Houston Real-Estate Investment Opportunities

On February 23rd, 2016, the American Turkic Business Council (ATBC) and Texas Turkish American Chamber of Commerce (TTACC) in partnership with Houston Metropolitan Chamber of Commerce and German American Chamber of Commerce hosted a panel discussion to explore real-estate investment opportunities in Houston. The event held at the Turquoise Center, had an incredible turnout.

The event began with ATBC & TTACC President Orhan Kucukosman welcoming the guests and introducing the three panelists; Mr. John Guess, III, Mr. Brooks Ballard, and Mrs. Ming Burdett. The goal behind hosting the event was to steer the types of investments individuals are trying to make while keeping the current oil prices in mind. With so much impact on investment, ATBC & TTACC hoped the event would answer where in the real-estate sector investments should be made and how will they be effected.

The President of the Guess Group, Mr. John Guess, III, was the first panelist to speak. His topic of discussion was regarding small and large real-estate investment opportunities as well as recommendations for real-estate investment areas where oil prices won’t be as impactful. With Houston being one of the largest land masses in the United States, it is a very versatile city with many resources and a very diverse economy. Mr. Guess said that in 2016, we are seeing that diverse economy take off. We are noticing that with the oil prices going down as they did in the 80s, we are seeing some layoffs, and less movement in buying goods and services, so one thing is impacting another. Mr. Guess mentioned how one economist said that the reason for the energy sector to be so strong is because for every one job employs seven others. So when we reverse that, he said we can see that there is a multiplying impact on the economy. But with diversification, Mr. Guess emphasized that we have a tremendous opportunity to keep Houston going economically. Diversification took us out from just looking at things from an energy perspective to other other areas like the Port of Houston. With the abilities of the Port, Mr. Guess said we have been able ship lots of tonnage, as well as intake goods and services coming from the Asian market and other parts of the world. In addition, he said we have seen tremendous growth in the healthcare sector as well as a lot of movement in the hospitality business. Mr. Guess emphasized to not forget the health care market, since it is going to be one area that is going to grow even more. Memorial, Methodist, and other hospitals are building facilities everywhere, so investing in medical facilities can be a very good area for investors to look at. The hospitality sector has become one of the backbones of the Houston economy. There has also been a construction boom going on in Houston. Although there have been some cutbacks in areas of the market, Mr. Guess assured that the construction boom is going to continue. He included that with the expansion of the suburban areas, there have been an increase in the retail sector, with a big push in small and large, commercial and retail development of shopping centers in the Sugar Land, Katy, and Richmond areas. He said another area of investment can be large-sized grocery stores which are popping up because of the suburban expansion. Mr. Guess emphasized that we will continue to see the housing market remain strong, maybe not as much as it used to be but he said it still be a big player primarily because of the low interest rates. The downward movement of the oil prices are keeping the interest rates on the housing market to stay low so that the economy overall doesn’t lose balance. On getting back to the topic of housing, Mr. Guess said affordable housing will be available, especially for those who are involved in single family housing. The market for single-family housing will definitely continue to be strong. One thing that wont be as bright and shiny is probably the multi-family market. Unfortunately, there are about 20,000 units of multi-family housing that have been built in the Houston area, but we are only able to get rid of 10,000 units per year, so this area is one that is less hopeful than others. But with that 10,000 surplus, and new projects coming out of the ground, 2017 will be the year where everyone will be fighting for good tenants for all of the available homes. Most of these homes are of course in A or AA classification, with many already starting to cut back on pricing. Mr. Guess said if you want to get involved in multi-family housing, workforce housing is going to make a difference and is the area to be considered. He mentioned that he is not talking about top of the market type housing, but for income purposes it will be more affordable housing. Mr. Guess ended his discussion by emphasizing that because we are no longer in a stand alone economy, we are no longer only anchored in our own country, so other countries and their economies are impacting what is going to happen here. He said we have to be aware of all of the economies to understand how things will turn out for the United States.

Our second panelist was Mr. Brooks Ballard, the President and Licensed Partner of Engel & Volkers Houston. Mr. Ballard addressed the opportunities that are available in commercial and residential real estate, especially in the Houston Metro Area. Mr. Ballard said the opportunity that is available in Houston is its diversity. With so many different types of people, there are many levels of participation based on the type of investment that investors would like to get in. Mr. Ballard included that with their clients, they advise that the Houston market is one that they should get in to right now because of all the availabilities and opportunities to make money.

