Real Estate Panel Recap: Real estate professionals discuss Houston’s regional growth

On current growth hotspots and areas to avoid

Danny Signorelli: The most exciting areas for us would be Fort Bend County and Montgomery County. Those are two of the fastest-growing counties in the state. Frankly, Fort Bend County has been a top 15 fastest growing county for probably 20 years on a national level, Montgomery County not far behind. And so you talk about population doubling over a 20-year period.

That means for every house, you need another house. For every school, you need another school. For every Chick-fil-A, you need another Chick-fil-A. Our business isn’t rocket science. The population growth is going to happen, so long as the politicos out there don’t over-regulate or create things that don’t make sense. It won’t be linear. It’ll have its peaks and trials, so for us, our focus is good real estate in communities, suburbs that surround Houston that understand development, they understand the economics of it and the fact that we need certainty.

When we’re developing these projects, they may take 15, 20, 25 years, and we can’t have the rules changing with every administration that comes in and every four years change direction on us. That segues into areas that we would stay away from: We generally stay away from city. City development is much more bureaucratic. There are much more costly hoops you have to jump through, and that makes it difficult for our customers to afford their houses. So we’re focused on areas where we see mobility investment, where we see a focus on schools, where we see a focus from Commissioners Court in supporting the job drivers that we create.

Wolff: I would say you have to look at various segments of real estate. For example, with regards to industrial, the current hotspot is on the I-10 corridor out in Brookshire. That’s moving up to (U.S. Highway) 290 now, as the major industrial developers, such as Hines and Crowe, are now focusing on 290. And I think the other, newer developers are following their leads.

That was held back for about 10 years by the reconstruction of the freeway. Now that that’s been completed, that area is really taking off … I think people have to be very conscious of development considerations. Obviously, looking at what happened in Florida very recently, you’d want to be very cautious about being in an area that might be subject to the storm surge.

But at the same time, you can get flooding if there’s inadequate drainage in an area. Cypress Creek still overflows and can sheet-flow all the way south to Addicks Reservoir in times of intense rainfall. I think if you were developing on the Katy Prairie, you’d want to be very careful about how you plan for drainage in terms of detention. I think as people are going into some areas, they’re going on to situations where the utility systems are not really going to be good for the long term.

On the impact of the Grand Parkway on development

Signorelli: The Grand Parkway has, obviously, been a huge game changer. Go I-45 to Grand Parkway, go I-69 North to Grand Parkway, go I-69 South. All of these areas have become hubs for major hospitals, major retail (and) major office. And each of these counties, for the most part, they’re on the offense. They want that population growth. They want those jobs and that tax base to help support their communities. And so what the Grand Parkway did was, it put an extra arrow in the quiver of every county that was picking up a new piece. And I think it’ll be uber-exciting to see these last three legs, which will effectively take (State Highway) 288, connect back to I-59 back through Fort Bend County, where our Austin Point project is, it’ll be a world changer as well.

On pioneering previously undeveloped areas

Signorelli: When I started the company, we didn’t have a balance sheet. I started the company with 10 credit cards, and I had to go where all the cool people were not. We want to understand the “why” of everything. In understanding the “why,” you take these areas where things are not happening yet (and ask) why aren’t they happening? And if you actually drill into that and start to understand it, you might find opportunities, ways to solve the problems, and suddenly, you get pretty lucky because you change something and created it.

Valley Ranch, that northeast quadrant, when you stared at it 10 years ago, 15 years ago, it’s the closest drive to Intercontinental Airport, it’s the shortest commute to downtown Houston, and it had such a small amount of development and services. And the reality was, there was a dry precinct there. So, back to the Prohibition days, you had this massive quadrant in Montgomery County that couldn’t sell alcohol, beer or wine, so you didn’t have the grocery stores or the restaurants. That was all 8 miles south across the Harris County line at FM 1960, where Deerbrook Mall was. We looked at it and said, “Let’s understand liquor laws. Why can they have alcohol and we can’t? Well, here’s a law. This is what you have to do to fix it.” So we bought the land, started developing, started understanding and we worked super hard, and we had a bunch of our salespeople who were focused on working in front of Kroger and Wal-Mart and getting registered voters to sign a petition so we could change the laws.

