It’s no secret that Houston has been adversely affected by the dramatic drop in the price of a barrel of oil. Where will energy prices go? How has it affected real estate? What other cities in America are doing well? To find out, Realty News Report talked with Chip Clarke, President Americas, at Transwestern and a 30-year veteran of the real estate industry. Clarke directs Transwestern’s operations in North and South America, overseeing the firm’s brokerage and management services. Transwestern ,which has offices in 34 U.S. cities, is in an expansion mode and views 2016 as a year of opportunity. The privately held Houston-based real estate firm specializes in agency leasing, management, tenant advisory, capital markets, and development.
Realty News Report: As we start 2016, what is your overall outlook for how commercial real estate will fare in the year ahead?
Clarke: I feel great about the state of our industry nationally, and I think we’re going to be fine in Houston. As Patrick Jankowski of the Greater Houston Partnership said, “Houston will not disappear.” In Houston real estate, the downturn in oil prices is largely impacting the office market at this point. Clearly, the city’s Energy Corridor is feeling it the hardest, but once energy prices stabilize – whether lower or hopefully higher – and once people know how things are going to shake out, companies will make decisions on a more certain basis. One of the things that impacts the real estate business is uncertainty in the market. Because of that uncertainty, businesses are putting off decisions, and that tends to make a tough situation even more difficult.
What’s interesting about the energy sector today, though, is that some of the big fracking players can flip the switch on or off relatively quickly. You can’t do that with deep-water projects because they are longer term and require large-scale capital commitments. The offshore rigs can’t shut off the spigot that quickly. People I know in the field say we are in for a bumpy ride. That said, energy CEOs today are more prudent. They are going to fight to keep good talent. Oil companies are trying to hold on to the people they have. They have battened down the hatches and will be ready to ride the energy wave when it comes back.
Realty News Report: Oil prices recently dipped below $40 a barrel. What impact will the energy decline have on the real estate markets?
Clarke: Houston’s story today is a direct impact of the volatility of energy prices. Oil prices rising and falling is nothing new. We’ve experienced this uncertainly in energy markets before so there’s no need to get panicky. We worked through it and survived. What makes Houston different from some other energy markets is that we are more diversified. Clearly other parts of our economy are on a much better trajectory. The Port of Houston is a great driver of the economy and, given the underlying fundamentals for healthcare industries nationally, so is the Texas Medical Center (TMC). Additionally, in biotech and life sciences, what they have planned at the TMC is pretty darn exciting.
Realty News Report: What lies ahead for Houston real estate?
Clarke: I think we’re in for a sluggish market in 2016 in Houston, although I think it will start to turn up in 2017. If you look at the short-term reports on the health of overall energy markets, there is no reliable forecast out there. However, the long-term view for the energy industry bodes well for Houston. We can’t forget that Houston is the global energy capital, and the engineering talent is here, all the staffing and all the infrastructure that is needed when better conditions return. We feel great about the long-term prospects for the Houston real estate market. There is still good investor demand.
We’re not seeing a lot of vulture funds coming to Houston. If that does happen, I don’t think it’ll be in the trophy-building category. We have a new generation of ownership today in institutional-quality real estate. Most owners today are in it for the long haul. Additionally, sophisticated owners of real estate are better-positioned to weather the current stress in market.
Realty News Report: Does Transwestern plan to stay the course in 2016? Do you have any new strategies or tactics for today’s market?
Clarke: We are a highly entrepreneurial, private company, and we continue to attract extremely talented people to our firm. We are not a “stay the course” company. We act. For us, it’s an exciting time of growth. Transwestern has a significant bandwidth of services, and we’re in an expansion mode. One example has been our dedicated healthcare real estate group, which we created 15 years ago and is run by Eric Johnson. We’re looking for that particular business line to grow exponentially nationwide in 2016. Two years ago we acquired Richards Barry Joyce of Boston. They were the top real estate provider in that market and since joining Transwestern, their business has grown significantly, especially in biotechnology and life science.
In Houston, although we have a pretty mature operation, we want to get deeper and wider in all services lines. We will expand our operations here, and we’re doing some exciting and different things in agency leasing and property management. On the occupier side of business, growth has been considerable under Kevin Roberts’ leadership and I expect that to continue. Because of our footprint here, we continue to do well, particularly with our sister organization Transwestern Development Company, which has a robust development pipeline to serve the multifamily and industrial markets.
Realty News Report: Looking across North America, what markets do you think will outperform in 2016? Any cities rising above the pack?
Clarke: We’re having a great year at Transwestern – one of the best in our 37-year history. We’re bullish on the U.S. economy and our company going into 2016. A number of markets around the country performed very well in 2015. There are a number of strong markets in the U.S. right now. Boston continues to be a beacon for us, and there is a strong uptick in Atlanta, Dallas and the Midwest. South Florida is coming off the best year in its history for us. And Phoenix and Scottsdale are also showing signs of renewed strength. It’s interesting to look at the national real estate industry now. When things were so robust here, we had a tendency to look at rest of the country through Houston’s eyes. Now that it’s slowed down a little bit over the uncertainty in the energy markets, we don’t want to take that same view of the rest of the country.
Realty News Report: As President of the Americas for Transwestern, what’s on your radar screen as you look south of the border?
Clarke: We have a significant agenda south of the border. Ridge Development, a firm we bought as part of our sister development company, now executes our industrial development program across the country, and we expect to see them more active in Mexico, where they have completed several projects. We also do some consulting work in South America, and we will continue to be opportunistic in different markets in South America.
Realty News Report: We’ve waited for years for the expansion of the Panama Canal to be completed and it’s supposed to open in 2016. What impact will the Canal have on the industrial real estate?
Clarke: The Panama Canal expansion will be beneficial long-term. All those logistic expansions help the Port of Houston. The widening of the Canal is interesting because the industry keeps building bigger ships. There is already a class of ships that, even with the widening, the Panama Canal can’t handle!
Clearly though, it’s going to be positive for Port of Houston traffic because it’s going to boost the logistics business. A lot of those big ships need 50-foot clearance to get through and unload, and places like the Port of Savannah are deep enough but don’t have the infrastructure to off-load the ships. So, definitely, the widening of the Canal will be beneficial to Houston.
Realty News Report: Any other thoughts you’d like to add?
Clarke: At Transwestern, we’re prepared for any number of scenarios. We’ve never been a “wait and see” company. For us, we always want to play offense and get better results for our clients. In some markets, uncertainty means a great time to expand. Our people are always striving for operational excellence, to help our clients add value on the operating and leasing side – that’s one of the strengths we have that tends to differentiate us from the competition. We never stay the course, we always want to know how we can get better. We think the time is right to raise the bar again. We want to get better and deeper. In the U. S., we are in 34 markets today. We may announce the 35th in the next 60 or 90 days. Stay tuned!
Realty News Report is a Texas-based publication edited by Ralph Bivins.