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Real Estate in 2011 reminds me of the early 1990s in many ways. The market was coming off the highs of the 80’s and the recession that followed. Loans were available but you had to be in really good standing and have saved a large down payment. Lots of people waited until they married to buy their first home. People were optimistic but true change was down the road. I have spoken to some of the leaders in various segments of real estate in Houston to get their thoughts on the real estate market. I started at Ibiza in Midtown with someone I met in the early 90’s when he was starting his career, the amiable and handsome Jonathan Farb. Branching out from townhomes, Farb has just completed the chic CityPlace on McGowen. 185 rental units with a saltwater pool complete with freshwater misters for those sultry August days; healthy food delivered to your refrigerator from Snap Kitchen and a large Bark Park and a dog walking service!
How do you see the market in 2011?
The real estate market specifically in Houston will actually continue to improve this year because the overall consensus seems to be that we are going to experience positive job and population growth. Based on past experience, if the job market continues to steadily improve then the real estate market should organically rebound and correct itself over time.
What changes have you made in your business plan since the downturn?
The biggest change has been transitioning into the apartment business because I have only built single-family townhomes over the last decade. Since financing still remains challenging for many potential homeowners, I feel that the demand and culture for housing has shifted somewhat to rental. The supply of single-family new construction inventory, particularly inside the 610 Loop, has dropped to an all-time low which has also caused us to expand our single-family program as well.
Are the lenders easing up at all?
The credit markets have not thawed yet due to the fact that many of them are still gun shy with too many bad loans on the books. In today’s market, lenders are definitely making loans but have greatly increased their equity requirements. I have always tried not to over-leverage my deals which has kept me out of trouble. Fortunately, I have continued to borrow from many of the same lenders as I had before the downturn took place.
What new projects are you starting this year?
2011 is going to be my most ambitious year, particularly because I am opening CityPlace, my first major luxury apartment development on Bagby and McGowen (www.cityplacemidtown.com). I am also breaking ground on five new townhome communities spread out over Rice Military, the Heights and Montrose.
Residential real estate is off to a roaring start in 2011! However, there are still a number of challenges. Those who purchased in 2007 or early 2008 may be in a difficult position. Today there is renewed optimism and there continues to be steady improvement over 2009. The industry will continue to see many changes such as mergers and acquisitions of real estate firms. Smaller offices will have a more difficult time competing with medium to large size firms, primarily due to economies of scale. There will certainly be the consolidation and closure of some real estate offices.
What about mortgages?
Interest rates are on the rise. We all used to think 6% was a good rate. Well, be prepared to be excited about it again. While interest rates are rising, the qualifications for a mortgage are getting more stringent. Just a few months ago if you had a 725 FICO score and put down 20%, you would qualify for those rates you see on the Internet or in the paper. Now, one must have a minimum credit score of 740 and put down 25% to get the very best rate.
Pricing and demand?
While there is some increase in investment in new construction, inventory is getting tighter and tighter, which stresses that segment of the market. This is keeping prices stable and even allowing for modest price increases in single-family homes overall. Buyers continue to choose new or totally remodeled homes as opposed to taking on “a project.”
Demand for new homes remains high but buyers remain very particular and won’t accept a bad location or inferior quality. Now is a great opportunity for investment in remodels or new construction inside the Loop. Prices of townhomes and high-rises remain at historical lows and their purchase now may prove to be a very good long-term investment.
Outlook?
News headlines in the spring/summer will be a roller coaster for the real estate industry. Early 2010 was a sprint due to the first-time buyer tax credit program and it is not expected that sales can match that pace so we expect the media coverage will be discouraging. Year-to-date sales numbers will be down in April and May which can negatively influence buyers’ perceptions. However, all expectations for the year are an overall upturn for real estate in Houston.
How do you see the rental market in 2011?
