HOUSTON – When oil prices plunged to multi-year lows, investor interest in Houston’s real estate market dropped sharply as well. By early 2016, oil traded under $30 a barrel after peaking near $107 in mid-2014. A few opportunistic funds looked for distressed deals in what’s long been the nation’s energy capital, but the market did not present the deeply discounted assets they had expected, so many retreated. Now that oil prices have stabilized, investors are gradually returning to Houston. Who is looking at the city, and are there attractive opportunities for buyers? To answer those questions, Realty News Report spoke with Robert Williamson, Vice President of Investment & Capital Markets at Midway, a privately owned, fully integrated real estate investment and development firm based in Houston.
Realty News Report: Investor activity in Houston picked up in 2017 after a slow period the year before. What’s driving that change?
Robert Williamson: Several factors. The downturn primarily affected the office sector because of its close ties to the energy industry. Other sectors—industrial, retail and single-family housing—remained resilient. Industrial strength reflects Houston’s role as a leading import/export hub. Retail and single-family demand have been supported by strong population growth despite softer job gains last year. Even multifamily performed reasonably well: absorption continued, although the market experienced temporary oversupply when too many units were delivered simultaneously. That wave has passed and multifamily is now correcting itself.
Realty News Report: Recently, major assets such as the roughly 4 million square-foot Houston Center in downtown have been listed for sale. Why are owners choosing to sell now?
Robert Williamson: I can’t speak to the motivations behind every specific listing, including Houston Center, but office sales in Houston have long been active. The sharp drop in crude prices in late 2014 shocked the office leasing market. The rapid expansion that preceded the downturn was driven mainly by energy-related demand, and few anticipated the pace and impact of the shale revolution on supply and prices. From late 2015 through 2016, both buyers and sellers struggled to determine market value because leasing activity slowed and few transactions provided comparable data. Today there’s better visibility and more data points to establish value, allowing owners to move forward with business plans that, in many cases, include selling assets.
Realty News Report: Do you think the worst is behind the energy sector and that the economy has stabilized?
Robert Williamson: Yes. Employment growth is picking up again, and the rig count has recovered as oil prices have steadied, albeit at lower levels than before. The energy industry is stabilizing through recapitalizations and mergers, and many companies have demonstrated the ability to operate profitably at lower price points. There has been pain, but relatively few firms entered Chapter 11, and the turbulence did not cascade into banking or commercial real estate the way it did in the 1980s.
Realty News Report: You recently left HFF to join Midway as Vice President of Investment & Capital Markets. What motivated the move?
Robert Williamson: I started my career on the principal side and was fortunate to work with strong institutions such as Prudential and TIAA before moving into advisory work. During my 15 years at HFF I helped build an industry-leading investment sales platform. Midway is likewise recognized for best-in-class development and for anticipating trends that shape how people live and work. Projects like CITYCENTRE showed early recognition of what modern office tenants seek—amenities, openness and walkability. Midway continues to embrace change, and when the chance to return to the principal side with a forward-looking firm arose, it was an exciting opportunity.
Realty News Report: Does your hiring indicate Midway plans to sell more properties to outside investors?
Robert Williamson: Not necessarily. Midway has a long history of partnering with outside investors and will continue to do so. We haven’t been frequent sellers because many of our developments are multi-phased and designed to create long-term value; maintaining unified ownership or control is often the best way to maximize that value over time. That said, partnership structures and capital strategies remain flexible based on each project’s goals.
Realty News Report: What types of Houston properties are attracting investor interest today?
Robert Williamson: In the office sector, investors are hunting for value—whether that’s pricing below replacement cost or acquiring assets in prime locations at the bottom of a leasing cycle. Although Houston shares many attributes with gateway markets, its pricing doesn’t always reflect that status, which can create a premium yield opportunity for comparable assets purchased at favorable points in the cycle. As the country’s fifth-largest metropolitan area with a solid growth foundation, Houston is appealing to investors who seek visibility into future demand. With employment growth returning and the office market recovering, Houston may be among the more attractive investment markets nationally.
Realty News Report: A Canadian pension fund has been linked to a major bid for Greenway Plaza. Will foreign capital continue to flow into Houston, or will domestic investors lead the next phase?
Robert Williamson: Houston is a deeply international city—arguably the most diverse in the U.S.—and it remains a global energy hub. The Texas Medical Center has international reach, and our port system is one of the busiest in the world. These attributes connect Houston closely to the global economy and will continue to attract foreign capital to local real estate alongside domestic investors.