Clay Development & Construction Inc. is embarking on a new industrial development course fueled by a robust energy industry and a retreating residential market.
The Houston-based firm is in the process of buying nearly 700 acres in different parts of town to establish four new business parks with a combined price tag ranging from $300 million to $400 million.
Owner Robert Clay cites several reasons for the latest surge of projects by the prolific development firm.
Two of the sites are being acquired from residential developers who decided to sell in the housing market slowdown.
"If residential was still going as hot and heavy as it was a year ago, the industrial market would be hurting big time because we wouldn't have any land to go to," says Clay. "Finding land is now the hard part of this whole equation."
This new cycle of business also represents a move back toward the company's roots.
Clay Development earlier attracted attention by constructing a 900,000-square-foot building -- big enough to hold 18 football fields -- in the Underwood Business Park.
The firm sold most of the land and large buildings in the 200-acre business park late last year for roughly $100 million to New York-based BlackRock Inc., says Clay.
Size-wise, the new buildings will be much smaller than Underwood's mammoth facility and bigger than the speculative buildings typically developed by the firm.
Instead of building in the 22,000-square-foot range, the company plans facilities 50,000 square feet and larger.
Clay says smaller buildings are not leasing as quickly as larger ones.
"They used to go real quick, but now they're languishing around because there's a lot more of those on the market," he says.
At the same time, a shortage of large manufacturing facilities led Clay to readjust his focus.
The proposed business parks also will offer something a lot of industrial projects no longer provide -- buildings with capacity to handle 20-ton cranes and larger.
Oil and gas-related manufacturing requires heavier cranes in the fabrication of specialized tools and drill rig parts. Many existing buildings can accommodate only five- to 10-ton crane capacity.
"The oil and gas manufacturing industry is just booming," Clay says. "They're over capacity."
He anticipates high demand for the heavy-duty cranes.
Says Clay: "When a guy needs more than a 10-ton crane there's absolutely nothing in the city he can lease."
John Talhelm, an industrial broker with The Staubach Co., confirms the need for sites for large crane-ready buildings.
He says only one available building in the area is larger than 50,000 square feet with 20- to 25-ton crane capacity.
That didn't use to be the case. The city used to have a manufacturing base with multiple facilities capable of accommodating 70- to 100-ton cranes.
Talhelm says those facilities became extinct as the cranes flew overseas, where most heavy manufacturing work is done today.
Here a park, there a park
Clay is mapping his business park plans at a new location, the 33,000-square-foot building his company bought in the Galleria area.
Over the next five years, the developer intends to construct between 6 million and 8 million square feet of industrial buildings on sites within the four proposed business parks. About 15 percent is expected to be built on a speculative basis before tenants are secured.
Meanwhile, Clay Development continues to accumulate the 700 acres earmarked for already-named business parks in different parts of town.
Two purchases are still pending.
The company has 130 acres under contract for the Cutten Road Business Park. The Northwest Houston site is just south of Willowbrook Mall, between State Highway 249 and Cutten Road.
Another 150 acres is being acquired for Deerwood Glen Business Park on the southeast side of town, two blocks east of Beltway 8 and State Highway 225.
Two tracts acquired earlier this year are in the initial stage of development.
In March, the company acquired 192 acres in North Houston from Headway Estates Ltd. for Kennedy Greens Business Park. Infrastructure work has already begun at the site on the east side of JFK Boulevard, just south of Aldine Bender. Construction will start in July.
In February, Clay Development bought 215 acres in the Katy area from David Ward Partners for Stonegate Business Park. The land is just north of Interstate 10 at Pederson Road. Following site work, construction will start on the first building in June. Completion is scheduled for January 2009.
Both acquired tracts were previously considered ripe for residential development in a hot housing market.
Clay says the land purchased from David Ward Partners was headed toward home construction.
"I was looking at doing one-acre lots on it," says land investor David Ward.
Headway Estates liked the return on investment, says Mark Lehman of Grubb & Ellis Co., who represented the seller.
Lehman says his client didn't mind selling the tract because the profit is higher for industrial use than for residential development.
He would not disclose the sales price, but says 200 acres purchased two years ago for $8,000 an acre could sell today for as much as $65,000 an acre, depending on the property.
Says Lehman: "You're making a nice return on your money. That was what was interesting to (my client)."
jdawson@bizjournals.com • 713-395-9631