With National Investors On Sidelines, Opportunites Arise For Locals In Houston Industrial Sector

March 6, 2017

Bisnow - Houston Industrial SectorHeadlines have painted Houston red. What most outsiders fail to see is that most of Houston’s pain is in the office and multifamily sector.

“The best way to describe Houston’s industrial market is resilient,” Thompson & Knight’s Bruce Merwin said at Bisnow Houston’s Industrial Renaissance event Tuesday.

Finial Group president and CEO Keith Bilski said he has been finding more opportunity now than he has in a long time because there is less competition.

“Two to three years ago, when it was so overheated, every deal had 15 people pursuing it. People were underwriting rent growth we didn’t think was attainable. A lot of people doing silly things that didn’t make sense to those of us on the ground. Now we’re not seeing that. All the out-of-town investors, because of national sentiment, have gone on the sideline,” Bilski told the crowd.

“This is our opportunity, where we feel local guys who understand local fundamentals can be early entrants back into the market and invest in ways that make sense.”
The state of the market is more complex than ever, he said; the health is very different depending on product type and submarket. But other than a few spots, he sees a good balance in industrial with no oversupply.

The fundamentals are there for investors who know the market to succeed. Trammell Crow principal Jeremy Garner said investors with local history understand where the market is. Capital is still available.
“We expect to be building more spec industrial buildings, and our capital partners understand. The petrochemical boom is generating demand for hundreds of thousands of SF,” Garner said.
“Given our perspective, and those of other national investors, I think Jeremy Garner and Michael Plank are gonna make a lot of hay,” joked Duke Realty senior vice president David Hudson. “Guys who are focused on the Houston market will do really well in the next couple years.”

National Property Holdings chairman and CEO Michael Plank has been on the front line of growth in Houston’s industrial market. “We were loners on the east side, really focusing on leveraging rail-served assets.”

Since, there have been $65B of plant expansions on the east and southeast side and activity has taken off.

“We had 1,200 acres around the port, the area has been frothy for us. We only have about 400-450 acres left to absorb,” he said.

Garner said the only thing that is changing is consumer goods distribution, which typically has come through Dallas. “And they always will be, it’s more efficient. But we’ve had such phenomenal population growth in south Texas, that when  combined with the evolution of e-commerce, you can’t serve as quickly and efficiently as it needs to be served from Dallas anymore. Instead of increasing the size of a Dallas size warehouse by another 300k SF, decision-makers are choosing to shift the space to Houston.”
Garner said the uptick in consumer goods has sheltered Houston from the oil and gas downturn.

Kyle Hagerty