Slump Creates Opportunities for Middle Market

Rollins says Houston’s economy is much more diversified than many believe.

HOUSTON—Earlier this year, there was a lot of discussion about falling oil prices and the impact on Houston’s real estate market. As prices lingered below $40 per barrel, demand for properties declined sharply and investors largely shied away, slowing the steady growth that had driven the market for years. Jay Rollins , managing principal at JCR Capital tells GlobeSt.com in this exclusive : “The common perception is that Houston’s economy is dominated by the energy sector; however, as a top five MSA, the economy is much more diversified than many believe. When oil prices fall, many would-be investors overreact relative to the energy sector’s actual significance in Houston’s economy and are reluctant to invest. This overreaction creates opportunities for those able to more accurately assess the market.” One such area where investors managed to keep deals flowing was the middle market sector of properties valued at between $5 million and $50 million. Where other investors zigged, JCR zagged, playing a critical role in financing office parks, apartment buildings and other projects that were otherwise endangered by the market slump. Some of those middle market examples from earlier this year include a joint venture equity investment in a $15.2 million three-building office park, a bridge loan on a $5.7 million apartment building, a bridge loan on a $6.5 million office building, and a bridge loan on a $5 million retail property last year. Rollins continues to tell GlobeSt.com: “Although many investors overreact and are overly punitive to the Houston market as a whole, depressed oil prices do have a meaningful impact on energy sector businesses, which trickles down to real estate. Somewhat counter-intuitively, middle market properties have benefited from the downturn. As an example, when oil prices are low and they are less profitable, many energy sector outfits seek to cut occupancy costs and move from class-A office buildings to class B or C, which are typically small-to-mid-cap buildings. With these points in mind, we have been able to close a number of deals to capitalize on the oil slump.”