Highest & Best Use
Updated: Oct 18, 2018
The deteriorating condition of businesses and commercial properties along Cypress Creek Parkway (FM1960) is a topic of frequent discussion within the halls of the Chamber of Commerce and around the community. Over the last decade, the Chamber has contracted several studies to assess and suggest remedies to improve this condition. One such study, “Summary of Findings and Strategic Revitalization Options in the FM 1960 Corridor” conducted by Spillette Consulting in 2010 is still very relevant today. This article aligns with many of the observations and recommendations from that study.
It goes without saying the condition of Cypress Creek Parkway has been on downward trajectory for several decades. We are witnessing a pattern of business closures with property owners struggling to find a like replacement either renting to a substandard tenant, or in many cases, the property simply remains vacant. With less available capital over time for maintenance, the cycle of deterioration unfolds, making it even more difficult to rent, until the property ultimately falls into disrepair. The presence of distressed property in a commercial corridor has a negative compounding effect on the other neighboring properties, bringing others down with it. This begs the question, “Why is it difficult to attract new tenants?”
There are a number of factors contributing to this problem, two of which are macro in scale and the other is simply a function of supply and demand. Houston has a 40-year history of boom & bust economic cycles due to the nature of the energy industry, a key economic driver. Houston has experienced 5 downward economic cycles since the mid-80s. Each time, residential and commercial real estate take a hit. Without strong capitalization to endure the cycle and a sound and well-resourced community-based strategy to position itself to attract and retain high wage earners, recovery becomes difficult. When high wage earners lose their jobs, they move to the next opportunity, forcing downward pressure on the housing market. This facilitates the second issue of lower income residents repopulating the existing residential inventory which changes the nature of the local retail and service sector landscape.
The third issue and the biggest influencer is simply the laws of supply and demand. There is now far too much retail inventory in Northwest Harris County than there is demand. Once upon a time, Cypress Creek Parkway was the main commercial corridor serving all of Northwest Harris and as a result thrived. Yet, as each new residential subdivision was created, they developed the frontage with additional commercial. The combination of commercial being a boon to the utility districts and the absence of land use codes, created the proliferation of commercial retail. The problem is compounded as Northwest Harris continued to grow, creating newer and better retail in other neighborhoods, and drawing away customers from the aging corridor. Add to the fact that delivery of retail in the U.S. is experiencing a metamorphosis, putting even more strain on existing brick-and-mortar development, hence, the predicament we are in today.
The conundrum is Cypress Creek Parkway still has high traffic counts. 60,000 – 70,000 vehicles per day travel up and down this corridor, some of it local, some of it passing through. This creates a false sense of value for the real estate with a perception that retail is still the highest and best use of the property. However, if there is an oversupply of retail, then it can no longer be the highest and best use, which begs the next question, “What is the highest and best use?”
If a highest and best use was apparent, the market would resolve the situation on its own through new investment and redevelopment. Attempts to identify a new use are already underway. For Example, in 2014, the Houston Northwest Chamber of Commerce in partnership with the Ponderosa Forest Utility District, Cypress Creek Homeowner’s Association and the Houston-Galveston Area Council created the Cypress Creek Parkway Livable Centers Study. The study suggests transforming pockets of distressed commercial areas into less automobile dependent, higher density, mixed use developments. This is a viable solution. An example of where this has been successfully implemented is in the Midtown neighborhood immediately southwest of Houston’s Central Business District. So, the next question becomes, “How does one make this happen?”
The solutions to urban renewal can take on many forms, but simply put there are two tracks it can take, a market approach or government approach. The market approach waits for the highest and best use to reveal itself. A government approach takes control of the property either through direct acquisition or encumbrances placed upon the property. Either one of these tracks is not a panacea. The challenge with a market approach is the time it takes for revitalization to occur and the unpredictable nature in how it happens. The challenge with a government approach is the limitation of resources and a concern for infringement on the 5th amendment of the U.S. Constitution. Often, the solution involves both market and government approaches. Out of desire to accelerate revitalization, governments have successfully lured in new private investment with the use of tax abatement incentives or direct participation in infrastructure improvements. Harris County has both economic development tools at its disposal with the 381 Agreement and the Tax Increment Reinvestment Zone (TIRZ), respectively. The Midtown redevelopment mentioned in the above paragraph is an excellent example of both public and private participation for the achievement of urban renewal.
Ultimately, there needs to be a perfect storm. The market needs to identify a highest and best use, the land values need to come into balance to attract new investment, and the government needs to step in with incentives to entice the investor to commit. While the current condition of Cypress Creek Parkway is not ideal, I am an optimist in that I believe turnaround is imminent. I say this because the Cypress Creek area has good bones, really good bones. The existing housing stock is quality, there is good infrastructure with good transportation access, proximity to employment centers and quality education, and a comprehensive presence of desirable amenities. We are not the only ones who have an interest in the future of Cypress Creek Parkway. The greater Houston development community is fully aware of its existence and continues to watch it out of the corner of its eye. I predict the minute there is the slightest movement toward revitalization, attracting new investment will become a conversation of the past.