Houston's Snowball Effect
People act like Houston is an overnight success, but Invesco managing director Greg Kraus says we’ve been a great investment for his firm for a decade. (Eddie Cantor said it takes 20 years to be an overnight success.) But he says we’re truly building on ourselves now; as more successful deals happen, more groups are comfortable investing here. Invesco is really betting big on us these days—its purchases of Williams Tower and BG Group Place were 20% of the firm's total investments last year.
Allied Advisors prez Richard Rudd says Houston’s retail activity is heating up: The sector saw $1.6B of investment (at an average 7.3% cap) in 2013, a 30% increase from the year before. It’s very attractive on a risk-adjusted basis. Houston’s average office cap rate last year was 7%, down from 7.6% in ’12, and our average office pricing rose from $188/SF to $215/SF. 70% of those transactions were to institutions and REITs. He says many investors made their big office buys last year and will want to take a breather in 2014. (They should invest in resorts now so they can rest.)
Principal Real Estate Investors was one of those firms that made major buys here recently, and investment director Casey Miller says he will indeed make fewer acquisitions this year. (Never fear, he says 2014 may be the year PrinREI does a slow dance, but it’s still at the party and keeping Houston as a major focus.)
Like Richard, Avison Young principal Darrell Betts is expecting a retail renaissance this year. He says retail construction is expected to double this year, and he’s particularly got his eye on amazing activity levels in North Houston. But he’s not with Richard all the way—he thinks office investment might accelerate next year because there’s so much new product, and that’s what investors really love to buy.
Our moderator NorthMarq managing director Kerry French has noticed that hospitality is coming back (Richard says our average cap is 8.5% for the sector). That’s great news because it’s usually the last to recover. He also shared a surprising stat: Houston is adding a new person every four minutes.
That’s great news for McAlister Investment Real Estate principal Paul Connor, who specializes in single-family land investment. He says 60% of Houstonians buy houses, and it’s no longer always cheaper to get an apartment than buy a home. (Although it is still difficult to get a mortgage.) He says land was a four-letter word for years (wait a minute… still is), but now investors are understanding that the sector gets better returns. He says Houston’s status as a core market is probably permanent because we’re pro-growth, and we’ll be astonished at the development that’ll happen over the next two years.