CRE Cliffnotes (1.29.11)

Prologis/AMB in World Domination talks

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• Two Sentence Overview: In a merger that some say could be as powerful as the more much more famous “Brad-Jolina” union, AMB and Prologis are in talks to combine the two companies which would result in the new entity controlling over 600 million SF of industrial product. While the combined assets of the two giants would make up 5.2% of the entire industrial market (creating awesome pricing power), it doesn’t appear the possible merger is going to be stalled by any antitrust suits.
• One Sentence Takeaway: As this great Reuter’s article points out, this is not really a “merger of equals” as Prologis comes into these talks from a position of weakness due to its massive debt load (due to its buying frenzy in the 2000’s PLD has a larger portfolio but much weaker balance sheet than AMB).

CRE Prices on the Rise?

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• Two Sentence Overview: The US economy added approximately 1.1 million jobs in 2010 (the most since 2006), which (according to this article) has helped provided justification for higher CRE prices - especially the office sector. Reference is made to what has to be our favorite overused term of 2010: “bifurcated market”, as Class A++ properties are the ones leading these price indices up (Greenstreet’s is up more than 30% since the 2009 low).
• One Sentence Takeaway: The Class A assets pricing story is playing out in Houston with Heritage Plaza recently trading at a 6 cap ($279.65 PSF – talk about frothy) – while there is small demand thus far for non trophy assets.


Economy: Texas shines, but Houston…

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• Two Sentence Overview: The Real Estate Center at Texas A&M released its 2011 monthly report that showed the lone star state’s economy again outperformed the broader US economy. The Texas economy gained 231,700 jobs from December 2009 to December 2010 (annual growth rate of 2.3 %).
• One Sentence Takeaway: While this is great for Texans (the US grew 0.8% over the same period), it wasn’t particularly great report for Houston as its 0.5% growth is last among the Texas metros (and less than the overall US growth).

2010: Top Houston Office Stories

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• Two Sentence Overview: Just in case you were in the mood for a short review, I thought it would be helpful to share a blog we recently posted that quickly recaps some of the highlights from the Houston Office Market in 2010. From KBR staying put in the CBD in the beginning of the year to INVESCO renewing at 11 Greenway Plaza and the stories in between, I hope this is a beneficial and succinct overview for you.
• One Sentence Takeaway: We are looking forward and cautiously optimistic about what the Houston top stories will be in 2011.

BIG FOUR UPDATE: Q1 2011

Each quarter I will be giving a brief update of what former Greater Houston Partnership Chairman Patrick Oxford calls, four of Houston's "Crown Jewels": The Port of Houston, the Texas Medical Center, Houston's Energy Sector, and The Johnson Space Center. These four jewels are intergral drivers of the local Houston economy and truly set Houston aprt from the rest of the US.

Port of Houston
+ Panama Canal widening in 2014 will have a substantial and positive impact on the port and corresponding Houston business.
+ 1st in the US in foreign tonnage for 14 consecutive years

+ 1st in imports for 19 consecutive years.

+ 2nd in US in total tonnage for 19 consecutive

Johnson Space Center
+ New NASA budget ending the constellation program threatening 7,000 Houston jobs.
+ GHP efforts worked out a compromise that has mitigated these losses.

Texas Medical Center
+ Largest consolidation of medical buildings in the world (140+ buildings). 93,500 employees and $14 billion annual impact.
+ Future growth: $7.1 billion in approved building and infrastructure investments through 2012.
+ Impact of healthcare bill is yet to be determined but will undoubtedly influence this center.

Houston Energy
+ Oil Prices are up to $90.79 (as of 1/19/11), with indicators pointing towards higher prices.
+ There have been no new deep water permits granted since the BP Oil spill despite the moratorium being lifted.
+ M&A activity on the rise.