Record Cold Impacts Commercial Real Estate

HOUSTON – (By Michelle Leigh Smith for Realty News Report) – Intermittent power, loss of the Internet and the frozen conditions disrupted Houston businesses and the places they operate last week.

Scott Rubenstein at Pipeline Realty owns a number of buildings in the Texas Medical Center/W Holcombe/West U/Bellaire areas spoke about this unprecedented event. “My guess is we fared better than most because we took a lot of precautions,” he says. But Pipeline’s small office buildings did not pass through completely unscathed. “Busted pipes flooded one building, busted pipe cut off water to another building which is still out of service (it’s hard to get supplies), no heat in all buildings.”

“Overall, office buildings seem to have fared well. From what we are hearing from our office clients, it has been hit or miss on if they experienced damage from the freezing conditions,” said Rand Stephens, President at Avison Young Rand Stephens, Principal and Managing Director, in the Houston office of Avison Young. “The bulk of the problems arose from bursting pipes on ground floor areas and parking garages that were exposed to the elements. This was caused because the water didn’t get shut off or wasn’t drained when the storm hit. The good news is that there were no major leaks in office buildings that we manage.

Sprinkler Heads and Boil Alerts

“For industrial buildings, the majority of assets in this sector aren’t climate controlled so if they lost power and didn’t have space heaters, some pipes and sprinkler heads had burst,” Stephens says.

“Our Avison Young office was shut down all last week as we didn’t have power or water service until Friday,” he continues. “We issued an office-wide directive for employees to make safety a priority. The water boil alert was in effect until Sunday, so today (Monday) is our first day back in the office. Work was disrupted for an entire week and that is likely the case for everyone in our area. Those working from home that had power did what they could, however, Avison Young employees in Houston were limited in their operations as the cell phone service was unreliable and Wi-Fi was down.”

And in the aftermath of the storms, some brokers worked on Monday to resolve issues with damaged properties that were for sale.

“We do have some properties that are supposed to close this week – buyers are making sure that any damage (pipes breaking and the after effects), have been repaired, etc.,” says Mark Davis, head of Davis Commercial.“So basically, there are “double property inspections” going on, before and after the storm. I think the biggest challenge is getting plumbers out to inspect to that the properties can be evaluated and still close on time.”

Fred Meyer, Vice President at MC Management says, “The storm really did not have a great impact. Knocking on wood, we have heard of very few water incidents or freezing pipes, so we’re still assessing. So far, we’ve been pretty fortunate. I would say our impact was minimal except for a couple of days when everyone was shut down.”

MC Management has a 1.5 million SF portfolio with centers in Meyerland, Braeswood, Hillcroft, Kingwood and in the Market Square area downtown in the 900 block of Congress where Batanga’s and other restaurants are located.

A Few Busted Pipes

The Midway Cos., which developed City Centre and many other properties, also fared well.

“Midway’s properties were fortunate to have fared well during last week’s winter weather event thanks to the incredible teamwork of its operations staff,” says Micah Hart, Senior Vice President of Property Operations. “Our engineering teams are uniquely equipped to address challenges and prevent issues within all facility types across multifamily, office, retail, and hotel, and remained onsite 24/7 throughout the storm. Despite power outages, lack of water, and a few busted pipes throughout the week, all properties resumed normal business operations on Friday, February 19. The safety and wellbeing of residents, retailers, office workers and hotel guests remains Midway’s top priority.”

A Tough Week for Small Business

A retail specialist at NAI Partners noted that last week was a significant hit to shopkeepers and restaurants that could not open their doors due to weather-related issues.

“I can tell you that today feels like recovery Monday,” says Jason Gaines, Senior Vice President at NAI Partners. “Last week, the biggest thing was that the retail sector was largely closed. It was all businesses. For the mom and pops, it was a period where they could not operate. and I’m more concerned about their loss of businesses for a week. In the scheme of things, businesses lost 20 percent of their month and for mom and pops already struggling from Covid, that’s another tough hit.”

Has Texas Lost Its Swagger?

“I’ve been through a couple of down cycles, times when the commercial real estate market was brutal,” says CEO Howard Rambin, who founded Moody Rambin with Dan Moody, Jr. in 1969. “I don’t think Texas has lost its swagger, I think we’ll come back but I think we’ve yet to see the effects of the overbuilding and Covid, I think it will take a decade. That’s it from a guy who’s been through it a few times. Human beings are wonderful at denial and delusion. They don’t want to see things that may be clear to others.”

Hanging on By Their Fingernails

“I saw it in the 80s because of the oil price collapse,” reflects Rambin. “It’s been through that again and it’s now come back a little bit. I think it will be a long, hard slog. People don’t lose their swagger, they’ve either got it or they don’t. It’s not in the nature of Texans to give up. Somehow, we’ll adapt to this new environment. We’ll get through this, but it doesn’t mean it won’t be painful. I see a lot of pain in the smaller businesses – these people are hanging on by their fingernails. Without the massive government intervention we’ve had, it would be a lot worse.”