

Courtesy of MRI ApartmentData

Houston’s lower rents and slower growth have led to less development interest than other peer cities, said Todd Marix, senior managing director of investment sales at Berkadia’s Houston office. 

“Houston’s rents just didn’t do enough to offset the rise in construction costs,” he said.

A lack of development investment helps explain why rents are rising in Houston and falling elsewhere, Marix said. In Houston, apartments under construction relative to all stock is about 2%, he said. 

That trails DFW’s 5% and Austin’s whopping 16%, he said. Austin will have difficulty absorbing all of that new stock, meaning many landlords will have to offer concessions to new residents — like one to three months free — and rents will soften, Marix said.

Even though Houston won’t have as much to absorb, the roughly 39,000 units in the pipeline have the potential to put an even greater dent in the metro’s historically low multifamily occupancy rates, Bisnow previously reported. Houston’s occupancy sat at 89.6% this month, according to the MRI ApartmentData report. 

In other Sun Belt markets, occupancy is closer to 95%, Marix said, adding Houston has long had an issue with oversupply.

“Houston’s kind of famous for overbuilding as the market is constricting,” Marix said.

Additional trouble could be ahead for apartment owners that utilized floating-rate debt, and it is likely to be more prevalent for workforce or Class-C housing owners, Marix said. 

“That’s usually the first shoe to fall within a deteriorating situation,” he said. “These buildings are older, they require more capital expenditure.”

Houston-based Applesway Investment Group saw a $229M portfolio of multifamily properties foreclosed on in April. Applesway’s inability to cover loans on four Houston apartment properties led to them being resold at auction the same month.

It is also unlikely that anyone budgeted for the way interest rates rose last year, Marix said.

“The speed in which it changed was incredible and caught a lot of people off guard,” he said. 

If an owner bought late in the cycle when valuations were high, utilized floating-rate debt and had a high loan-to-value ratio, the only options are to sell, refinance in an unfavorable lending environment or hand over the keys to a lender, he said. 

“I mean, nobody’s going to overcome that particular set of circumstances,” Marix said.

And while Houston’s multifamily rents are growing, albeit by small margins, they are not keeping pace with operating costs, namely taxes and insurance, he said. 

“If you’re on a floating-rate debt, your debt service has gone up,” Marix said. “The water is just getting hotter.” 

Industrial developers are going the extra mile to fortify facilities as a confluence of population growth across Middle America and the rise of severe weather events outside of the region known as Tornado Alley puts more warehouses in the path of destruction.

Twenty-seven of North America’s top 100 logistics companies are headquartered in the Midwest, home to several states that fall into Tornado Alley, according to a 2023 report by Transport Topics. But increasingly severe weather ripping through other parts of the country is expanding the definition of which states fall under that umbrella, while population shifts mean more facilities are moving into danger zones.

“Manufacturing, warehouse and logistics folks are going to go where the population goes,” said Kathy Fulton, executive director of the American Logistics Aid Network. “If we are building in places we’ve never built before because people are moving to places they’ve never lived before, then there are hazards that we’re going to have to deal with that we’ve never dealt with before.”

Much of the influx of industrial activity in the region can be linked to pandemic-induced migration patterns, which saw many Americans moving out of large cities and into less populous areas. Industrial demand surged in the Midwest during the health crisis, with a 2021 JLL report projecting the region would need 275M SF of new warehouse space by 2026 to meet demand.

Kansas, for one, landed 21 distribution warehouse or logistics plants in 2022, according to the state’s Department of Commerce, including everything from a $1M investment by Fridgetek to a $326M investment by Heartland Coca-Cola Bottling Co.

“We’re seeing more [severe weather] events, and we’re seeing them in areas we never had warehouses before,” Fulton said. “This propagation of warehouse space over the last decade has put those buildings in areas where tornadoes may have occurred in the past, but they never affected anybody because it was just land.”

At the same time, pro-business policies as well as the availability of land, labor and power in cities like Atlanta, Charlotte, North Carolina, and Nashville, Tennessee, have generated more manufacturing activity in the Southeast, which is home to 28 of the top 100 logistics firms, per Transport Topics. 

And while tornado risk has historically been low in the region, a growing body of research suggests that is no longer the case.

States like Arkansas, Louisiana and Mississippi have experienced an increase in tornado touchdowns each year, an April report by Insider found, and researchers warn the storms could become more severe and begin to devastate a greater swath of the U.S.

