Scarlet Capital Buys Industrial Complex in Houston’s East End

Scarlet Capital has acquired a sprawling industrial complex in Houston’s bustling East End.

The Houston-based development firm bought the 14-acre McFarland Infill Industrial Complex, which spans 216,000 square feet across 14 buildings at 601 McFarland Street. The firm plans to improve it and hold it for possible future redevelopment.

The price wasn’t disclosed, but the Harris County’s Appraisal District valued it at $10 million in January 2023.

The acquisition marks another addition to Scarlet Capital’s expanding industrial infill portfolio, which already includes the Oilwell Collective, a 66,000-square-foot creative workspace on North Lamar Street, and the St. Charles Collective, also in the East End, at 815 St. Charles Street. Alexander Ron, half of Scarlet Capital’s founding brother duo, suggested the latter infill warehouse is slated to become a design gallery.

“I like the infill industrial asset; I think that is the most quickly disappearing asset class. And therefore, I think it’s going to be very supply constrained. We want to own assets that are essentially supply constrained, because then you can kind of control your own submarket, you can control your own rents and you end up with an irreplaceable asset,” Ron said.

Scarlet Capital plans a comprehensive overhaul of the property’s buildings, with a focus on creating enhanced spaces for current tenants and redesigning its main brick building, which is currently vacant.

Built in 1950, the property boasts high occupancy, Ron said. Aesthetic upgrades and functional improvements will be at the core of the project’s renovations, which aim to optimize operational efficiency. Colliers agent Zachary Taylor has been tapped to oversee leasing.

Houston’s East End is experiencing an urban rejuvenation and ongoing development that could benefit this property.

Lovett Commercial president Frank Liu recently bought the 280,000-square-foot Farmer Brothers Company coffee plant at 235 North Norwood Street for $10 million. Liu plans to convert the warehouse into an arts and music educational campus with a rooftop event space.

Other projects coming down the pipeline include Buffalo Bayou East’s master plan to transform the East End into a cultural destination with twin pedestrian bridges, mixed-income housing complexes and park expansions by 2032.

“We’re right next to Port of Houston, and that’s a huge deal for us, because I think you’re seeing container volume in Houston skyrocket … in other ports, you’re actually seeing container volume decrease, so I think all the buzz for Houston industrial is going to be proximity to the Port of Houston,” Ron said.

The Port of Houston experienced a 14 percent year-on-year container volume growth in 2022 with record total tonnage, adding to demand for industrial space in the area.

Meanwhile, the southeast submarket boasts one of Greater Houston’s lowest industrial vacancy rates, 4.5 percent, according to real estate research firm JLL. The northwest and southeast submarkets alone accounted for nearly 50 percent of Greater Houston’s new industrial activity in the first quarter of 2023.

With development in the East End aimed at transforming it into a more pedestrian-friendly haven, Scarlet Capital has lofty plans for the McFarland industrial site.

“The long term thesis is that if we hold it and operate it as an industrial park and clean up a lot of the inefficiencies that are ongoing, then it’ll be a fantastic redevelopment candidate,” Ron said. “On the back end, we might be able to redevelop it into something really cool and consumer facing. I don’t think the area’s ready for it yet, but I do think in a matter of five or 10 years it will be.”