It Calls Itself the Energy Capital. Now It Faces 2 ‘Horrifying’ Crises

[Subdude]

Quote

Houston has been reeling from oil-market chaos on top of a coronavirus shutdown. Job losses could reach 300,000.

 

Some pretty grim reading from NYT.  I hate to think we could be entering another bust like the 1980s.  

 

https://www.nytimes.com/2020/04/27/us/coronavirus-houston-texas-oil.html?action=click&module=Top Stories&pgtype=Homepage

[jgriff]

2 hours ago, Subdude said:

 

Some pretty grim reading from NYT.  I hate to think we could be entering another bust like the 1980s.  

 

https://www.nytimes.com/2020/04/27/us/coronavirus-houston-texas-oil.html?action=click&module=Top Stories&pgtype=Homepage

I sure hope not too but I suspect it could be even worse. I’ve never seen layoffs in the petrochemical industry like I’m seeing now. 

[H-Town Man]

Worth remembering that the press likes to forecast the most extreme possible scenarios. Something we've seen with other aspects of this virus. They have everything to win in clicks and nothing to lose.

 

I'm not saying it won't be bad though. It is likely we don't see any interesting office (excluding medical) or retail projects until 2025, and possibly not until 2030. Multi-family above 5 stories could go into a similar trough.

 

I can think of some office investors who entered the Houston market in 2018 hoping to catch a rebound in the energy sector. Ouch.

 

 

[Subdude]

I think it is inevitable that some future projects will be delayed.  What worries me is if the downturn were severe enough that unprofitable existing properties were left vacant.  That happened a lot in the 1980s.  A segment particularly at risk would be hotels, since there is so much new competition there.  Older ones like the Hyatt Regency would be under a lot of pressure.  

[IronTiger]

4 hours ago, Subdude said:

I think it is inevitable that some future projects will be delayed.  What worries me is if the downturn were severe enough that unprofitable existing properties were left vacant.  That happened a lot in the 1980s.  A segment particularly at risk would be hotels, since there is so much new competition there.  Older ones like the Hyatt Regency would be under a lot of pressure.  

Hotels are indeed at risk, as mentioned in the article above. However, most of the hotels that simply did not reopen were either downtown (not a lot going on in that era) or other bad locations that were oversized (TMC, the Holiday Inn on Memorial). I could imagine an Energy Corridor hotel or two dropping out, as well as a few others in less-viable areas.

[zaphod]

3 hours ago, IronTiger said:

However, most of the hotels that simply did not reopen were either downtown (not a lot going on in that era) or other bad locations that were oversized (TMC, the Holiday Inn on Memorial). I could imagine an Energy Corridor hotel or two dropping out, as well as a few others in less-viable areas..I could imagine an Energy Corridor hotel or two dropping out, as well as a few others in less-viable areas.

 

I always thought that highrise Wyndham at I-10/Hwy 6 was kind of funky and dated looking, like something from Sarajevo. It is very similar to the Plaza tower in College Station that got imploded. But I know nothing about the kind of business they do, it could be fine and lovely inside for all I know.

 

To be honest, I would be surprised if a name brand hotel was lost. Those could be sold down to a lower end chain nobody's ever heard of. The places which seem like they'd be toast are the ones that already took a fall from grace, like some of those iffy hotels around Intercontinental/Greenspoint.

 

[Subdude]

I could see the Marriott by the Galleria taking a hit.  

[jgriff]

I would be surprised to see many new construction announcements in Houston for years. The projects that are in the ground now could be the last we see for a long time. 

[CREguy13]

On 4/27/2020 at 6:53 PM, H-Town Man said:

Worth remembering that the press likes to forecast the most extreme possible scenarios. Something we've seen with other aspects of this virus. They have everything to win in clicks and nothing to lose.

 

I'm not saying it won't be bad though. It is likely we don't see any interesting office (excluding medical) or retail projects until 2025, and possibly not until 2030. Multi-family above 5 stories could go into a similar trough.

 

I can think of some office investors who entered the Houston market in 2018 hoping to catch a rebound in the energy sector. Ouch.

