OIL CRASH CHEATING HOUSTON OUT OF 50 NEW APARTMENT COMPLEXES IT DESERVES TO HAVE 
So it may be bouncing back a little, but the precipitous drop in the price of oil since last summer has been responsible for the axing or delay of a considerable number of large-scale residential projects in Houston. How many new apartment buildings would we have had available to gawk at or choose from if it weren’t for the freefall? Ralph Bivins reports: “We’ve heard 50 multifamily projects have been cancelled or postponed,†says local Colliers prez Patrick Duffy. [Realty News Report] Photo of proposed (and delayed) Hanover River Oaks: Solomon Cordwell Buenz
Sign up for the Newsletter
I think I’ll echo most people on here by saying this is a good thing. Not because of the structures that won’t be torn down (until the next cycle), but because it let’s the multi-family housing market cool off a bit. While big developers are *usually* a savvy bunch, and the lenders who finance them do their due diligence before funding them, they aren’t infallible. Hopefully this will help this part of the economy land softly, maybe more so than in other parts of the country. Because that landing WILL happen, just a matter of when and how hard it will be.
What a ridiculous waste of space on Swamplot as well as the breath that Patrick Duffy took to say, “We’ve heard 50 multifamily projects have been cancelled or postponed.†If Mr. Duffy is going to make such a profound statement, please go ahead and share your insightful rumours. I know that Swamplot tries to vette information for its accuracy and veracity before posting it and this seems like someone was asleep when they posted.
Question – With Multifamily slowing down will the Axis Apartment building that burned down at Montrose and W Dallas have to rebuild? It’s been an empty lot for a while now. Could they just sell the property or does the insurance money require them to rebuild.
50 multifamily projects cancelled? Even if oil was still $100/bbl, that’s still too many! We’ll be lucky to fill the 20,000 units coming online this year.
Great news, give these developers a little time to get over themselves…
I’d like to see more apts built as rents are too expensive in the 610 area already / though I hope falling oil prices stop soon as don’t want the economy to tank like it did when I was 5
really 50 projects? Elaborate please.
Also, oil does not stay at one level. Major projects are based on outlook a few years out. Houston oil and gas economy is much more driven by international oil and gas market than domestic. It however has a large share of petrochemicals domestic market. It is different story in West Texas, DFW, OK, ND etc.
@Higher Density —
Patrick Duffy? Before he was on Dallas, he played The Man from Atlantis and IIRC he could go pretty far on a single breath.
MrMe: We have tons of apartments inside the loop, 3-4 miles from downtown/midtown/montrose that are ~$500. Inner loop isn’t expensive — rather the exact small locations your looking at inside the loop are expensive
.
Are they great areas? Well, other than the fact they’re CLOSE to great areas, no. But you can pick “cheap” or “exactly where everyone else wants to live”. Or, a third option: “Cheap, and really CLOSE to where others want to live”. i.e., 3rd ward, 5th ward, Riverside Terrace, OST/288, etc.
Sounds about right, in just a couple months time our annual employment growth forecasts have been nearly cut in half. That’s 50K or 60K fewer heads a year that people were planning on as recently as 6 months ago. I think the strong US dollar is going to hurt more than we think too. i just sell as a hobby, but my international customers have disappeared completely (euro, hong kong, australia) except for one to Sweden, go figure.
This is great news! And I’m not going to say what people expect me to say (about how it’s good because they’re not going to over build quite as much.). No, it’s really good news because it eases up demand on construction materials and labor, and that in turn means better prices for the taxpayer funded construction projects that are about to hit the street (school bond construction, road work, etc. etc.)
After all that’s happened with regarding the Ashby High rise maybe this is a good thing in the long run. Have you seen what’s planned for Kirby Drive already? That ain’t right!
Cody, just remember it’s not exactly how close they are to great areas, but what the commute time is during rush hours. I could move a mile from my current place and add almost 15 minutes to my daily commute. For me to move from the montrose to any of the areas you listed (3rd ward, 5th ward, Riverside Terrace, OST/288, etc.) while having to commute to the energy corridor I’d have to see my rent drop nearly in half to compensate for additional commuting time alone. that doesn’t even touch compensation for the difference in schools, access to parks and everything else that comes along with location, location, location. there’s a reason these places are expensive and that’s not going to change anytime soon.
All this “building” and we got one actual skyscraper. Compared to the 80’s transformation of the skyline this has been a real dud. A bunch of shitty mid rises and very mediocre apartment and condo “towers” and puff, it’s over. Very disappointing, to say the least. Houston was the jugernaut for 5 plus years and you look around and think, this is all we got? Seriously? The skyline looks essentially the same.
Agreed with Shannon. Compared to the 1980’s here, this building boom was just a blip when it comes to large office towers.
