HOUSTON – (Realty News Report) – Scott Martin, a veteran in the Houston office market, says the owners of a number of debt-burdened buildings today are “kicking the can down the road.” The Ralph Bivins Project explores the issues.
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RALPH BIVINS: Welcome to The Ralph Bivins Project. We’re here today to talk to Scott Martin, executive managing director at Granite Properties. He is Granite’s market leader for Houston, and he’s worked in this market for a long time. We’re glad to have you here, Scott. What’s the state of affairs right now in the Houston office market?
SCOTT MARTIN: I’ve seen a lot of cycles and patterns related with the real estate economy that parallels a lot of times what the oil industry is doing, and this cycle really feels a lot like the ’80s. Maybe not quite as immediately catastrophic, but it’s like a slow play to catastrophe. You see so many of these office buildings are undercapitalized now, and with the debt markets like they are, a lot of these buildings aren’t worth the debt they have on them, but a lot of the lenders don’t want to deal with it right now. Those that are dealing with it are shocked at where their values are, well below their debt balance. We’ve already seen some fairly large trades in the market, but not a lot of assets of significance are trading hands, and I really don’t see it happening for a while, probably into 2025. I truly believe that we’re in a bit of a stagnant period right now.
RALPH BIVINS: Yeah, you mentioned the ’80s. You had the Savings and Loan industry collapsing, we had oil going down to nothing, office buildings were being foreclosed left and right. Being a journalist in Houston in the 1980s, I’ve covered more foreclosures than probably anybody. So what you’re saying is that the buildings may be underwater now, but the lenders aren’t taking them back?
SCOTT MARTIN: They’re trying to, as we say in the business, just kick the can as long as they can, but at some point in time, they’ll have to deal with it and recognize it. I think a lot of that can happen in 2025 when we begin to see more of it.
RALPH BIVINS: Is that when the bottom feeders or whatever we call them come in and say, now, hit the buy button?
SCOTT MARTIN: They’re already here looking, but again, there’s just no price capitulation yet in the market.
RALPH BIVINS: Why are the valuations not falling farther? Or are they falling farther faster? Or are they falling, but we’re not reacting to it yet?
SCOTT MARTIN: People are not necessarily recognizing it, and again, if their lender is saying they will extend your loan because they don’t want this asset back at this time, or just keep paying what you can, again, it leaves the market in limbo. Then when you’ve seen a few of the projects that have been foreclosed upon, and they go out to market, and they can’t get the price they believe they should get, so they pull it off the market and just sit on it for the time being, that’s just going to take time before they finally say, ok, we just need to shed this and recognize the loss.
RALPH BIVINS: Yes, I guess that will happen at some point. You can’t go on forever.
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Scott Martin biography
Scott Martin serves as the executive managing director of Granite Properties, a privately held commercial real estate investment, development, and management company. Martin is the Houston market leader for Granite Properties, responsible for growth, performance, and value creation. He is a past president of NAIOP Houston, a commercial real estate organization. A graduate of Southern Methodist University, he joined Granite in 1998.
May 20, 2024 Realty News Report Copyright 2024
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