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The State of the Commercial Real Estate Market, June 5, 2018

Rand Stephens, Darrell Betts, Avison Young

HOUSTON – (By Michelle Leigh Smith, Realty News Report) – When Welcome Wilson Sr. put together the money for his first development, Jamaica Beach in Galveston, oil was $2 a barrel, the Texas Railroad Commission controlled the worldwide price of oil and Eisenhower was president.

“I was always taught to respect my elders and now I only have one left – Gerald Hines and he’s 91,” says Wilson Sr., 90, who opened the Bisnow/HAR Commercial State of the Market macro conversation for 300 commercial real estate professionals at the Westin Memorial City with highlights of his early days in Houston real estate.

Like Jesse H. Jones before him, Wilson Sr. advised the room of developers to deal with problems head on. “My father wanted my brother and I to move here in 1946 because he believed Houston would be the business capital of the world. At the time, Mr. Jones owned seven of the nine hotels, eight of twelve office buildings, the largest bank, the National Bank of Commerce, the biggest newspaper, the Houston Chronicle and the biggest radio station, KTRH, headquartered at the Rice Hotel,” he says.

Welcome Wilson Jr. quizzed his dad about Houston’s go-go days of real estate. Wilson Sr. graduated from the University of Houston in 1947.

“I was going to become an oilman and I went to work for R.E. “Bob” Smith,” he says. “Judge Roy Hofheinz appointed Bob as the director of civil defense and I became an assistant to the mayor so I could go make speeches when the mayor couldn’t show up. Bob told me the independent oil business was over – that an independent couldn’t raise $40,000-50,000 to drill a well, so you need to go into the real estate business. He was the largest real estate owner in Harris County. He owned land just west of River Oaks, it’s now called both sides of the West Loop and Westheimer. He owned land further out that’s called five miles of the West Belt on both sides.”

Wilson later developed 1,200 lots at Tiki Island, for $18,500 each.

“My father was right – business was booming in the late 1950s, so with the help of Walter Mischer Sr., I got into the apartment business,” he says. “We didn’t call it multi-family. Houston was and is the city of opportunity because of people like Jesse Jones, Bob Smith and Walter Mischer. Then we got into building shopping centers and hotels. When Marriott had five hotels, I developed No. 6, out by the Astrodome. Today Marriott has 6,500 hotels. We did three office buildings downtown.”

Darrell Betts, Avison Young, Principal, Capital Markets Group, reiterated what an honor it was to share a program with the Wilsons. “I think Houston will be OK,” says Betts. “Over the last three years and looking forward to the next two, more than $50B will be spent on infrastructure along the Houston Ship Channel, creating 50,000 more jobs. When you look at it from that angle, we’re just fine. $50 billion is worth 10 Amazons! There will be a massive influx of companies coming in to support the refinery expansions.”

“Houston is very pro-business,” says Betts. “By 2050, we will have 22 million people here. We’ll continue to diversify.”

Betts spoke on the panel that looked to the future of Houston, sharing a 5-year vision with Larry Johnson, President of Johnson Development LLC, Andrew Lusk (Lionstone Investments, Head of Acquisitions), Simmi Jaggi, JLL, Senior VP, moderated by Randy Elkins, Managing Director with American Trust Title. HAR’s commercial division along with Bisnow hosted the annual event.

Jaggi noted the City’s attractive cost of living and the fact that we have no zoning.

“Houston welcomes people – it does not matter where you are from, if you can contribute, you are welcome,” says Larry Johnson, founder and president of Johnson Development. “In homebuilding, Houston is No. 2 in the nation, second only to Dallas.”

“The elephant in the room is interest rates,” says Betts. “It was 2.94 per cent this morning. My dad said if you could predict it, you could sit on a beach and fly around in a Gulfstream.”

As the energy capital of the world, Houston has always attracted Fortune 500 companies in the oil and gas industry such as Phillips 66, Halliburton and Marathon Oil. In fact, there are 25 Fortune 500 companies headquartered in Houston. Healthcare has also been an emerging economic driver and Houston is home to the largest medical center of the world, the Texas Medical Center (TMC). Avison Young Managing Director Rand Stephens says the TMC has more than $3B in construction projects on tap with more to come. “By uniting the collective renowned hospitals, public health organizations, universities, medical, dental and pharmacy schools and academic and research institutions, the TMC is poised to transform health, education and research needs of Texas and the world,” he says.

A second panel on flood control issues featured Jeff Linder, HCFCD, Directory Hydrologic Operations Division/Meteorologist, Charlie Penland, Walter P. Moore, Senior Principal and Director of Civil Engineering, Stephen Costello, Chief Resilience Officer, Melvin Spinks, President of CivilTech and John Blount, HC Engineering Department, County Engineer.

“We can’t change our topography,” says Linder. “The best we can do is try and store the water.”

A question from the audience directed fire to issues at the Addicks and Barker Dams, which had not been de-silted for many years. “That’s owned by the Corps of Engineers,” said John Blount. “The only thing we did related to that was to get sued.”

“Despite Harvey’s tremendous economic damage, this year’s Houston Area Survey by the Kinder Institute still lists traffic as the No. 1 concern among residents,” says Steve Costello. He noted that prior to 2015, major floods were 8-10 years apart. “The Houston Endowment’s new green incentives will do more for green infrastructure, which should help.”

Charlie Penland shared that he just returned from a meeting where Dallas is partnering with the Texas Highway Department on drainage, using highway dollars. “As we get recovery dollars, it will be important to bring in other partners,” he says.

“It was refreshing to hear developers taking about transportation needs and how we need to expand and improve our transit options,” says Patti Joiner, FAICP, president of Knudson LP. “We need to expand our METRONext conversations to include the development community because their input and suggestions are vital.”

“Equally interesting was the panel on flood mitigation and what developers think of the recent regulatory changes and the potential impact of the pending NOAH rainfall amendments mean to our region,” she says.

“Jeff Linder reported the change in September will go from 13.2” to 17 inches in a 24 hr period,” says Joiner. “The change in the 24 hour rain frequency will also trigger a change flood plain delineations. There will be major changes in impacts to FEMA maps. It is imperative the entire community support and vote for the recently announced Harris County $2.5B Bond issue for flood control improvements. It is our chance to continue to build on resiliency as our region doubles in population by 2040. We must plan for our future and spend that tax dollar to solve three things simultaneously and across multiple jurisdictions. It our region and we must collaborate on common solutions.”

June 5, 2018 Realty News Report Copyright 2018

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