The Ralph Bivins Project – Podcast Guest: Edward Griffin of Griffin Partners

HOUSTON – (Realty News Report) – The latest episode of The Ralph Bivins Project features Edward Griffin of Griffin Partners, a Houston-based real estate development firm that operates across the Sunbelt.

RALPH BIVINS: Welcome to the Ralph Bivins Project. We’re here today to talk about the office market, the commercial real estate market and a lot of interesting things going on there. We are really pleased to have Edward Griffin of Griffin Partners. They have holdings across the southern United States. We want to get his impressions of where we are going and what is going to happen next. Thanks, Edward, for taking the time.

EDWARD GRIFFIN: My pleasure. Good morning, Ralph, good to be with you.

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RALPH BIVINS: Your firm started in 1980 and, for a long time, you were really well known for developing office buildings. Griffin Partners now operates in a number of states and is active in other property types, but your expertise in the area of office development has been well-known. So, where is the office market going? There are a lot of question marks on the horizon.

EDWARD GRIFFIN: That’s a great question, Ralph, and it’s certainly been in the news, particularly for people in the commercial real estate market. It is a challenging time for the office market, and we are seeing this across the country, not just here in Texas. We are seeing the impact of the work-from-home model, if you will, which evolved mainly during the time of COVID. But work flexibility was increasing even prior to COVID. Remote work accelerated, as did many other things, with COVID.

We are beginning to see a little bounce back from the depths of where we found ourselves when work-at-home was at its peak, but we are still a long way from where we were before the onset of COVID. Statistics will tell you we are about 60 percent back to normal in Texas and the southern states. And these states are farther along in that process than in the coastal gateway areas on the east and west coasts. But when you look at the demand profiles for the companies in the market, especially the impact on the larger firms, when it is time to renew their lease, they are no longer in a position of kicking the can down the road. They have to make a strategic decision. And I would say that in three out of four cases, they are downsizing or moving to a newer, higher-quality location. And when they do, a company located in 200,000 SF building will renew or move into a facility with 150,000 SF, and a 150,000 SF firm will move to 75,000 SF.

RALPH BIVINS: It’s hard to make progress this way. This has been happening in Houston.

EDWARD GRIFFIN: Another trend in Houston and other markets involves people who are migrating out of the central business district and into the suburbs. Frankly, you and I are both old enough to remember when that happened in the ‘70s and’ 80s. In many ways, it looks like a repeat.

But back then, it was employers following the Baby Boomer generation out to the suburbs to form households. Now, employers are following Millennials as they leave the high-rise apartments they have been living in for a decade and moving to the suburbs to get a yard and more options from a schooling standpoint.

So, we’re seeing that. We’re seeing downsizing. The broad market as a whole is kind of treading water. Underneath the surface is quite a bit of turbulence. The most significant thing is we have a permanent flight to quality. The differentiation between newer buildings and the older, more obsolete, in many cases, buildings is quite stark. In a downturn, you always have a flight to quality. Usually, it is temporary. But this time, I think it’s going to be permanent. Some buildings are obsolete and will never recover. They will either be torn down, or the site will be used for another purpose, or the building itself will be repurposed.

RALPH BIVINS: In Houston back in the early ‘80s, so many structures were built in such a short period of time that many turned out not to be wise market-based decisions.

EDWARD GRIFFIN: Very true. I remember the statistic – I hope it’s correct – that between 1978 and 1995, Houston built as much new office space as existed in the entire city of Philadelphia.

RALPH BIVINS: It was a huge amount.

EDWARD GRIFFIN: Gigantic numbers. But we did have a lot of high-quality developers at the time – Mr. Hines and his firm obviously being a great local example of that. The Trammell Crow Co. in Dallas. They were all building quality products back in the 1980s – and those structures are still competitive today. I would not place them into the category of being obsolete and unable to be recovered.

It was easy to be a developer back in those days. There were very few barriers to entry and, as you said, the assets that were built were not of high market quality.

RALPH BIVINS: I was thinking of the old Texas Commerce Tower, the 75-story building downtown….

EDWARD GRIFFIN: I still call it the Texas Commerce Tower. I guess I’m showing my age.

RALPH BIVINS: I used to work right across the street. I have been in that Texas Commerce, now JP Morgan Chase tower, hundreds of times. They have done a pretty remarkable redo that looks great. They spent a lot of money redoing the building. Occupancy is up to 84 percent. The tenants have expanded because of the renovation. This was a quality building to begin with, having been developed by Hines.

That redo worked. I do not know if all of them will be strong enough to withstand market conditions.

The Energy Corridor seems to be doing well out in West Houston.

EDWARD GRIFFIN: For the last few quarters, I agree. There’s been a lot of positive activity in West Houston. Of course, there were a tremendous number of vacancies out there.

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Griffin At-A-Glance

Edward Griffin is CEO of Griffin Partners, a commercial real estate investment, development and property management firm founded in 1980 by Fred Griffin. Edward, who has led the firm since 2002, was involved in investment banking earlier in his career. Edward has served as president of the Houston chapter of the NAIOP real estate organization. Headquartered in Houston, Griffin Partners cumulatively has acquired or developed more than 18 million SF of space across more than 79 projects comprised of 112 individual properties, with an aggregate value that exceeds more than $2.5 billion. The company owns and operates properties throughout Texas, Colorado, Arizona, Utah, Tennessee, and North Carolina. Griffin Partners recently started construction on a 2 million SF industrial project in Nashville.