“There does appear to be a shift [in tornadoes] toward the Southeast,” said Jessica Waters, vice president and manager of climate and structural resilience for commercial property insurer FM Global. “It’s something the science community is keeping an eye on, and it’s something that FM Global is certainly keeping an eye on so we can be in a better position to help protect our clients.”

A series of deadly tornadoes swept through southeast Missouri, southern Kentucky, Tennessee and central Alabama in March 2020. The worst of the storms occurred in Middle Tennessee, resulting in widespread damage, hundreds of injuries and more than two dozen deaths, according to the National Weather Service.

More than 400 commercial structures were damaged or destroyed in Nashville, according to CNBC. The impact was especially acute given the exponential population and corporate growth that had occurred there over the preceding decade, driven by companies like Alphabet and Amazon opening up hubs and creating thousands of jobs.

Tornadoes happen with little notice, which makes preparation difficult, said Richard Thompson, international director and leader of supply chain and logistics solutions for JLL. Many companies will shy away from Tornado Alley, he said, but those that choose to go there usually spend extra money on strengthening facilities.

“The holy grail of the supply chain is trying to predict the unpredictable, and tornadoes are the ultimate in natural disasters that are extremely difficult to predict and understand,” he said. “If you can’t stay away, then there are some building designs that are advantageous.”

Choosing the right construction materials is critical to protecting facilities against tornadoes, Waters said. Opting for a concrete roof over metal, or avoiding materials that could become projectiles in severe wind, are some of the things developers in Tornado Alley have to consider.

Those choices, she said, often translate to a heftier bottom line.

“There would be an increase in cost because you are designing the building to be more robust, you’re using heavier construction materials,” she said. “That comes into balancing the business’s tolerance for risk, and is it worth that investment?”

Climate resilience is a top priority for Prologis, the world’s largest industrial landlord, said Carter Andrus, managing director and global head of operations. The company implements disaster response planning and regularly reinvests in its buildings to protect against severe storms, including tornadoes.

“Prologis regularly reevaluates its construction specifications to withstand severe weather events to the best extent possible,” Andrus said in an email. “For example, we have increased the thickness of roofing materials used and added protection around HVAC units to improve resiliency of our portfolio.”

The decimation of transportation infrastructure can cause major supply chain disruptions in the event of a tornado. Last-mile logistics companies like Senpex use technology that aggregates real-time road data from various sources, including Google Maps and OpenStreetMap, to optimize routes so the business can continue to operate.

“This is our core, main problem for logisticians,” Senpex owner and CEO Anar Mammadov said. “The efficiency of the routes and how to make sure drivers are delivering more stuff in a short period of time.” 

But most manufacturers and logistics service providers don’t have the resources to make these kinds of structural or technological investments, Fulton said, which is where the public sector and nonprofits like ALAN have to step in.

“So many organizations just don’t have the money or the time or the staff to even build a simple business continuity plan or do a simple risk assessment,” she said. “That’s no shame to those organizations; there has to be a way that we make that easier for them … It’s an industry problem that all of us need to work towards together.”

FM Global invested $300M into the 2022 launch of a program that helps policyholders protect against flood, wind and wildfire exposure, Waters said. The credit has the potential to reduce total losses by $120B, per FM Global’s website. 

The Federal Emergency Management Agency also helps communities safeguard against natural hazards through the Building Resilient Infrastructure and Communities program. This year’s program awarded $136M to 325 applicants across 55 states and territories, per FEMA’s website.

These types of partnerships help harden infrastructure and drive business into areas that would otherwise be avoided due to climate risk, Fulton said.

“It’s going to keep our supply chains running after a disaster if we’re not losing power, if we’re not losing water, if we’re not losing whatever resource that building needs,” she said.

The threat of tornadoes is unlikely to drive companies away from certain areas, Thompson said. There’s just too many other benefits that outweigh the risks. 

Ultimately, whether or not a company lays down roots in Tornado Alley or any other market prone to natural disasters will come down to their tolerance for risk, Waters said.

“There are things that can be done to mitigate losses, but not all losses are preventable,” she said. “As an organization, the firm needs to look inward and really understand where their vulnerabilities are and where the heartbeat of their company is — that will help inform their decisions on where they’re going to build and where their logistics are located.”