A healthy Houston market Featured

7:00pm EDT February 24, 2008

As the national real estate market struggles, the Houston economic scene, bolstered by the oil and gas market, continues to support a healthy regional real estate leasing market.

“As you drive around town, construction and development is apparent all around the Houston area,” says Darrell McCorquodale, vice president at Wells Fargo Bank in Houston. “The national economy and financial market turmoil does not seem to be having a large impact on Houston development.”

Smart Business learned more from McCorquodale about the present state of the Houston economy and what entities might have an impact on it in the future.

Which market in Houston helps the leasing activity the most right now?

The oil and gas market helps a lot. I have clients who have leased some space over the last six to 12 months, and a lot of the activity has involved oil-related companies acquiring more space. The Houston market seems to be doing quite well, our office is looking at several requests, and our volume seems to have picked up since the beginning of the year. Lease activity seems to be picking up as several of my clients have secured new leases recently in both the office and retail sectors.

Does the price of oil affect how the oil companies lease land?

As the price of oil has increased, it appears to have had a positive effect on the market's leasing activity. Several of my borrowers’ tenants have increased their lease space as a result of the oil and gas activity recently, which has created their need for additional staff and space. Our business banking division of the bank mainly deals with companies with financing requests between $250,000 and $10,000,000, so our division of the bank targets customers that provide support services to the large oil and gas companies as well as other industries. As mentioned previously, we have seen an increase in leasing activity as well as new construction projects and a portion of that can be attributable to the increase in prices.

How does the market in Houston compare to the rest of the country?

My focus is obviously on Houston, but I know there is a lot of talk about a possible recession and a stagnant real estate market nationwide. I know we are very busy here at Wells Fargo, and we’re looking at a lot of deals. It seems like it’s been that way since Houston has been tied to the oil and gas industry. I think the Houston market has grown more diverse over the last 10 or 15 years, but oil and gas is still a very big player in this region. As long as it’s doing well, it seems like Houston does well.

What are some of the other markets in Houston that are picking up speed?

Industrial real estate is big as more industries move to the area. Houston also has a large medical community. I know there is a lot of new construction in the area due to our medical center. A lot of new hospitals are being built, not only in the new center but in some of the suburbs, as well. There is also a lot of new construction along Interstate 10.

How do the changing interest rates affect real estate transactions?

The interest rates are kind of volatile right now. People see that the prime rate is dropping pretty dramatically so a lot of them are calling with questions about their current interest rate. And I think a lot of people are looking to buy now because of the interest rate.

As an example, I have several clients with floating and adjustable rate notes. Though they are pleased that rates are going down, some of them are looking for ways to fix the rate now because it can eliminate the potential interest rate risk in the future and secure a fairly low rate.

Do the Federal Reserve’s actions affect the real estate market very much?

I know after the 75 basis point drop recently following the emergency session, we received a lot of phone calls from clients that wanted to look at the interest rates on their deals that are financed for the long term. The clients see that the prime rate has dropped 75 basis points, and they think that their rates should drop, as well, and that does-n’t necessarily happen. That 75 basis point drop in your short-term rate doesn’t mean your long-term rate is going to drop, as well. A lot of times the long-term rates have already anticipated the short-term drop and have factored it into the long-term deal.

DARRELL MCCORQUODALE is vice president at Wells Fargo Bank in Houston. Reach him at (713) 827-2180 or Darrell.W.McCorquodale@wellsfargo.com.