 

 

Agreed on the poor timing for investors hoping for a rebound, but the notion that no new interesting developments until 2025 and possibly 2030 to me is highly implausible.  I am certainly more of an optimist, so take that into consideration, but I think we could see the start of a big rebound in 2-3 years.  Short term will certainly be painful, but mid-to-long term remains very exciting  imo.

[H-Town Man]

2 hours ago, CREguy13 said:

Agreed on the poor timing for investors hoping for a rebound, but the notion that no new interesting developments until 2025 and possibly 2030 to me is highly implausible.  I am certainly more of an optimist, so take that into consideration, but I think we could see the start of a big rebound in 2-3 years.  Short term will certainly be painful, but mid-to-long term remains very exciting  imo.

 

I limited that statement to just non-medical office and retail. When the 1986 bust happened, we didn't get any interesting new office developments for about 13 years. (I don't consider nondescript suburban midrises interesting.) We also didn't get any very interesting retail for about a decade, that I can remember anyway. Remember also that we are already at 20% office vacancy heading into this thing.

 

[samagon]

the thing to take into account when looking at raw numbers, stats as of now, in 1980s there were 220,000 that lost their jobs. the article I found said this was 13% of jobs at the time in the region.

 

250,000 today would be about 7.5% of regional jobs.

 

during 2008ish we lost 120,000 jobs, or 4.5% employment.

 

https://www.bisnow.com/houston/news/economy/houstons-recovery-from-coronavirus-will-be-slower-than-other-us-metros-103847

[X.R.]

5 hours ago, CREguy13 said:

Agreed on the poor timing for investors hoping for a rebound, but the notion that no new interesting developments until 2025 and possibly 2030 to me is highly implausible.  I am certainly more of an optimist, so take that into consideration, but I think we could see the start of a big rebound in 2-3 years.  Short term will certainly be painful, but mid-to-long term remains very exciting  imo.

 

I agree with you. I have no idea if we have to even wait that long. The fed is going nuts trying to prop up the market, Chevron just had its stock go wild in the month of April, and nothing about the market or the economics of the virus is like anything we've ever seen. Plant jobs aren't going to change, and last time I checked, Houston and its surrounding areas have a lot of plants (to the chagrin of air quality enthusiasts, lol). Yes there are hiring freezes right now in Houston for oil and gas, but its more due to corona than oil. It could be 3-5 years for a rebound or it could be next year.

 

Honestly, if anyone is calling anything now, in terms of investments and realty, I just don't think there is much to go on. For my practice and others like me, we're still seeing lease agreements and physical asset purchases like its normal. Whats changed is that its now the people with cash buying from those without cash, so its much less of a mutual agreed sale where its two parties with equal leverage. This is going to be a wild ride with ups and downs, but calling extreme lows already just because Houston loves oil I think is premature. 

[H-Town Man]

1 hour ago, samagon said:

the thing to take into account when looking at raw numbers, stats as of now, in 1980s there were 220,000 that lost their jobs. the article I found said this was 13% of jobs at the time in the region.

 

250,000 today would be about 7.5% of regional jobs.

 

during 2008ish we lost 120,000 jobs, or 4.5% employment.

 

https://www.bisnow.com/houston/news/economy/houstons-recovery-from-coronavirus-will-be-slower-than-other-us-metros-103847

 

What matters is not total jobs or percentage of total jobs lost, but energy jobs, especially upstream energy. The reason is that that is what drives office leasing in Houston. Oil exploration and related equipment and engineering. We didn't hurt in 2008 because oil didn't really hurt during that time. There was a brief fall in prices but the world was fundamentally undersupplied and hence exploration remained healthy.

 

 

 

[H-Town Man]

21 minutes ago, X.R. said:

 

I agree with you. I have no idea if we have to even wait that long. The fed is going nuts trying to prop up the market, Chevron just had its stock go wild in the month of April, and nothing about the market or the economics of the virus is like anything we've ever seen. Plant jobs aren't going to change, and last time I checked, Houston and its surrounding areas have a lot of plants (to the chagrin of air quality enthusiasts, lol). Yes there are hiring freezes right now in Houston for oil and gas, but its more due to corona than oil. It could be 3-5 years for a rebound or it could be next year.