I think it will improve from 2010 but it is rugged. We will not see any great rebound without any new units in the single-family market. For the last few years, a young professional two or three years out of college would buy a townhome or a home. That scenario is over with lenders’ realistic demand to qualify for credit and increased down payment. Their best choice is to live in a nice apartment. Forecast for growth is not very great; I’m looking at a better occupancy rate. Rent growth should be up 6 to 7% by year-end.
Are the lender’s easing up at all?
Not really. This year they are very particular and the guarantees required are severe enough to restrict growth. It will take until next year for that to ease. There should be a greater demand for rentals with enough upward pressure from pricing and demand that financing should be available.
Are you starting anything new this year?
I will have two or three projects. One project is bogged down in serious zoning difficulties. I am currently building the Whole Foods at Waugh and West Dallas and the balance of the land will be residential. We are doing market surveys to see if this will be a midrise or a tower. The other is in west LA, close to two of my previous projects.
How do you see the market in 2011?
We see the housing market in 2011 reacting very similar to 2010. As a company, we have continued to focus on revenue generation and cost reduction, while maintaining our overhead. This focus, along with our conservative business approach, and staying vigilant of new sales and potential revenue-generating opportunities will allow our continued success in 2011.
What changes have you made in your business plan since the downturn?
We have shifted our focus to meet the needs of the market and our customers. Our energy-efficient Green Homes are friendlier to the environment and customers’ pocketbooks. By using environmentally friendly building materials, we are minimizing our carbon footprint and with their reduced energy consumption, our Green Homes are actually less expensive to own. In addition, to accommodate our customers’ desire to live closer to Houston’s business district, we’re offering our urban-style product in several locations in and around the Loop.
Are the lenders easing up at all?
As the market fluctuates, we will continue to see the lenders do the same, but with interest rates at record lows, now is the perfect time to buy a new home.
What new projects are you starting this year?
Houston’s Inner Loop, Heights and Galleria areas continue to grow. We will begin building 3- and 4-story homes in Washington Court – located in the Rice Military area. As well as Remington Park in the Heights and Asbury Manor near Memorial Park. We’re also opening several communities throughout the Greater Houston Area, and our Build on Your Lot program continues to expand.
What do you see in 2011?
We are nearing completion on 22 construction projects and possibly one new one this year. We are not sure, partially due to the uncertainty in the health care markets.
How does that affect TMC?
We have just gone from 32,000,000sf to 42,000,000sf which is a 30% increase. We have adequately increased our size to meet our needs. When you compare that to the size of Downtown Business Districts, we currently rank 13th. Our additional square footage should put us in line to be 7th or 8th by 2014 (as long as those Downtown Business Districts haven’t added significant size in the last few years which I don’t think occurred) which is ahead of Dallas, LA, Minneapolis and Cleveland.
What about UTMB in Galveston?
You will see substantial construction there…still some repairs from Hurricane Ike and some expansion.
What development will we see from Texas Children’s this year?
2011 will be an exciting year for Texas Children’s. At the end of 2010 we celebrated the recent opening of the Jan and Dan Duncan Neurological Research Institute and the outpatient facilities in our new West Campus. This year we are eagerly anticipating the opening of hospital services and the emergency center at West Campus, as well as the opening of outpatient services at our new maternity center, which is the last building in our Vision 2010 initiative, the largest expansion program ever undertaken by a single children’s hospital. Our goal has been to further strengthen and expand our services and facilities to meet the needs of the community and continue to lead the way in making breakthroughs that help children and families locally and globally. We are very proud of our world-class facilities that support our world-class programs, physicians and staff throughout the Houston area.
How do you see Houston’s retail market in 2011?
I see it beginning to show signs of revitalization and energy! We are seeing more stores interested in expanding and looking at future stores in the next one or two years. This is
important because we had none of that in last quarter of 2008, all of 2009 and first quarter of 2010. There are a number of signs showing an uptick in that market. This will continue to be a slow year for new development as we can continue to absorb what has been built, along with the time it takes to gear up for the expansion, as well as the time it takes to get financing in place. There will be several new stores expanding like Target, Wal-Mart, HEB, Kroger and the Whole Foods on Gray to represent the retail expansion of 2011 which is maybe 600,000 to 700,000 feet of new space.
