HOUSTON – (By Michelle Leigh Smith, Realty News Report) – As 2018 began, institutional investors are focused on Houston again, while the industrial and multifamily markets still have room to run. In short, the forecast for Houston commercial real is good, according to experts at the BoyarMiller Annual Commercial Real Estate Forum at the Briar Club Thursday.
Despite two missed workdays due to the ice-pocalypse, no restlessness among the crowd could be detected. Brokers and investors young and old gave rapt attention to the Forum’s three speakers: Jonathan Brinsden, CEO of Midway; John Nicholson, EVP of Development for AVERA Companies; and Jimmy Hinton, Managing Director of Research at HFF.
John Nicholson III, EVP of Development for AVERA, a private firm specializing in the industrial market countered, “We should see positive market activity in both the plastic resins and consumer products” said Nicholson, a former professional baseball pitcher before becoming an expert in Houston’s industrial real estate market.
As the industrial market expands, warehouse tenants are demanding better buildings with more amenities.
“Driving tenant demand in the new industrial warehouse is higher ceilings, wider column spacing and longer truck courts,” said Nicholson.
Nicholson attributes the continuing expansion in the Houston industrial market to more rooftops and the widening of the Panama Canal. “The shippers have changed their routes and the Port of Houston container shipping has grown by 15 percent,” he said. “You’ll see the Best Buys of the world continue to come. The new petrochemical plants are coming on-line, in Baytown for example, where we will see continued rail-served warehouse development.”
Jonathan Brinsden, CEO of Midway, commented on the multifamily market. “While Houston developers had introduced many units into the pipeline – 20,000 in 2016; 14,000 in 2017 and 8,000 units in 2018, many of those have been absorbed,” he said. Brinsden expects strong multifamily construction this year and cited the National Multifamily Housing Council’s latest ranking of Houston at No. 3 for under-supplied housing.
“We all underestimated how urban residential was being built for millennials,” said Brinsden. “The average age in our units is much higher. It’s gone from renting by necessity to renting by choice. Perhaps before that the optimum product may not have been there. Today, that product exists.”
“There’s a much larger market for residential growth,” said Brinsden.
“We were excited to build a mixed-use development around a world-class community park with Kirby Grove,” he said. “Being the first to form this kind of public + private partnership between Midway, a privately held real estate firm, and the Upper Kirby Redevelopment Authority and the City of Houston’s Parks and Recreation made the project more interesting. Maybe we were willing to be the first because we had a great experience with CITYCENTRE, seeing how an active public greenspace can make a positive contribution to commercial and residential development. Additionally, the City’s experience with Discovery Green an enormous positive for the downtown residential community.”
Directly adjacent to Levy Park is Midway’s 16-story, Class-A office building, Kirby Grove. It has 225,000 SF of Class-A office space and 25,000 SF of ground floor restaurant space. Our first restaurant, Kiran’s, has frontage on Richmond Avenue and when it opened, it brought chef Kiran Verma’s loyal fan following. Gensler designed the interiors. MidiCi The Neapolitan Pizza Company opened there as well. The Kirby Grove’s office project is 86 percent leased. The most recent tenant signed was the co-working company Spaces.
After a slow market last year, Hinton said major investors are bullish on Houston for 2018. “There is $150B of dry powder in the queue sitting on the sidelines waiting to deploy, but it is very patient,” he said. “It’s important to step from the inside and look at it from the outside. You can achieve a better deal here than paying for a four-cap apartment building in San Francisco. “The opportunity to increase that cap rate through NOI accretion is better in Houston given our position in the economic cycle, versus other domestic markets.”
He asked the crowd to envision Houston from the outside, from the viewpoint of a sovereign wealth firm like Canadian Pension Plan Investment Board with $325B in assets under management, with approximately ten percent of that earmarked for real estate. “You are in charge of investing and you curate partnerships with the intention to invest in retail, apartments, and industrial. When it comes to office, you directly place $1.2B in Houston office properties. (Last year, CPPIB bought Parkway REIT, which owned Greenway Plaza and other major Houston buildings).”
Hinton offered some insight to those who seek a clear picture the Houston real estate market. Drawing a reference to the impressionism art of the 1880s, Hinton compared it to pointillism, the practice of applying small strokes to blend together to form a painting. “At close range, you are just seeing the dots,” he said. “Step back, and you can see our market more clearly.”