RealShare EXCLUSIVE: Houston's Upside Lies in Its Changed Image

More than 350 brokers, tenant reps and financial experts attended the conference at the Westin Galleria Houston sponsored by Real Estate Media Network, parent of Real Estate Forum and GlobeSt.com in addition to the RealShare Conference Series. The mood and feeling were apparent from the first session "How to fix Houston's transportation infrastructure or should it be fixed at all?" In response to the opening questions, David Wolff, chairman and president of the Wolff Cos. and chairman of the Metropolitan Transit Authority of Harris County, strongly advised the city to "keep moving forward" and answered "yes" to upgrading the system.

Wolff's good-news updates included word of a $2-billion allocation for the regional mass transit system (with $1 billion coming from the federal government and the additional $1 billion in matching county and city funds) and the Main Street light-rail line's ridership has far exceeded expectations, with 40,000 commuters per day now climbing on board. "It's hard to look into those packed cars on a daily basis and say that rail won't work in Houston," Wolff said.

There also are real estate partnerships in the transportation mix as well. For example, the transit authority is working with Transwestern Commercial Services Inc. to develop retail near the Texas Medical Center stations. Also, a joint venture has been formed between NewQuest Properties LLC and the transportation authority for the to-be-built Cypress Park and Ride, which will feature 1,500 parking spaces and 120,000 sf of retail and restaurants.

"The success of the Main Street line has helped the cause a lot," Wolff said. But, he acknowledged, there is still a ways to go to "retrofit a city built for automobiles and making it work for public transportation."

But, will a light rail and bus transport system alone fuel the city's growth engine? Bob Lanier, the city's acclaimed former mayor, was an outspoken opponent of mass transit development during his political tenure. In a one-on-one interview with Michael G. Desiato, editor in chief for Real Estate Media Inc., Lanier explained "first, I thought it was the same as building a stadium, I simply thought it was too much money with nothing to show for it." Second, he added, the plan that had been formulated while he was in office simply didn't make a whole lot of common sense.

Lanier is impressed with the current success of the Main Street rail line, but he cautioned against expecting too much from the regional mass transit system. "It's not a huge carrier of people and not a congestion reliever," he stressed.

Lanier pointed out there are other things that make Houston a great place to live, work and in his case, govern. One main factor is bipartisanship simply doesn't exist when it comes to politics, giving Houston the "can-do" spirit it has. "We can reach across party lines to get things done for the city," he told Desiato. "I don't remember a single day during my six years as mayor when anything was blocked because of party politics."

Lanier said there are other things that do and have boosted the city's growth. Houston was put into the national limelight twice this year because of natural disasters--Hurricanes Katrina and Rita. As a result, Houston gained a reputation as a warm and caring city when it opened doors to Katrina evacuees, he said. And though the furor surrounding Rita's evacuations were harried, he added it did teach some valuable lessons that can be applied to the future.

Admitting Rita created some interesting scenarios, panelists for the "State of the Houston Market" session acknowledged the city has grown in stature, at least in the eyes of the rest of the world, for its reaction to Katrina. Larry Heard, Transwestern's president and CEO, said before the hurricane that Houston was considered a one-horse town, with that "horse" being oil and energy only, with few investors seeing beyond that to the region's diversity. "We've been a little underrated nationally, but that will change," he said.

That change already is occurring, according to Scott Galloway, senior managing director of Holliday Fenoglio Fowler LP. "In terms of liquidity, we're looser today than we've been," he said. "But I think compared to New York or Los Angeles, most investors consider those areas more desirable because the liquidity factor continues high in those areas."

Nonetheless, Houston's growth is beginning to be noticed, with areas such as the port attracting attention locally and nationally. "If people hadn't heard about the port, they will soon learn about it," said Robert Clay, vice president of Clay Development & Construction Co. He said there isn't much competition for land in the area at this time, but "within the next five years or so, we'll see development of five million sf to 10 million sf in the areas of the port, Deer Park and Pasadena."

Will Penland, senior managing director for CB Richard Ellis Inc., said one reason for the heightened interest in the port is due to the lack of capacity and union problems in the Los Angeles-area ports. That, he said, is driving shippers farther east, specifically Houston. Plus, he said "we're seeing pick-up capacity from the Port of New Orleans."

Nor was Penland the only one to point to Katrina as a potential catalyst for Houston's growth. "I don't want to benefit from anyone else's sorrow, but Houston has and will benefit greatly from this," said Kerry French, senior vice president and managing director for Minneapolis-based NorthMarq Capital Inc. He pointed out the resulting image of Houston as a powerful and helpful city, as well as one that is supporting job growth, will likely attract investors and their capital. "That, combined with our own entrepreneurship, I think will overall be positive," he added.

Katrina also has boosted the area's multifamily absorption rate with evacuees commandeering much of the overbuilt rental inventory. Kirk Tate, president of Orion Real Estate Services Inc., said the absorption is a double-edged sword. "We have anywhere from 20,000 to 45,000 units occupied because of Katrina," he noted, "but no one's getting any money from them because of FEMA's delay in reimbursement." With FEMA planning to reimburse the city [and the city, in turn, reimbursing apartment owners] during the coming months, the problem should be alleviated.

Another potential downside, Tate continued, is other out-of-area developers receiving news about a shrinking inventory and getting the wrong impression--namely that it's time to come to Houston and build more. "Hopefully they'll hold off and not do that," he said. Even with FEMA's delays and a slow economic rebound, the panel was optimistic about Houston's current and future state. Recent events from Katrina to an ever-improving job market to the Houston Astros' baseball team making it into the World Series are slowly helping the city to shed its "cow image," Penland said. "These are all image boosters. And all of them will help us enormously."