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New York Times: Houston, the Oil Town, Is Sharing in a Boom

Chevron moves into former Enron HQ

(Michael Stravato for the New York Times
Chevron has leased the 1.2-million-square-foot tower that used to be Enron’s headquarters and plans to move in this year.)

Published: March 14, 2007
HOUSTON — The good times are back.


Galvanized by the record profits at energy companies, this city, the center of the country’s energy industry, has shaken off the effects of the Enron implosion six years ago and is enjoying its strongest resurgence in more than 20 years, business officials and real estate developers say.

Some energy companies are expanding and putting up new buildings. Others, like Citgo, Schlumberger and Halliburton, have moved their headquarters to Houston. Oil and natural gas companies have helped reduce office vacancy rates to 15 percent, a five-year low, according to Grubb & Ellis, a real estate company. Job growth is double the national average — 97,400 jobs were created in 2006. The National Association of Realtors says the housing market in Houston is one of the strongest in the country.

“The increase in the oil business has made Houston,” said Randall Davis, a Houston condominium developer. “It feels a touch like the 1980s — everyone is out, the restaurants are full, the bars are full. It’s like New York.”

The good news extends across the city. The port recently opened a $1.4 billion container terminal to tackle soaring traffic. In 2006, it handled 1.6 million 20-foot containers, up 29 percent from 2003. At the Texas Medical Center, hospitals and universities are investing billions in new facilities. Residential and mixed-use developments are going up downtown.

The Houston economy has been growing since 2004, when energy companies started investing more in big-ticket projects and hiring thousands of employees to run them. Before that, oil companies had been hesitant to pour more into exploration and production, because they had lost millions in the past when oil and natural gas prices collapsed.

“There was always a real reluctance to buy into the commodity cycle,” said Robert W. Gilmer, vice president and senior economist at the Federal Reserve Bank of Dallas.

Those fears are long gone. Real estate investors, enticed by rising rents and occupancy rates, are returning. Over the last five years, sale prices for office buildings in Houston have climbed by 34 percent, to an average of $129 a square foot in 2006, according to Real Capital Analytics, a national research and consulting firm. Compared with other large cities nationwide, like Chicago and San Francisco, where prices average $191 and $338 a square foot, respectively, Houston is still a relative bargain.

“The office investment market has taken off,” said Ariel Guerrero, Texas research and client services manager at Grubb & Ellis in Houston. “If you look at the price per pound, there’s still value.”

Brookfield Properties, a New York-based real estate investment trust, seems to think so. Last October, Brookfield became the biggest landowner in downtown Houston when it joined with the Blackstone Group to buy Trizec Properties for $8.9 billion in cash and debt. The deal gave Brookfield eight buildings in Houston, for a total of 7.4 million square feet.

Although the merger included properties nationwide, Richard B. Clark, the chief executive of Brookfield, said Houston was one of the deal’s attractions. (Almost a quarter of Brookfield’s portfolio is energy-related.)

Chevron signed a lease shortly afterward for one of the buildings — the 1.2-million-square-foot tower that used to be Enron’s headquarters — and plans to move in this year. The lease, Brookfield says, was the biggest in the country since 2000 and lowered the availability rate for Class A space downtown. In the fourth quarter, the rate dropped six percentage points, to 12 percent, according to Grubb & Ellis.

“This confirms our belief it’s a strong market,” Mr. Clark said. “I think our timing is good, fundamentals are improving and tenants have confirmed that they’re growing.”

Brookfield is banking that Houston will grow even more. It is considering putting up a new office tower downtown, Mr. Clark said, but is holding off until the availability rate for Class A office space drops below 10 percent. He said he expected it to reach that point within a year.

Encouraged, developers have started building again. In the fourth quarter, 2.4 million square feet of office space was under construction, more than double the amount in the third quarter. For the first time in years, developers are building without a signed tenant, though most projects are typically smaller than 500,000 square feet.

Nowhere is the growth more apparent than in the city’s Energy Corridor. Straddling Interstate 10 west of downtown, the area — home to companies like BP, Royal Dutch Shell, ConocoPhillips, Exxon Mobil and Citgo — has become one of the strongest real estate markets in the city. Occupancy rates are at 92 percent, the highest in the city, and rents average $19.26 a square foot, according to Grubb & Ellis.

“When occupancy rates reached the mid-90-percent range and there were no blocks of space, we said, ‘Hey, maybe it’s time to build,’ ” said Aaron Thielhorn, a principal at Trammell Crow in Houston.

Last October, Trammell Crow broke ground on a 330,000-square-foot building in the Energy Corridor without a signed tenant. Construction is to begin this summer on a second building. The two-building project is now the largest under construction in the Energy Corridor.

Speculative office buildings are also going up in places like the Galleria and downtown, which have less available space. Work on Houston Pavilions, a $170 million complex with retail space, restaurants and music clubs as well as a 13-story office tower, began downtown in February. The Texas Real Estate Fund and the Entertainment Development Group, the builders of the project, have not yet signed an office tenant.

“If you would have told me six years ago I’d be investing $170 million downtown, I’d have said you were nuts,” said William Denton, chief executive and president of the Entertainment Development Group of Agoura Hills, Calif. In those days, he said, downtown Houston often seemed virtually empty.

Of course, it is an open question whether the good times are here to stay and for how long. Only six years ago, Enron collapsed, the Arthur Anderson accounting firm imploded and Houston was hit hard when the national economy staggered after the Sept. 11 terrorist strikes.

[Halliburton announced Sunday that it would move its chairman and chief executive, David J. Lesar, from Houston to Dubai and open a corporate headquarters there. Analysts say, however, that the Halliburton move will not lead to a general exodus, because Houston is still the country’s energy capital.]

Oil and natural gas prices could plummet, some worry, and stall Houston’s economy. About half of the city’s jobs, or 1.1 million positions, are tied to the energy industry.

“One thing we’ve learned, whether it’s real estate or the oil industry, is that we’re always looking over our shoulder,” said James Arket, senior vice president at Grubb & Ellis in Houston. “No one takes anything for granted.”

The Greater Houston Partnership, an organization of businesses, is not waiting for the economy to slow. In 2006, it started a $40 million effort to diversify the local economy and bring 600,000 new jobs to the area over the next decade. Typically, the city creates 45,000 new jobs a year.

“It’s one of those gulp-and-hold-your-breath figures,” said Jeff Moseley, president and chief executive of the partnership. “The economy is very robust, but we’re going forward because we know the economy will cool off.” and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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