Comparisons to 80s Rejected as Resiliency Continues

Wilson says Houston is moving forward with strong demographics including an entrepreneurial population.

HOUSTON—In the second of a two-part exclusive to GlobeSt.com, Reid C. Wilson , chairman, Wilson Cribbs + Goren PC , a real estate boutique law firm, discusses the positives of the current market, land use issues, flooding and what’s ahead for the Houston market. GlobeSt.com: What positives are worth noting? Reid Wilson: When the price of oil and gas drops, it helps the refining business (downstream energy).  Houston has a significant position in chemical refining, with much of the products exported outside Texas and the US.  This business is booming. Retail continues strong, as Houston experienced many years without significant new development.  Groceries continue to come to Houston, although Fresh Markets just announced its exit. Several clients have moved aggressively into self storage, historically a fragmented “mom and pop” area, which has a history of strong rent growth. Without zoning, Houston is wide open to storage buildings, many of which are in urban location in multi-story structures on small sites. In addition, world-class health care at the Texas Medical Center continues with sustained growth and the Port of Houston benefits from expansion of the Panama Canal, shortening transit times. GlobeSt.com:  What types of land use issues is Houston facing at this time? Wilson: Densification of the urban core is the cause of more and more land use conflicts. NIMBY (not in my back yard) has become a common word. Like other growth cities, Houston has more mid- and high-rise development on the edge of residential neighborhoods, which means homeowner opposition.  Mid/high rise v. single family neighborhoods continues to be a conflict area, particularly since land use in Houston is driven by private deed restrictions (restrictive covenants) which have an abrupt ending place where the private developer’s land stops.  Without zoning (or the private deed restrictions), anything goes adjacent to the protected areas. Some neighborhoods are using private, tort causes of action like nuisance to stop or modify development, such as the unsuccessful case brought to stop our client Buckhead Investment Partners regarding the proposed Ashby High Rise . We expect a decision in the appeal of that case shortly. GlobeSt.com:  News reports said the recent flooding is due to the massive amounts of pavement over the city. What is your view of that assessment? Wilson: At a panel I organized for the University of Texas Law School ‘s land use law course recently, an eminent Houston civil engineer said that drainage and flooding in a flat coastal plain with many slow moving rivers and streams (called bayous) can be a challenge when it rains heavily. Houston is blessed with significant water resources, unlike many western cities, but the inverse is occasional heavy rain causing temporary flooding. The areas which flood are primarily near our bayous in areas which, today, would not be developed, or would be significantly raised. Most recent development does not flood. This does not mean that Houston doesn’t have water in the streets for temporary periods during heavy, usually localized rain, but that newer structures don’t typically flood. These floods are not an impediment to new development, whether single family residential or commercial. The engineering community knows how to prevent flooding using detention ponds, which are now a common amenity in all new residential communities. GlobeSt.com:  What is ahead for the real estate market in Houston? Wilson: Houstonians still watch the price of oil and gas. Long term, gas is more important to Houston, and Texas, than oil. There is much more gas than oil remaining in Texas. The energy Industry is laser focused on driving down the cost to produce. No one expected $100 a barrel oil to last and most would have been happy with $70 to 80 a barrel oil. Now, sustained $50 to 60 a barrel oil would likely permit resumption of meaningful exploration and production. Once oil stabilizes at this level, investor and lender confidence should return to fuel more development. As long as job losses are minimal, Houston will be back soon. In the interim, the office sublease market presents outstanding opportunities. Retail will continue as long as the consumer is confident and consumer confidence in Houston continues to be resilient. I’ve been in the industry through many cycles, including the very ugly 1980s which including the demise of the savings and loan industry where my father worked as a commercial real estate lender. This is not the 1980s. Houston has slowed from warp speed to a walk. Yet, it is still moving forward with very strong long-term demographics as the most diverse major city in the US, including a young, hard-working, entrepreneurial population. Check back in a few years and I will be proved right. Wilson Cribbs + Goren is based in Houston and was established in 1985.