Home

Houston Deals

Multi-Family Magazine

National Items

Leasing Briefs

Texas Roundup

Residential Topics

International Dispatch

People Blog

Photo Gallery

Bivins Blog Archives

David S. Jones Column

About Us

Sunbelt Realty:

Phoenix Market Weak in Houston Comparison

HOUSTON---Houston and Phoenix – the nation’s fourth and fifth largest cities – are not in the same universe when it comes to their real estate markets, according to Lewis Realty Advisors, a Houston-based real estate consulting firm.

A close examination of the two fast-growing Southwest markets indicates that the Houston real estate market is demonstrating a durability that surpasses the conditions in Phoenix.

“Real estate prices have been holding steady in Houston and declines have been relatively small,” said David M. Lewis, chief executive officer of Houston-based Lewis Realty Advisors. (www.LewisRealty.com) “Through the national economic decline, Houston real estate remains resilient.”

In Phoenix, the real estate boom of the early 2000s, has given way to widespread foreclosures, declining home prices and increases in unemployment.

“The Phoenix area suffered the steepest annual drop in home values of any city in the nation -- down a staggering 35.3 percent from April 2008 to this year,” said Kim Kobriger, senior analyst for Lewis Realty Advisors. “Houston home prices have dropped, but the declines are not severe.”

The Phoenix median home price has declined from $250,000 in 2007 to $104,000 at mid-year 2009. Over the same time period, Houston’s median home price declined only $20,000.

“In Phoenix, home prices are down 54 percent from peak levels in June 2006,” said Kobriger, author of an analytical comparison of the Houston and Phoenix markets.

Throughout much of the economic slide, the Houston economy was buoyed by strong energy markets, a rise in oil and gas drilling and related job growth. The Phoenix economy did not have such a strong undergirding and home prices went into a free fall.

Kobriger, former manager of internal audits at Maricopa County Assessor’s Office, has served as president of the Phoenix Chapter of the Appraisal Institute (www.AIPhoenix.org) and he holds the institute’s prestigious MAI designation.

Founded in 1961, Lewis Realty Advisors provides consulting and appraisal services, eminent domain solutions and investment analysis for private property owners and governmental entities. More information is available at www.LewisRealty.com.

.............................................................................

Healthcare REITs

By Connie Gore

Dallas--With healthcare on the new administration's priority list and related real estate hovering $700 billion, Milwaukee-based Robert W. Baird & Co. Inc. has added healthcare REITs to its coverage list.

Baird's microscope initially is pointed at Ventas Inc. of Louisville; Senior Housing Properties Trust of Newton, Mass.; Healthcare Realty Trust Inc. of Nashville; HCO Inc. of Long Beach, Calif.; Health Care REIT Inc. of Toledo, Ohio; and Nationwide Health Properties Inc. of Newport Beach, Calif.

"Given an aging population and increased healthcare consumption, owners of healthcare real estate appear poised to benefit from this long-term demand profile," assessed David AuBuchon, Baird's point man for the new coverage area.

Healthcare real estate not only is diversified, but has fragmented ownership. AuBuchon's research shows healthcare REITs own an estimated 5 percent of an asset class that's primed for investment opportunities. The lack of available financing for all product types is predicted to "severely limit speculative new supply" and translate into increased demand for existing space, according to AuBuchon's research.

The healthcare sector has several unique risk factors, including its leases. One of the top risks are tight state and federal budgets, which could affect Medicare and Medicaid reimbursements and lead to tenant losses or lease renegotiations, AuBuchon said.

Healthcare REITs most often use triple net lease structures, with terms in the 10- to 20-year range. Long-term care facilities generally are held by master leases and often cross-collateralized in an asset pool.

The underlying dynamics of the industry's lease structuring, though, makes core portfolio FFO growth "more consistent and less susceptible to economic swings," AuBuchon said.

Above-average FFO growth hinges on acquisitions and development, now stalled due to the credit-constrained economy. "Growth through acquisition currently appears a low probability," AuBuchon said. "This typical avenue for healthcare REIT FFO growth has shut down, creating a bond-like investment that may come under pressure as investors overweight harder hit sectors with higher growth prospects and/or when interest rates begin to increase once again."

But on a positive note, AuBuchon said the REITs under Baird's watch boast a 7.4 percent dividend yield in line with their 10-year historical median. The group's five-year median yield works out to 6.1 percent.
.................................................

Texas Property Values:

Strongest in the Nation

HOUSTON---Texas property values have not suffered the serious declines that have swept over the real estate markets on the east and west coasts, according to Lewis Realty Advisors, a leading eminent domain consultants and real estate advisory firms.

“Texas property values did not soar as high as what we saw in California and Florida earlier in this decade, and the recent declines in Texas real estate are also moderate,” said David Lewis, chief executive officer of Lewis Realty Advisors. (www.LewisRealty.com)

Realty values in the Lone Star State are outperforming other states partly because supply and demand have maintained a reasonable balance. “The Port of Houston enjoyed its ninth record year in 2008 despite Hurricane Ike,” said Jim Edmonds, a national leader in government counseling and consultant for Lewis Realty Advisors.

