Document 6522160

What, When, Where, Why and How
Commercial Real Estate Investing in Fort Bend County
by Kelly Ferguson, CCIM
March 2011
Copyright 2011 Fort Bend Business Journal
For a quick read on the commercial real estate market and ways to
invest, consider journalism’s Five W (or, for our purposes, Four
Ws and One H) maxim:
What - What’s the story?
After three years of a depressed market, the real estate industry is
on the road of recovery in 2011. Fundamental demand (namely
employment and consumer spending) is improving, albeit tepidly.
Transaction volume has picked up pace as credit markets have
loosened and investor confidence has improved. Pricing has
stabilized. These factors indicate that the real estate market is on
the upswing.
When - When’s the right time to invest?
The general recovery, and thus real estate recovery, has been
picking up steam. Valuations are low and economic fundamentals
are improving. The bottom of the real estate cycle offers the best
environment to make acquisitions, and low interest rates magnify
return opportunities for investors. Lori Sowa, Vice President of
NorthMarq Capital, says, “It has been an exciting start to the new
year. The capital sources that we represent have increased
commercial real estate allocations for 2011 and are actively
competing for quality commercial properties with strong
sponsorship. There is plenty of capital out there for commercial
real estate projects right now.”
Where - Where’s a good place to invest?
Fort Bend County, of course. The diversity in growing industries
has fueled decades of strong growth. The increase in income
levels and employment, even through the recession, has garnered
media and corporate attention. According to Ted Jones, Chief
Economist for Stewart Title, nearly 1200 jobs were created in Fort
Bend County over the past twelve months. According to the Texas
State Data Center, population in Fort Bend is expected to increase
by over 25% in the next five years.
Why - Why real estate over other investment types?
With record-high national debt and deficit levels and prolonged
low interest rates, the buzz is about when inflation will set in. We
are already seeing inflation at the wholesale level and it’s only a
matter of time before the broad market feels the effects. Real
estate has historically proven to be an excellent hedge against
inflation. And with financing (finally) available, investors can
take advantage of rates that could be
considered outrageously low in the future.
How - How can I invest?
There are three primary means to invest in
real estate: 1) through indirect investment by
purchasing shares of publicly (or privately)
traded REITs (real estate investment trusts),
2) through direct investment as part of an
investment group such as an LLC, and 3)
through direct investment individually.
REITs tend to invest in institutional properties (i.e. large, quality
assets in major markets), which hit bottom in 2009. REITs have
experienced a steady increase in values since then, and many
investors believe even higher valuations are justified.
If you determine that you are better able to achieve your desired
returns through direct investment in local properties, whether
individually or as part of a group, opportunities await. And as
discussed, investors have better chances of obtaining financing.
That being said, the lending environment is very conservative
with strict underwriting standards. Capital markets have a new
reality, requiring recourse and more equity from borrowers. But
the bottom line is that savvy, well-capitalized investors should
have excellent opportunities to seize market-bottom plays. In
addition to market-bottom pricing, there should be opportunities
as businesses, over-leveraged investors and banks unload assets:
Expect to see more sale lease-back opportunities. As more
businesses enter growth mode, they may see a real-estate sale as a
simpler, less expensive alternative to a corporate loan with
onerous terms. (Again, while lending has improved, terms are
more conservative and restrictive than a few years ago.)
Expect to continue to see assets hit the market as over-leveraged
property owners cannot meet equity requirements to qualify for
refinancing. Expect lenders, who have been strengthening their
balance sheets, begin to recognize and dispose of troubled assets.
Kelly Ferguson, CCIM is a principal of Fort Bend Real Estate
Corporation (www.fbre.net), a boutique firm that has offered
specialty services in commercial and residential real estate in
Fort Bend, Harris and surrounding counties since 1974.