HOUSTON-The typical real estate adage boils down to location, location, location. But to fuel the purchase of that location, as well as its development, another adage boils down to capital, capital, capital. With this – and other topics – in mind, a collection of lenders and equity investors shared their views at RealShare Houston as part of the conference's "Capital Sourcing and Investment in Houston."
The program, moderated by Transwestern's executive managing director, executive leadership, capital markets Steve Pumper focused on topics ranging from questions about overheating, to where the capital is going, even to Houston's somewhat negative reputation among some investors.
The issue with Houston, noted Prudential Mortgage Capital Co.'s Paul Geyer, is that a lot of people remember the 1980s – and those memories run deep. "Everyone in every firm has some senior manager who made the decision in the early 1980s to invest in Houston, and who is in the penalty box as a result," he commented. "Houston continues to have that reputation." Added Brad Simpkins, senior director, asset management with TIAA-CREF: "There is institutional-level scar tissue from years gone by."
And now? The panelists allowed that, thanks to Houston's focus on energy, that perception is changing. "The view is that there's sustainable job growth here," observed Dennis Schuh, managing director and head of CMBS Banking/Origination for JP Morgan. That job growth is being fueled not just by energy, but by the technology that's driving the energy. "That shift is sustainable," Geyer points out. "We just need to keep it tempered."
But in such an environment, the next question is whether the capital market in Houston – along with real estate development – can become overheated. "Absolutely it can. But it's not happening yet," noted Tim Williamson, executive vice president of Cadence Bank. In fact, Geyer said, Houston is more in the situation in which it is working to catch up with other gateway cities.
The demand in Houston is leading to more competition among those involved with capital. Schuh explained that competition is huge across all lending sources. "We're finding ourseslves needing to become more different and creative to compete," he said. Williamson, in the meantime, said that his bank – as well as others – are continually seeking out sponsors that have, in the past, done well with banking relationships.
A capital markets discussion wouldn't be complete without a discussion about CMBS and conduit loans and the panelists had plenty to say on that topic. "Deals that we're doing today would have been picked off by the conduits in the last cycle," Geyer commented. But he conduits aren't really doing that much these days. Geyer said he's seeing some "tweener" types of loans for some deals that are large, made up of life companies teaming up to finance the projects or purchases.
Geyer went on to say that he likes markets with barriers to entry – these days, in Houston, that's not exactly common. "We're trying to be cautious because we're wondering when the music will stop," he noted. Meanwhile Simpkins, in discussing TIAA-CREF's strategies, said the institution has brought down its exposure to office product since 2007, and is spreading its capital around to other assets. He acknowledges that TIAA-CREF has taken a lot of runs at Houston assets. "Frankly, we've come up short," he added. "It's still a market we like."
The capital experts agreed on something else: Namely that the capital will still be available for the remainder of the year. "The pipeline is proving to be as robust in 2013 as it was in 2012," Cadence Bank's Williamson observed. "We're seeing a lot of borrower and loan requests, and more banks will be jumping into the space this year. It'll continue getting competitive."
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