Capital Markets: A Mixed Bag In 2016
Predicting the capital markets may be trickier than determining whether the Carolina Panthers will cover the spread in Super Bowl 50. Our panel of investment experts at Bisnow's upcoming Houston Capital Markets event may not know how to beat the odds, but you don't want to miss their insight about what’s impacting the market and how they see it playing out—Feb. 18 at the Houstonian, starting at 7:30am.
Time waits for no investor. PrinREIT investment director Casey Miller says the Houston economy is in flux and may have some people running scared, but for those ready to move when the fundamentals are solid, there are deals to be had. Take the Port, where PrinREI and Stream Houston developed the 829k SF Bay Area Business Park Phase 2. (We snapped the team there earlier this year.) It was the biggest industrial deal of 2015 and 566k SF of it has been pre-leased.
Student housing is another high point. Casey tells us PrinREI has been very active in that niche because of its strong relative value vs. traditional multifamily. The firm's made considerable student housing acquisitions across the country in the past 12 to 18 months.
The firm is also tracking the growing trend of foreign capital investing in US real estate. PrinREI is monitoring some pending FIRPTA legislation changes, which, when compounded by areas of international unrest, could result in an influx of capital to the US.
While 2015 was a slow year for capital markets by number of office trades, Cousins VP of investments Fred Knapp wants us to remember that Houston did see some of the highest per square foot numbers ever achieved here. 1000 Main, Energy Center 3 and 2200 Post Oak ranked as three of the four largest per square foot trades ever in the city, each reeling in more than $500 per SF. While that momentum likely won’t continue into 2016, Fred (shown with wife Caroline and sons Knox and Andrew) thinks these sales highlight a long-standing tenet of real estate capital markets: in times of uncertainty or declining fundamentals, the best buildings in the best locations with the strongest rent-rolls will always outperform the rest of the market. He compares it to blue-chip stocks that experience lower volatility in the midst of market turmoil. And as Houston faces some of the strongest headwinds seen in a generation, Fred believes the office market will evolve into a tale of the haves and the have-nots.
As Weingarten CEO Drew Alexander (pictured with Nelson Spitz at Bisnow's retail event last October) sees it, varied indicators are painting a cloudy picture, but it’s not quite the firestorm everyone fears. He cites several recent examples. The Fed raised interest rates, signaling “liftoff” to many. Yet commodities have fallen, and the Chinese economy is decelerating and could actually be worse than their reported numbers. Stock prices have been extremely volatile, and even though REIT stocks have suffered similarly, Drew says open financing markets suggest that real estate will continue to be a good long-term investment. Bottom line? Drew’s teams are generally pleased with overall conditions. While holiday sales weren't great, their basic goods retailers and service businesses are faring all right. He tells us even though the economy is less than great, occupancy and overall conditions remain fine.