Texas leads the nation in job growth and Houston, Austin, Fort Worth, San Antonio and Dallas were recently named the top 5 healthiest home building markets in the nation by Builder magazine.

“The state of Texas has a completely different outlook in 2009, compared to where we were 20 years ago in 1989,” Lewis said. “In the 1980s, federal bank regulators had seized our savings and loan institutions and property was sold off for a dime on the dollar.”

“In the 1980s, Texas was overbuilt, thousands of jobs were being lost and oil went to $8 a barrel. Texas was first to go into decline then and the last to rebound in 1990s,” Lewis said. “Today, Texas is a more secure location.”

Today, as values are placed on Texas property, it is critical that Texas real estate is not incorrectly diminished because of the declines in other parts of the nation, Lewis said. In this same vein, many out-of-state banks have failed to finance excellent Texas ventures because of concerns about the national economy, even though Texas is in better condition.

“Whether it’s federal banking regulators insisting on a mark-down of real estate asset values, the state government undertaking an eminent domain condemnation, or a local appraisal for property taxes, Texas realty must be valued with fairness,” said Jim Julian of Lewis Realty Advisors.

Other threats to property owners loom as federal stimulus funds are spent for expansion of roadways, transportation systems or energy easements. These projects will require property to be taken through eminent domain.

“Our firm believes eminent domain must be undertaken with complete transparency and full disclosure of all the facts by the entity with the power of condemnation,” Lewis said. “The government has vast power and it must diligently follow the American Constitution.”

Lewis is a founding board member of the Harr is County Appraisal District, a former member of the City of Houston Planning Commission and a past president of the Houston Chapter of the Appraisal Institute. Fellow consultant, Jim Edmonds, is a former assistant to Governor John Connally and Houston Mayor Louie Welch, and has also served in leadership for various charitable and public institutions including the Port of Houston, Texas’ major Port Authority. Julian, who has been a member of the Appraisal Institute since 1965, was also an instructor for the International Society of Real Estate Appraisers, and served in leadership roles for the Appraisal Institute.

..................................................

Weathering the Storm:

1301 Fannin Data Center in Hurricane Ike

While many Houston-area businesses were in the dark for days and weeks following Hurricane Ike, tenants of the unique downtown Houston property, 1301 Fannin, operated business as usual. In addition to a prime central business office location, the building offers a state-of-the-art data center — both highly coveted characteristics for corporations seeking a downtown location with the best combination of data center or office space or both. Many Fortune 500 corporations depend on the Houston data center to keep business operations running even during a hurricane.

1301 Fannin provides depth to downtown Houston’s technology backbone, with critical N+1 power and cooling systems, providing enhanced levels of data integrity for its clientele. N+1 systems provide independent back-up for critical business functions. If any one component should fail, the rest of the operating systems functions normally.

More and more corporations are outsourcing their data center operations because they are costly to build and service. “We have a proven track record, which many new data centers don’t offer,” stressed, Drew Lewis, Co-Chairman, Griffin Partners. “In addition to providing tenants with critical data redundancy; 24-hour engineering and security personnel; protection from 200+mph winds; and more, we provide an extremely high level of principal-involved service and knowledge base with regards to data center operations.

“Perhaps, even more central to the corporate bottom line, we are providing the capital investment in cutting-edge technology, saving our tenants costly outlays and in the long-term protecting their investments,” added Lewis.

One of the building’s tenants, the Internap Houston collocation center, experienced that investment first hand during Ike, reporting no impact at all from the storm. Robert Weatherly, Internap data center manager, explained "the facility never lost commercial power nor went on generator or UPS back-up for the duration of the storm." This is attributed to the superior downtown power grid and underground utilities feeding 1301 Fannin, since the building is on the same power grid as the Houston police headquarters and downtown hospitals. “Our customers reported a great deal of satisfaction with the performance of the facility with many customers opting to stay in the building to ride out the storm,” added Weatherly.

1301 Fannin is built for those with technology needs; but it also provides amenities and architectural allure for tenants who simply desire prime office space. Extensive renovations are underway for the entire building, including an elaborate transformation of the lobby, scheduled for completion later this fall. An architectural ceiling will run throughout the lobby, complemented by direct and indirect lighting, wood detailing and the addition of a new LED “light wall” system near the elevator lobbies. Elevator cabs are being re-finished and new security guard stations are being built at the data center and office tower elevator lobby entrances. Flat panel TV monitors and Wi-Fi connectivity will further enhance the lobby, allowing the building to compete with other downtown Class A space. A new 3,000 sf fitness center was recently added to the 24-floor, 784,000 sf building.

The downtown office building offers the level of reliable, secure, round-the-clock service found in 1301 Fannin. The building offers 289,000 sf of office space and 370,000 sf of data center space.

................................................................................................

DAVID M. LEWIS

Questions and Answers

David Lewis, founder of the Lewis Realty Advisors appraisal and
consulting firm, has a long resume in Texas real estate. He has
been a developer, a banker and an appraiser across Texas and in
other states.
Lewis Realty Advisors has a deep history of handling government related
work, with a client list including the City of Houston, the
Port of Houston and the Uptown Development Authority.
The company’s appraisal work has been making headlines along
the Katy Freeway, where it is representing most of the property
owners who are contesting offers from TxDot. Lewis recently took
a few moments to visit with Ralph Bivins, editor of RealtyNewsReport.com about  a variety of topics discussed in this interview, which first appeared in RedNews.