Mrs. Ming Burdett, the Senior Vice President and Texas Regional Manager of Cathay Bank was the third panelist. She talked about commercial loans and possible available options that can be useful in starting a business in the real-estate sector. She said Houston is a very diverse market as well as an international city. With that there are a lot of immigrants coming into Houston everyday. Cathay bank is the first public Chinese bank in the United States. She said our bank’s focus is on helping immigrants. With 60%-70% of Cathay Bank’s portfolio on commercial real-estate, we really do know what we are doing. Mrs. Burdett said, when you come in from foreign countries, for business or transfer, there is difficulty in financing or purchasing houses. In this regard, Cathay Bank’s non-resident alien mortgage program is there to help international investors. She mentioned that Most of their clients are affluent so when they come in they are able to purchase houses in cash, but their return on investment is nonexistent, so instead of that we would rather have them buy houses through our mortgage program. This way they only need to put down 35% instead of the full price. Mrs. Burdett emphasized that this not only helps the investor with their return but also the realtors that are representing them. Instead of having one portfolio, as a bank Mrs. Burdett suggests you have three. She said it is crucial to understand that real-estate has cycles, so when making a loan you need to understand the risks that also come with it. One thing to keep in mind about banking and real-estate investment is not about how much money you can borrow, but about how much real-estate and asset you can preserve. While growing your portfolio is important, risk management is also something that needs to be kept in mind. Mrs. Burdett included that we talk a lot about commercial real-estate, Cathay bank is $13 billion in asset, that means in one commercial real-estate deal, we can help you up to $25 million in one project, in-house. She also added that when it comes to multi-family, I definitely agree with what Mr. Guess said, we are also very cautious. However, anytime is a good time to get in a diverse set of investments.

After the panelists finished their topics, they were able to address some of the questions posed by the attendees.

The first question was for Mrs. Burdett, “Mr. Guess talked about an over supply of the AA or A+ multi-family homes, but for the work force C+ is still an area that is available, so when you look at it from financing perspective do you think that C+ housing is still a good investment?” Mrs. Burdett answer was, that since January up until today, I had about a 6% increase in class A projects and I declined all of them. But so far I have financed 4 class C apartments. So there is a definite difference between the two categories. We are still doing class B and C, while being very cautious about their locations, cash-flows, and demographics.

The second question was for Mr. Guess, “You mentioned about the workforce housing as an opportunity from an investment stand point, I think you were speaking more from an apartment complex view, so if you are looking for workforce housing, from a single-family development perspective, with the land costs being the way they are, what are some ways to mitigate those costs to make sure that the home is affordable and the builder is able to make some money?” Mr. Guess answered the question by saying that one of the things that is going on in Houston right now is a program of the mayor that puts back money which helps spark single family housing. As it did with Mayor Parker, if this program happens again then the costs will definitely go down. There is also an available grant for first time home buyers that can be advantageous. With help, not only from the City of Houston, there can be opportunities in single family housing. If you are looking at multi-family, another thing you can also do is tax credits. There is a 4% tax credit which will be popular in developing housing. In a lot of the areas where we talked about workforce housing, there are also turfs, which can get all kinds of dollars to your development, especially for infrastructure. There are turfs scattered all over Houston and is very helpful for in-city development.

Another question for Mr. Guess was his take on warehouse financing, Mr. Guess said that it is remarkable what is happening. He said Houston is becoming the forefront of transportation in the region. So, these transportation lines as well as the Port of Houston are allowing for expansion. There is so much development going on outside of Richmond, where companies like Target are building huge warehouses in close proximity to the Port so that they can transport and store their goods. Warehouses in those areas are essential for these companies, in that regard, I think warehouses are going to be big in the market as Houston continues to grow and expand. Mrs. Burdett also added that one thing to keep in mind when purchasing a warehouse is that it is always a cash-flow. So if you don’t have the cash-flow, you need a cash reserve, otherwise it will not be a good investment from a banker’s point of view.

The last question was for Mr. Ballard, “I know you talked about luxury, and luxury in Houston is tied to oil. So if you are a broker who wants to transition in to that area, what adjustments do you need to make? Mr. Ballard answered by saying that first you need to acknowledge that clients who want to buy luxury still exist, and they know that the market is more aggressive compared to how it was before. Then as a broker you need to know how the market moves and be educated in how long it takes to build and how the margins are going to be impacted. So, although the market will be more conservative, it still exists.