ROCK SOLID
Scott Martin on Granite Properties’ preparations as workers return to offices
Scott Martin still goes to work at a sparsely populated office building in Westchase owned by Granite Properties, where he is executive managing director.
He knows the day will come when the building, and others in the company’s 10 million-squarefoot portfolio, will resume more normal activity as companies bring back employees who have worked from home during the coronavirus pandemic.
In response to the health crisis, Granite rolled out a comprehensive plan designed to enhance the health and safety of its office buildings and new development projects. The $10 million initiative, called Inspired Wellness, encompasses touchless fixtures in restrooms and other areas, UV lighting in HVAC units, better outdoor work areas and guidance for tenants on protocols for enhanced sanitation, social distancing, personal protective equipment and elevator capacity. Granite will soon integrate a technology to continuously purify the air across its properties in Houston, Atlanta, Dallas, Denver and Southern California.
In Houston, Granite owns and manages 2.3 million square feet of office buildings, including Eldridge, 3355 W. Alabama, 2925 Briarpark, Weslayan Tower, Granite Tower 290 and Briarpark Green.
Martin spoke recently on the wellness initiative and offered his views on the Houston office market. His comments have been edited for space and clarity.
Q: What steps are you taking to respond to the pandemic?
A: When this whole thing broke out, we realized the need to figure out what is the best path that we could take to make our buildings as healthy as possible. We looked at what we could do the quickest. That entailed making everything in every one of our buildings touchless, if it wasn’t already. Wherever we were able to have automatic doors without touching, we did immediately. We did the Nano Septic contact sheets on every entry, every elevator and every elevator button. Those Nano Septic sheets don’t allow any virus or bacteria to live on it. We have to change those out every 90 days.
We then started researching technologies that would help us create the cleanest and safest environments that we could. We already had UV lights in almost all of our HVAC systems, which helps, but we then found this Needlepoint Bipolar Ionization. It is a technology that has been used in the medical industry for a while, so it’s a proven technology. We did a couple of test pilots at buildings to see how easy it was to set up and install and get operating. It essentially is a purification system that produces high concentrations of positive and negative ions that then take pathogens, bacteria, molds and viruses and binds them together and gets them caught in the filter. So it eliminates the transmission of any bacteria or virus throughout the building.
Q: What’s the status of the installation?
A: The hope is by the end of October that every one of our buildings, not only here in Houston but across our platform, will be up and operating with this bipolar ionization. We feel that we’ll be prepared as people
begin to start coming back.
Q: What kind of tenant activity are you seeing in your buildings?
A: On average, we have each week between 20 percent to 30 percent of the occupants in the building across our entire portfolio in every city. The smaller, local, regional companies probably have more people in than the big national companies. It appears the national companies have a broader-reaching policy that requires every office to do the same in every city, regardless of if it were in New York or somewhere in Idaho.
Q: Do certain industries tend to be in the office more than others?
A: It’s really hard to determine that. It just varies across the board. It’s about employee safety and about liability.
Q: What’s the normal occupancy of your portfolio?
A: The overall occupancy is probably 85 percent.
Q: Are you providing any rent assistance or abatements?
A: The restaurants or delis in our buildings without people in here they have no source of income. So we’re making accommodations for them. But for our other customers, we have created protocols and done the safe things to make this as clean an environment as you can be in. It’s still available for them to come in. There are not too many tenants that don’t have anybody coming in.
Q: Is the oil and gas sector a large part of your tenant base?
A: It’s a small percentage. I’ve been here in Houston in the real estate business for 38 years. This is about my fifth or sixth oil cycle. In 2014, we divested ourselves of a lot of the oil and gas exposure. It was just a little too good to be true at $100 a barrel oil. I’ve seen that picture show before. Right now, I would say that our oil and gas exposure is probably 10 to 15 percent of our entire portfolio in Houston.
Q: What was your peak exposure for oil and gas tenants?
A: Probably 40 to 45 percent.
Q: Tell me about your Eldridge office buildings near Memorial Drive.
A: We bought it with the realization we’ve got 600,000 square feet out of almost 1 milbullpens lion square feet available. We’ve been fortunate to renew some of the tenants and do a few smaller deals. What you’re seeing right now is that companies that don’t have to make a decision because of an expiration, they’re just not making decisions. It’s somewhat similar to what happened after 9/11. Every business decision just seemed to freeze for months. Activity is starting to pick up, but it’s definitely anemic.
When activity picks back up, which it will, we’ll have completely renovated buildings with this Needlepoint Bipolar Ionization and with a great set of amenities. I think we’ll compete very well in the marketplace. We’ve been making improvements in all our projects.
Q: What is your outlook for Houston?
A: I remain optimistic for the future for Houston and our country as we begin to get control of this current situation and move forward. I look back over time when the ’80s happened and the banks collapsed and the real estate tax laws were changed and oil went to $8, people were saying that downtown Houston was just going to be back-office and warehouse space. Well, that didn’t exactly materialize. My point is, it’s never quite as bad as it seems. When oil gets to $100, it’s never quite as good as it seems.
Q: Do you play to buy more buildings in Houston?
A: Absolutely, and one day hope to develop again as well.
Q: Are loans available? A: We buy everything on an all-cash basis, so we don’t require that loan, but if you bring enough equity to the table, you can get a loan.
Q: What did you pay for Eldridge?
A: We paid $90 per square foot. That’s why we feel really good about the acquisition. We renovated the lobbies and the outdoor areas. We put an extensive ground floor customer connection center that has a phenomenal workout facility, conference facility and a future food facility, all on the ground floor of the second building. You step into the lobby and it’s like a brand new building.
Q: How will companies’ space needs change as a result of the pandemic?
A: Our customers want flexibility. And so they’ve proven that work from home can work, because they’ve made it work. We’re seeing, we think, the future holds that customers will not maybe stack people in these quite as closely together, and that maybe 20 to 25 percent of the folks work from home. So the space utilization, my best guess is, stays about the same or reduces a little bit.
It’s hard to build culture on a Zoom call. I see people having Zoom fatigue. It’s a viable way for a certain percentage of your folks to work. But there’s always going to need to be collaboration, and it’s hard to have spontaneity of thought and idea creation when I have to schedule a Zoom call Thursday of next week versus sticking your head in somebody’s office.
Q: How do you think rents will be impacted by COVID?
A: Let’s take it a step further. What COVID has done to the economy will create less demand. Bottom line. There’s no avoiding it. And so, when there’s less demand, there will be pressure on rental rates. To what extent, I don’t know until the flow starts up.
Q: Estimates put office vacancy at more than 20 percent. Do you think Houston will ever fill all this excess space?
A: I think there will be some inventory that will become functionally obsolescent. It will be taken out of the market at some point. Every time somebody said over my 38-year career, how is Houston ever going to recover? Well, every time, we find a way to do it. It will just take time and new industries or evolving industries. You’ll always have the energy business, even if oil begins to fade.
Scott Martin, executive managing director of Granite Properties
“I remain optimistic for the future for Houston and our country.”