 

Honestly, if anyone is calling anything now, in terms of investments and realty, I just don't think there is much to go on. For my practice and others like me, we're still seeing lease agreements and physical asset purchases like its normal. Whats changed is that its now the people with cash buying from those without cash, so its much less of a mutual agreed sale where its two parties with equal leverage. This is going to be a wild ride with ups and downs, but calling extreme lows already just because Houston loves oil I think is premature. 

 

The discussion was about office and retail, which won't be strongly affected by plant jobs. Also, no one "called" anything, just said major office and retail projects were unlikely for awhile. And there was more reasoning given than "just because Houston loves oil."

 

I'll be happy to be wrong. If we get a new trophy office project before 2025, I'm sure someone will dig up this thread and put it in my face that I was wrong, because that's how HAIF works. But I'll be glad to be wrong in that event.

 

[samagon]

3 hours ago, H-Town Man said:

 

What matters is not total jobs or percentage of total jobs lost, but energy jobs, especially upstream energy. The reason is that that is what drives office leasing in Houston. Oil exploration and related equipment and engineering. We didn't hurt in 2008 because oil didn't really hurt during that time. There was a brief fall in prices but the world was fundamentally undersupplied and hence exploration remained healthy.

 

well, my guess is that open office space is going to be an issue for a lot of different markets, not just Houston.

 

a lot of reasons managers have used to not do WFH are being challenged and proved wrong. obviously, there are a lot of industries, and jobs that require someone to go into an office for some reason, but there's a lot of jobs that can be done from home. forever, managers stuck in their box and unwilling to look outside of that box have come up with excuses for not transitioning to a WFH environment.

 

for the jobs that can be performed remotely, I think a lot of business managers are looking at an empty sea of cubes, and how much of their bottom line goes to keeping those cubes. in the current market, a lot of businesses are going to be looking at ways to trim costs, and going from a big lease to a small lease might be the ticket they decide to punch.

 

I dunno. just my suspicion. 

[gmac]

43 minutes ago, samagon said:

 

for the jobs that can be performed remotely, I think a lot of business managers are looking at an empty sea of cubes, and how much of their bottom line goes to keeping those cubes. in the current market, a lot of businesses are going to be looking at ways to trim costs, and going from a big lease to a small lease might be the ticket they decide to punch.

 

 

Which would be great. Fewer people traipsing to a central area to do a job that can be done remotely means less traffic, less pollution. Winning!

[samagon]

27 minutes ago, gmac said:

 

Which would be great. Fewer people traipsing to a central area to do a job that can be done remotely means less traffic, less pollution. Winning!

 

real estate values drop, or stay stagnant, fewer property taxes collected. losing.

 

but seriously, there's two sides, the lower pollution would be a huge upside.

[mollusk]

On 4/30/2020 at 4:26 PM, samagon said:

 

well, my guess is that open office space is going to be an issue for a lot of different markets, not just Houston.

 

a lot of reasons managers have used to not do WFH are being challenged and proved wrong. obviously, there are a lot of industries, and jobs that require someone to go into an office for some reason, but there's a lot of jobs that can be done from home. forever, managers stuck in their box and unwilling to look outside of that box have come up with excuses for not transitioning to a WFH environment.

 

for the jobs that can be performed remotely, I think a lot of business managers are looking at an empty sea of cubes, and how much of their bottom line goes to keeping those cubes. in the current market, a lot of businesses are going to be looking at ways to trim costs, and going from a big lease to a small lease might be the ticket they decide to punch.

 

I dunno. just my suspicion. 

 

Depends on how far up the food chain those managers are.  I know of one who's been coming into the office daily, claiming that it was just impossible to work from home.  He then floated not only a plan to open back up fully staffed on Day 1 of opening up but to have a "welcome back" buffet lunch.  We shall see.

 

 

 

[mkultra25]

15 hours ago, mollusk said:

 

Depends on how far up the food chain those managers are.  I know of one who's been coming into the office daily, claiming that it was just impossible to work from home.  He then floated not only a plan to open back up fully staffed on Day 1 of opening up but to have a "welcome back" buffet lunch.  We shall see.

 

Doesn't take too much imagination to predict the outcome if folks considerably further down the food chain had claimed it was "impossible" for them to WFH. 

 

I assume the caterers for the welcome back lunch will be appropriately masked.