Buy your square footage and outdoor space now. All these apartments they have built over the last ten years are extremely tiny and the units they will build next cycle will also be extremely tiny. Square footage and outdoor space will skyrocket in value when oil goes back up. When you have tens of thousands of well paid, younger people pent up living in 650, 700, 800 and 950 square feet apartments with 950 being the really pricey upper end and 650 being the more affordable entry level, they are going to want land and space in a major way. Developers can maximize dollars by touting a small square footage European life-style. But, the reality is this isn’t London or Paris. Land IS available. Maybe they don’t want to buy now with oil low, but the demand is building and people will want to buy when oil goes up and they are tired of being pent up inside small apartments – as luxurious as they may be. Oh, and they don’t want to be far from all the inner loop amenities they use right now. Get Ready. The land rush is coming.
It’s not just that these projects were adding to new supply, its that by and large they were serving the very top tier of the rental market. And its not just that the employment count has been slashed — compensation is going to suffer. Bonuses and perks vanish more readily than that payroll employment is slashed.
A new complex ordinarily offers lease-up concessions in a race to achieve its proforma occupancy levels prior to the first lease renewals; under normal circumstances it would then burn off the concessions by dealing with a single year of high tenant turnover as effective rents are raised, and would then be considered ‘stabilized’ in a financial sense. A new complex that comes into this market is going to have to offer very very deep concessions on the base rents for which it was underwritten and financed. In prior recessions, four-plus months of equivalent free rent on a one-year lease has not been unprecedented. It will be at least that bad this time, but the complexes will fill up. Its just that achieving ‘stabilization’ may require several years — assuming that the global/national economy holds out in the meantime so that things don’t actually get worse. And lets be clear about this, at some point there will be a global/national recession. These things happen periodically and with plenty of forewarning that everybody ignores until its too late; this is how it works and assuming otherwise is grossly irresponsible, yet very much acceptable and very much encouraged in polite company.
@ JD: Big developers go where the money is. Give them money and they’ll build. Money is to a developer what meth is to an addict. The terms can be bad and they’ll usually do it anyway, chasing a substantial fee that they’re charging their limited partners (and in some cases, perks that come back to them by other means). Its very difficult for a developer to reject a project that somebody will let them do, even if the terms are very bad. About the mid-career banker or asset manager — these folks have been allocated a pool of money that needs to be deployed into a certain asset class in order to further the strategic interest of the bank. They do what they can to seek out good deals and build relationships with competent development teams, but if their manager’s managers are under pressure to chase yield, then their strategic portfolio allocations are going to reflect that and the mid-level guys are going to have to get less picky (but they won’t complain about that because its not in their immediate interests to do so).
Also, in general the development community really doesn’t have a solid grasp of how a local economy works. They’re experts at putting together a deal and those deals are complex; but the scope of their expertise is extremely narrow. Even those with broader perspective understand that most everybody else in their industry has a narrower perspective and will be unappreciative or even hostile to a person that raises awareness of a risk factor or operational hazard that could kill deals.
They operate as a herd.
@ Irfan: Although it is true that the relevant investment time horizon for a major project is several years in the future, it should be borne in mind that there exist both physical and financial means of speculating on oil prices such that the price of a commodity today largely reflects what investors believe is its future value. Future upside and downside scenarios are built into the price. If a company is basing the construction of a major project on the premise that the oil price is just plainly wrong and too low, then they’re better off taking all of their investable money and buying a highly leveraged futures contract. And if they’re doing otherwise, then that’s your cue to furrow your eyebrows and ask plainly why they’re blowing smoke.
@ Joel: About the strong dollar, I agree with you and I’m very very interested to see where this is going. The Fed’s tolerance for additional quantitative easing appears very limited (and rightly so), and yet by not participating in the depreciation of other major currencies there will be some pretty severe effects on international trade and capital flows.
@ Shannon: Your interests and priorities are skewed from reality.
Echoing Shannon’s comment – 18 million square feet of office under construction in the area and about 1.5 million square feet of that is downtown, with Exxon meanwhile about to vacate 1.2 million sf of space. Hence, no skyline transformation. We actually got more downtown office space in each of the 2001 and 2007 mini-booms. Pretty lame, but right now the baby boomers are at the helm of energy companies and baby boomers like their suburbs. The “greatest generation” liked to build tall and downtown; hopefully the Gen Xers and Millennials will be the same way (their central city living preferences are a good sign that they will).
@Shannon and @Mike: Houston doesn’t need tall towers. Houston has gumbo soil and no natural barriers. Building tall in Houston is just macho posturing. There’s plenty of room to spread employment around and very little benefit to cramming them all downtown.
Gosh meme, you’re right. Too bad Houston didn’t get over its “macho posturing” sooner and spend the 60’s-80’s building mid rises on the Katy freeway instead of skyscrapers downtown, and Gulf or Tenneco would still be our tallest building. Then we could all pat ourselves on the back at how non-macho we are.
Anything to sound clever…
How do you even manage to have that many projects approved in order to be canceled? Very strange pattern.