Thoughts on Houston Market Given Constant Storms
My firm does not work or acquire within Texas but I’m interested on a market overview in Houston. As title reads…hurricane today, many storms this season alone, Plenty YoY. Insurance has gone up significantly everywhere, but increased dramatically in Houston and south Florida, making sellers weary of smaller purchasers to obtain insurance given the difficulties and large increases (not large institutions that can get insurance across portfolios or individual properties easily).
Cap rates have been inching higher w/in the market.
Is anyone invested here and can provide insights on the MF market as a whole? Any insurance challenges?
Why Houston over Austin or Dallas? Also, investors go belly up in Houston, why? Supply & Opex issue? Any insight here is appreciated
Investors go belly up everywhere, discuss.
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Also interested in peoples thoughts.
Im sure people will continue to do well and make money in Houston but it’s starting to feel like a “life’s too short” market for me.
Houston overall has maintained a cheaper COL compared to other markets in part due to their expedited building process and lack of zoning.
Pros: Lack of zoning gives developers to easily build more units
Cons: Lack of zoning means theres an office skyscraper next to an apartment building which means traffic jams on non major street, poor infrastructure, and inability to control traffic patterns
Pros: Houston is 2nd in population growth in the US just behind DFW. At the same time, it is still a relative value both in terms of price per foot and rent levels (so more room to run) to pretty much any big city in the country. While everyone is always worried about no zoning, Houston probably has the best relative supply story out of DFW, Austin and Houston (while people are worried about the potential for unlimited supply given no zoning, the reality is that it's harder to find capital to get things off the ground). Economy is quickly diversifying. Most diverse city in the country. Largest medical center. Amazing food scene. Port is very active and Houston in general will benefit from near shoring.
Cons: Insurance is a real killer, but if you're buying new deals you're already pricing this in but it's always a nightmare worrying about your properties anytime a storm rolls in. Not a lot of spots where you feel like you can find a real nucleus (The Heights, Med Center, etc.). Hot / humid weather can be a deterrent to it ever being a sexy market for people to move to.
Whenever I talk to people in Houston that moved from NYC or LA, they say they are surprised how much they've loved living in Houston. Houston can feel ugly and sprawly in general, but if you pick your spots right it's a great place to live and the local real estate developers are quickly growing / creating new mixed-use areas that are fun to be in.
Thank you for the thorough response. The areas you listed sound great but Houston is huge and from what I seen there is plenty of distress “inside the loop” which is west of downtown I believe. Any insights on this?
Houston has a lot of Class-c product in submarkets you don't want to be in. This product was ripe for the picking in the syndicator frenzy, especially given it's an easier market to win deals in than Austin or Dallas. This lead to a lot of transactions for crappy product in bad markets for insane cap rates that are now underwater from a mix of (1) floating rate debt that can't be covered, (2) low occupancy from crappy syndicator sponsors combined with rough areas, (3) insurance costs up
Agreed and thanks. Houston is an interesting market. Many acquired 60s and 70s deals in those submarkets after reviewing…..it looks like north Houston is great with nice developments in Cypress and recent acquisition ($196MM) deal closed on July 3rd there too. Any other submarkets to check out or stay away from?
Not true. All syndicators in houston are crushing it.
Regards,
Not Swapnil Agarwal
B and C multi in Houston is going to be an absolute bloodbath. I saw a banner offering 6 months (!!) of free rent on the side of a shit box 70s deal off of 45 on my way to Galveston about a month ago.
That being said, the people that can plug their nose and buy and fix some of these deals at the bottom of the cycle will make a killing…as long they exit before the next hurricane!
Can anyone explain the state of affairs there with the recurring flooding issues? I’ve heard various people offer explanations of it, but never someone who seemed an expert on the matter. I’ve heard:
1.) The city is already fairly close to sea level and it’s getting lower over time.
2.) Soil quality is poor certain places and certain formerly inhabited small pockets and neighborhoods in its exurbs have flood risk to the point of now being uninhabitable.
3.) Historically, when there was a big rain, more water would drain through exposed grass and soil in the area. But since development has been rapid and unwavering in recent decades, there is now less and less exposed grass/soil relative to concrete, so the water drains more slowly and there is more risk of flash flooding during storms.
Can anyone confirm or refute any of this? What resources (beyond FEMA maps) would anyone suggest for understanding how flash flooding risk is affected in Houston and what the possible outcomes are going forward.
(I had a friend there who had be rescued off the roof of her car via boat about five years back despite driving on a major roadway, because the water just came in and became overbearing and cars couldn’t pass.)
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