Some foreign investors may have lost their taste for Houston commercial real estate, but others suspect the winds are changing and view the region's tepid economy as a reason to dive in.
Earlier this month it was revealed Houston was snubbed the second year in a row for a spot on the Association of Foreign Investors in Real Estate's list of top U.S. cities for foreign investors as determined by a survey of group members. The Bayou City ranked No. 3 in 2015.
Houston has been tagged as an oil-dependent city over the last two years, which sent some folks running. But that hasn’t deterred Canada’s Covenant Capital Management President and Chief Investment Officer Glenn Murray.
“When people are running from an area it can create an environment with discounts and opportunities as competition is removed from the space," Murray said.
While Covenant is not putting the Bayou City in the back seat, it remains selective of its buys, Murray said. Absorption of over-supplied commercial office market will take some time, which may require buyers to hold onto some properties for longer than anticipated.
Murray, who partners with Houston-based real estate private equity firm Rockspring Capital on its Texas deals, said a three to five year investment window is reasonable and still possible for the region. Since they buy in cash, Covenant Capital and Rockspring can hold onto parcels a little longer if needed.
But that may not be necessary. Even though the energy downturn hit Houston hard, real estate prices haven’t followed suit, said Rockspring President and CEO Jim McAlister IV.
“Some submarkets heavily reliant on upstream energy jobs are still soft but in the process of recovery,” McAlister said. “Currently, there is a shortage of single family housing inventory, thus we’re expecting activity and pricing to go up.”
For example, in December 2016 Rockspring sold nearly 549 acres in Rosenberg to Long Lake Ltd. for residential development. Earlier in 2016, Rockspring sold 248 acres in Northeast Houston to Land Tejas, which plans to develop the Balmoral residential community.
Even outside of Houston, Texas remains an area of interest for investors like Murray.
"Right now we find Texas pretty favorable," Murray said. "The Texas model is a business-friendly environment. The state has created an appealing place for businesses to move to, operate in creating a great space to invest."
Texas overall has weathered the downturn in energy prices much better than expected, said McAlister, who has an obvious interest in attracting capital to the Lone Star State.
With President Donald Trump in charge and already taking steps favorable to the energy industry, such as reviving both the Dakota and Keystone XL oil pipelines, the economic winds are changing in favor of Texas once more, McAlister said.
“Texas is winning because it is extremely pro business,” McAlister said. “With President Trump dead-set on American energy independence, we’ve gone from an anti-oil administration to an extremely pro-oil administration. Wise investors already know what’s happening.”