Medical Center’s Growth Presents Houston Real Estate Opportunity

Topic:  • By Dave Welk • November 3, 2016 Views


“Houston, we have a problem.” That was Forbes‘ headline this spring for its recap on the dire state of Houston’s commercial real estate market, thanks to plummeting oil prices. But in this case, there’s a silver lining casting a bright glow on the city often called the “Energy Capital of the World” as it shifts its power base from crude oil companies to major medical centers.

While the city’s stalled energy business has increased office market vacancies, according to Colliers, Houston’s health care industry is growing in size and prestige. Almost $5 billion in health-care related projects are underway currently in the greater Houston area, notes the Real Estate Center at Texas A&M, and the hometown Texas Medical Center is now the largest world’s largest medical center — and still growing.

Thanks to this trend, demand continues to grow for both residential and commercial real estate in prime locations. Origin is poised to benefit from that healthy expansion with its recent acquisition of AMLI at the Medical Center in the heart of the Texas Medical Center (TMC) district.

Stella at the Medical Center has a beautifully landscaped pool and community grilling area.

Subscribe Inline

Real estate investing education delivered to your inbox once a month.

Newly renamed Stella at the Medical Center, this acquisition jibes with our belief that the best way to invest in real estate is to focus on growing urban centers, and no market has added more residents than Houston. Its metro area added 159,000 residents in the U.S. Census Bureau’s 2016 estimate, the nation’s largest gain.

Despite the contraction in oil and gas, the Houston job market is closing in on 3 million workers — led by a 6.8 percent annual rise in leisure and hospitality workers, with education and health care close behind at 5.1 percent. Texas Medical Center draws 7.2 million visitors a year, according to the Greater Houston Convention & Visitors Center. In a 2015 Houston Chronicle analysis, the health sector employed about as many people as the oil and gas business.

But unlike the energy sector, health care is booming now and shows no signs of slowing down in the near and long term. Houston is expected to double its health care jobs in the next decade, according to the regional planning agency Workforce Solutions. The health sector is sheltered from economic downturns, adding jobs even in the 2009 recession. Implementation of the Affordable Care Act, technology advances and an aging population all contribute to the current expansion.

And the Texas Medical Center is Houston’s “jewel in the crown,” considered the hub of Houston’s health care network. In truth, it’s a city within a city located less than 5 miles from downtown, notes Forbes. Commercial real estate in the TMC submarket has the city’s lowest vacancy rate at 5.5 percent, according to CBRE.

Additionally, Memorial Hermann Health Center is undergoing a $650 million expansion and renovation of its TMC campus, which includes a prominent children’s hospital and a rehabilitation institute. The district includes not only medical centers but also major research institutions such as Baylor College of Medicine, Houston Methodist Research Institute, Rice University and the University of Houston.

Origin’s project, Stella at the Medical Center apartments, sits across from the Michael E. DeBakey VA Medical Center and 7 minutes from the renowned MD Anderson Cancer Center, one of the world’s largest cancer care centers. With local partner F&B Capital and its Roscoe Properties management unit, Origin will improve management in the former AMLI residential project and modernize the 334 apartments, adding stainless-steel appliances, granite or stone countertops and LED lighting.

Stella's 24-hour fitness center

As renovations are completed in phases, Stella’s 19 buildings will draw upscale tenants at attractive rates compared to newer Texas Medical Center developments. Grounds include a pool, clubhouse, fitness center and sheltered parking. Upgraded amenities will help retain current tenants, more than half of which work or study at TMC institutions. Stella is already rated on Yelp as among Houston’s 10 best Texas Medical Center apartments.

Such value-add properties are the best way to invest in real estate because investor capital and smart management can rapidly raise both rental income and property values. The perceived impact of the energy sector downturn presents opportunities to buy at a favorable price in submarkets such as the Texas Medical Center, which is shielded from oilfield exposure and poised to profit from the region’s commanding growth in education and health care.

White Paper Modal

Posted By

Dave Welk

Dave Welk, Managing Director of Acquisitions, is responsible for acquisitions in Atlanta, Charlotte and Raleigh. He joined Origin in 2011, and, over that time, has completed over $500 million of direct and joint-venture investments.