Value of local real estate holds up
Michael Welch has been named chairman of the board and interim CEO of Integra Realty Resources, a commercial real estate market research, valuation and counseling firm based in New York City.
Welch hails from IRR’s Houston office, the largest of its 58 offices and home to 45 of the company’s 850 employees. He joined Dominy, Ford & McPherson, one of the founding offices of IRR in Houston, 25 years ago.
Welch shared insights on the Houston real estate market with the Chronicle. Edited excerpts follow.
Q: What’s the biggest line of business in your Houston office?
A: We do commercial CMBS (commercial mortgage-backed securities) work, institutional portfolio work, feasibility studies, etc. David Dominy and myself have a specialization in litigation and large-scale infrastructure projects, which carries us throughout the country. We’re a dominant player in the metro area. When they’re widening I-10 or U.S. 290 or the Grand Parkway, we’re doing the valuations out there.
Q: Who are your clients? A: Every major lending institution, investment portfolio holders, retirement systems, hospital systems, oil and gas firms, pipeline companies and most major governmental entities. We represent a lot of condemnors when they are acquiring rights of way for public infrastructure.
Q: What are you seeing with values in Houston?
A: It’s a great time to be in Houston. Because we have 58 offices around the country, I get to hear both the sighs of relief when markets are booming and the sighs of pain when there is market turmoil. But in Houston, we have weathered the storm much better than most.
Q: In what way? A: You can see the proliferation of multifamily developments across multiple classes as a sign of a strong economy. Even with the downturn in oil prices, we’ve been able to maintain slight growth, which is quite unheard-of in other parts of the country.
Q: What markets are having trouble in the multifamily sector?
A: The Northeast — Wash-
ington, D.C., New York, Philadelphia, Pittsburgh — those areas are in “hypersupply,” as well as cities like San Francisco, San Jose and Seattle on the West Coast. They’re having increasing vacancy rates and low to negative absorption (change in demand).
Q: Where does Houston fit in?
A: We still have the last phase of expansion. We still have decreasing vacancy rates, and we still have new construction. It’s the last stage before hypersupply.
Q: What do you see happening in the office market?
A: Baltimore, Hartford, Conn., Kansas City and Sacramento are in the recovery stage. Houston, Denver, New York and San Francisco are still in a period of expansion.
Q: Are we overbuilt? A: We’re getting close in some sectors. The key to the office market, multifamily, industrial — or any real estate — is not to be the last to break ground. We try to provide our clients with real estate intelligence to allow them not to be left holding the bag.
Q: Is the Energy Corridor oversupplied?
A: I don’t think you’ll see a lot of speculative space along the Energy Corridor. You’ll see Houston-based firms who plan to be here for the long haul contemplate their projects.
Q: What sectors have seen the biggest increase in values?
A: We’ve seen office rents continue to be one of the fastest-growing sectors in Houston, and obviously the multifamily sector is close behind.
Q: What about land deals?
A: There’s been major blocks of land being acquired in outlying areas along the Grand Parkway. We believe that thoroughfare is going to be a boon for single-family residential developers.
Q: Are land values holding up?
A: They are.
Q: Have you seen any property values come down in Houston?
A: The industrial market in the northwest quadrant has begun to flatten. We’ve tracked a rapid expansion of supply in that area that does not seem to equal demand.
Q: What are some hot spots in Houston?
A: The gold rush south of The Woodlands at 45 and the Grand Parkway still has some room. The development that’s occurred on the 288 south corridor with Pearland Town Center has filled a void. I’m curious to see once the expansions along 290 have been completed, what that will do to the areas at Barker Cypress and beyond. The ease of commute is essential to allowing these outlying areas to continue to expand.
Q: How is Houston perceived by investors from other regions of the country? Are people scared by the low oil prices?
A: Astute investors are not because they recognize that the major players in the oil and gas industry capitalize on downturns by purchasing outright or just the assets of middle market players. When there’s retraction in the industry, the strong get stronger. The middle gets eliminated.
Q: What’s your strategy for the firm?
A: Our plan nationwide is to change the way appraisal valuation consulting services interact with the purchasers of our service. Historically, valuation is based on historic data. We intend to employ data strategies that become real estate intelligence to allow investors to be forward-thinking in their decision-making process.
Q: How are you going to do that?
A: By virtue of our 58 offices around the country, we are amassing an incredible stockpile of data. We have folks in the company much smarter than me at understanding how that data can be used not just to look at trailing information, but use the relationships between listings, sales, etc., to forecast more accurately what the future holds.