And when we did change the laws, we removed that false economic barrier that was holding back that entire corridor. From there, the next piece was helping solve for getting the Grand Parkway through, and Exxon gave us a nice shot in the arm there. There’s not a lot of folks who just go out and say, “Well, let’s fire a shot over the bow and hope somebody shows up.” If that’s the attitude, you’re not going to win. You’ve got to be patient, you’ve got to have a good plan, and you’ve got to lace up your shoes and be ready to put in some time because it takes years for these types of things, for you to solve the problems. … We thrive in those types of green markets where we can help solve and create those synergies between the residential side of it and the retail side of it and getting folks like Mr. Wolff to come and play on that office side of things.

On moving out even further to Houston’s fringes

Wolff: I do see the Brazos River as being a boundary for the for the near term because there are only limited numbers of crossings over the river. About 25 years ago, I predicted in Houston we’d grow to the Brazos River. I think that’s happening now. I think that some of the impediments to growth are areas where the drainage is really not what it should be, some areas that are subject to flooding. But in terms of Houston continuing to grow, I think that will happen. A lot of it depends where the jobs are going. One of the things we’re fortunate about in the Energy Corridor is to have Shell and BP and Citgo and McDermott and Conoco already there, with other companies coming in, such as Baker Hughes, Kiewit and Enbridge.

I think employment base has a lot to do with where that growth will happen. It’s happened out on I-10, because it’s easy for people to come in on I-10 and the Energy Corridor. In terms of where will it stop, one of the things that amazed me was Waller is less than two hours from Austin. Think about it: We’re in the Houston market, less than two hours out of Austin, barely 2.5 hours to San Antonio, about three hours to Dallas. That’s why so much of the distribution is going northwest, because it serves not only the metropolitan Houston area but then all the way clockwise from San Antonio around to Dallas with Austin and Bryan-College Station in the center. I think the growth will continue to the northwest.

Signorelli: There are drivers even on the south and southeast. Our port is one of the largest ports in the world and expanding, and the types of things that we import, it constantly not just creates jobs but you have massive companies, international companies, that will continue to come to these areas where they need mega campuses, they need 500 acres for whatever they’re going to manufacture. And then some of these regions like in Fort Bend County, where you have these tax-free trade areas where they can import their materials that they need tax-free, so they can put their widget together, whatever that may be, to ship and create. The population is fed two ways. The businesses come.

Just like David was saying, they weren’t going to move out of Houston to that west corridor unless it had great places to live. That was the Cinco Ranches of the world that had these amazing communities with all that live-work-play, the great schools, all of those things that attract those businesses. You’ve seen it on the north with The Woodlands and then extending now; they’re basically in Willis and now we’re starting to see acreage estate stuff developing in New Waverly. We see it in the east. We build in nine different communities that make up most of the Greater Houston area. We see the growth in Mont Belvieu. We see the growth in Dayton, Texas. And it all seems to happen the same way.

Now, the big, cool, higher-density stuff, absolutely agree, that’s north-northwest, it’s just a higher concentration of the more affluent. Fort Bend County, at $101,000 average household income, that’s the most diverse and most affluent county (in Greater Houston). That attracts businesses, and that’s going to keep bringing people and keep pushing you further away. He’s right. You’ve got to build the bridges to get across the natural barriers, just like Buffalo Bayou changed the world when people got across it. When the Fort Bend Parkway Bridge comes across the Brazos, you’ll see those same things happening sooner than later. But you’ve got to have land. You’ve got to have quality housing for a good value, and companies are going to keep coming to Texas, so long as we’re a free-market state without a state income tax and focused on providing the best for families. (Then) we will always have a competitive advantage over the other states that are trying to keep these companies.

On housing affordability

Perdue: There is no reason to expect long-term, over-average price appreciation in Houston based on short-term market conditions, because generally we allow our builders to build. The office market learned its lesson very hard when in 2014 and 2015, we delivered five or six years’ worth of absorption, based on everybody coming in to invest, because that was the only growing market with increasing rents and commercial space at that point in time. And so, when we allow everybody to build, what you can always expect is, the buildings and the prices will come back down to their fundamental cost. Over the long term, fundamental cost does rise as the city grows, because land closer to both downtown and all of the employment centers will continue to rise, but builders can respond by making 35-foot product.

This recap has been edited for length and clarity.