What is new at your BLVD Center on Post Oak?
We have completed phase 1 and it is 100% leased. We are working on plans for phase 2 which will be a 185,000sf expansion anchored by a 48,500sf Whole Foods. There is a significant shift in tenancy in all retail projects to include restaurants, both large and small. They have become mini-anchors as they are expanding and seeing good growth. We plan to have four or five new restaurants in Phase 2, some local – some national.
Is residential back in play?
We are talking to one high rise rental developer about a site on the property. I am also excited about talks with a hotelier about a boutique property as well.
How do you see the new construction market in 2011?
Kickerillo Companies is very excited and hopeful about 2011! We have seen a flourish of traffic in our various developments and we are geared up for a busy year. Homebuyers are returning to the new construction market, and we are honored that they are selecting us as their builder.
What changes have you made in your business plan since the downturn?
The focus of Kickerillo Companies’ business continues to be land development, investments and custom home construction in the Greater Houston Area. This year we have layered a few new business ventures on top of our existing business model. We are currently building custom homes in Lakes of Parkway, Vintage Lakes and Rolling Creek, but we are also excited to be building in the Trendmaker development of Cross Creek Ranch in Fulshear. You will also find Kickerillo custom-built homes popping up all over the Houston area because we have begun building on our customers’ own lots in the River Oaks, Memorial and Richmond/Rosenburg areas. We strive to respond to the market and truly listen to our customers. We want to be able to offer a variety of home options for homebuyers whether that is in a gated community with amenity lakes and a recreation center, on a large parcel of land outside the city limits or on a residential lot in an existing Houston neighborhood. Kickerillo Companies is committed to building peace of mind anywhere and everywhere.
What new projects are you starting this year?
In 2011 we are introducing a new product line that I have designed as a response to the needs of our customers and the current demands in the housing market. My daughter Kelli is spearheading this product called Classics by Kickerillo. The first homes built, as part of the Classics by Kickerillo line, will be in the master planned community of Lakes of Parkway. This community is located off Briar Forest near Eldridge within the bustling Energy Corridor. With magnificent oak trees, nine lakes, paved jogging trails, a recreation center, pool, tennis courts and lighted fountains, this guarded and gated community is the perfect neighborhood to introduce Classics by Kickerillo. Though these homes will be first built in Lakes of Parkway, these new designs will lend themselves beautifully to become part of the mix of Kickerillo homes you will find in communities all over the Greater Houston Area. With a price range of $450,000 to $600,000, each home in this new product line will have the type of luxury appointments and quality features that buyers have come to expect from Kickerillo. Beautiful porcelain tiles, granite countertops, stainless steel appliances, Kohler fixtures and the unparalleled Kickerillo 8-step stucco process will be standards on every Classics by Kickerillo home.
How do you see the development market Downtown in 2011?
As I look out my office window, I am thrilled by the sight of workers putting the finishing touches on BG Group Place, Hines’ exciting new office tower at Main at Rusk. This is one of several new buildings opening this year including Hess Tower, Embassy Suites Hotel and The Houston Ballet’s Center for Dance. Although demand exists, funding challenges are likely to result in few if any new project starts this year. However, overall we believe that this situation will be short-lived and future prospects are bright.
I personally think that Discovery Green has truly created an anchor for not only the Downtown residents but the workers as well. What else is happening along that line?
We anxiously await the opening of Phoenicia Specialty Foods in One Park Place this spring. It will be a unique and interesting shopping destination for residents, workers and out-of-town guests alike. Most of all it addresses the often heard question about living downtown: “Where do I buy groceries?” At Phoenicia, of course! If you have not experienced the newly rebuilt Market Square Park, try it out. Our goal was to make this historic location into a park for neighborhood residents including a dog run, lovely green lawn, numerous works of art, floral beds and Niko Niko’s restaurant kiosk. We have high hopes that this jewel will spawn more residential development in Downtown’s Historic District.
’til next time…
Sandra