Q: You’ve been involved in many government related
projects, such as helping to assemble the land for
sports stadiums. That sounds like interesting work.
A: Yes, we were involved in the land for Minute
Park and the new basketball arena in downtown
Houston. We have appraised both the Astrodome
and the Summit (Compaq Center) several times.

Q: There are many wild ideas now being floated
about what to do with the Astrodome, making it into
a hotel or a casino or whatever. Is there any viable
plan for the Astrodome’s future?
A: The thing about the Astrodome is it’s no longer
one of the Seven Wonders of the World. There are
a lot of stadiums with roofs now. It may take three
or four attempts to redevelop the Astrodome
before a profitable re-use emerges. What the
Astrodome will become is anybody’s guess.

Q: Are there any areas of Houston that appear to be
sure-fire bets for real estate investors today?
A: I think I would start at the center of Houston
and work outward. Inside the Loop is in an exciting
phase. Look for redevelopment opportunities
there. The CBD has become vibrant with young
people moving in there and a 24/7 environment.
And that is crucial — having a vibrant downtown.
If the core of the city dies, the entire city withers.

Q: Some people criticize the results of the Minute
Maid baseball stadium saying it did not produce
enough new development. What are your feelings on
that?
A: The stadiums have generated activity and a
rebirth of downtown. Look at the lofts, all the
people living downtown. Look at the redevelopment
of the Rice Hotel. It’s a happening. It’s in
process and it is in full swing. We can thank
Mayor Bob Lanier for revitalizing our inner city.
When Lanier was first elected you could buy
downtown buildings for $20 psf.

Q: What is happening with the widening of the Katy
Freeway? The state highway department has been
taking ownership of a lot of freeway frontage land
through eminent domain. Your firm is involved in
helping many of the landowners appeal their purchase
offers from the state. Are the landowners getting
a fair deal from the TxDot?
A: We represent a majority of the private property
owners along the Katy Freeway. The state is taking
property every day. Our clients will get fair and
just compensation, I believe, as the state takes
ownership of their land. It is not an automatic
thing, however, and the landowners need to
aggressively pursue just compensation. Some
entrepreneurial real estate people are going back in
now and scouting around for good sites that will
have strong values when the dust settles in a few
years. My advice? Be early and be willing to wait.

Q: What about the widening of roads and streets,
such as some of the work going on in the Uptown
area? Is this a good place to invest?
A: Our firm is involved in the Uptown area. Some
of the growth you are seeing there, particularly in
residential and retail, is very promising. Freeway
expansion and highway construction do create
opportunities as well as damages. And it’s no secret
that future paths of the Grand Parkway, the Katy
Freeway and Highway 288 have a lot of potential.
For the last 10 years, Houston has a lot of solid
growth, projects that are justified by sound economics.
Of course, the growth really percolates
along these freeways.

Q: What is you opinion of our light rail system?
Are there opportunities there?
A: If we follow the example of what happened in
Dallas, the rail will spawn some new development.
Several significant projects are located along he
Dallas rail line. Projects that are at the stations and
train stops do quite well. Those who are not at the
stations, just wave as the train goes by. As far as
mobility, I don’t think there’s any doubt that it is
an asset. Remember were aren’t doing rail to make
money in real estate, we’re doing it for mobility. As
future segments of the rail are added, whether it be
to Northline Mall or the University of Houston,
real estate investors would do well to be remain as
close to the stations as possible. It’s the people on
the rail that make these developments exciting,
not just the fact that the rail runs by. And Metro is
continuing to be creative with all sort of real estate
development. For example, Metro is now seeking
developers to build a commercial element as part
of a Park & Ride lot near Highway 290 and
Barker-Cypress.

Q: Many lawyers call on you regularly to give expert
witness testimony in legal proceedings. Can you give
us an idea of how that started and how often you’ve
testified about property values, appraisals and those
kinds of issues?
A: I’ve testified for over 40 years. If you know the
subject matter well, the testimony will turn out
well. And I do like to go into these situations very
well prepared. Research, research, research is the
only basis for sound opinion. Giving depositions,
which can go on for days, are actually tougher
than the briefer courtroom appearances. The
expert witness avenue really opened up for me in
the early 1960s, when Mayor Louie Welch asked
me discuss real estate issues before the City
Council. I have remained close to the mayor over
the years and I give him a great deal of credit for
any success I have had.

Q: You developed a large parcel of Houston land on
Highway 249 near FM 1960 for entertainer Johnny
Carson, who recently passed away. I understand that
you had a lot of contact with Johnny over the years.
A: Johnny was an American icon and a great person.
He was one of the nicest guys that I have ever
met.

-----------------------------------------------------------

Ralph Bivins, editor, and David

Lewis, founder of Lewis Realty

Advisors. See Q&A interview

at left.

......................................................