Houston Appealing to CRE Investors

HOUSTON-Houston, it seems, is "back." Job growth continues to trend upward. Houston is in a state with a pro-business climate, no income taxes and a high quality of life. All of this has its impact on commercial real estate. Leasing in all sectors is active, while office, industrial and multifamily buildings are attracting strong interest from investors ranging from private equity and trusts, to pensions, institutions and REITs.

According to Transwestern's Steve Pumper, Houston was never really "away." Furthermore, today's investment climate didn't happen overnight. Rather, what's going on now was about a year and a half in the making. "Most investors look for locations that have high barriers to entry, industries that are growing and general job growth," comments Pumper, who is Transwestern's executive managing director, executive leadership, capital markets. Houston has all of that, he goes on to say, meaning "it's been a huge beneficiary of investment interest."

One major impetus is, of course, energy. Houston, after all, is nicknamed "Oil City" for a reason. But Pumper tells GlobeSt.com that in recent months, natural gas has had a huge impact on the region as well. Furthermore, area energy companies were smart during the recent downturn. "Energy companies did a good job of retaining good engineers during the recession," Pumper notes. "They're looking to grow these days, but not crazily so."

Though energy is the leading impetus for jobs, the other legs of Houston's three-legged stool remain the area's medical district and the Port of Houston. The latter will benefit from the pending widening of the Panama Canal, and Pumper points out that the Port of Houston's participation will help change distribution patterns.

The final point on the active investment climate here is cost of capital. Pumper points out that, for example, CMBS placed $25 billion worth of new lending during Q1 2013 – compared to $48 billion during all of 2012. Extrapolating this activity, CMBS placement could top out at $130 billion in 2013. Furthermore, life companies are active on core, stable products, while "banks have found a nice niche in development as well as other products sold," Pumper observes. The result is a current cost of capital and lenders matching quite well to the equity need. There is the always present danger of increased pricing if there aren't enough deals out there to satisfy investor appetite. But Pumper right now says the Houston price points are still solid.

Is there anything likely to tarnish the situation? Not in the near term, though Pumper says multifamily development and growth need to be monitored, especially as the likelihood of people buying homes will increase. The cost of living, and the cost of homes, in Houston is much lower than in other parts of the nation.  "Entry into single-family residential is at a lower price point in Houston than other coastal cities," Pumper says.

He also goes on to suggest monitoring developments among other CRE assets to make sure overbuilding doesn't take place. But overall, "I feel good about where we're headed," he says. "The spigot was shut off for a period of time, and that product is starting to come online."

Steve Pumper will moderate " Capital Sourcing and Investment in Houston" at RealShare Houston, Tuesday, April 30 at the Petroleum Club, 800 Bell St. For more information about the event, click here.