HOUSTON — In the span of eight months — a blip in the life cycles of most commercial real estate deals and projects — lenders in the Houston industrial space have gone from enthusiastic to tepid to back to borderline optimistic.
This pendulum-like pattern that has reflected the vacillating appetites of capital providers to deploy funds is not unique to the Houston industrial market. At the start of the year, commercial lenders across a range of asset classes and markets expressed positive expectations for 2025. A new, pro-business presidential administration, the building on short-term interest rate cuts in late 2024, a widespread sense that it was simply time to get back into the game — all of these notions played into an ebullient outlook for commercial deal volume in the new year.
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It would not last very long. Unconventional, sweeping policies implemented by the second Trump administration, including mass layoffs of federal employees and implementation of tariffs on major American trading partners, deeply rattled investors and capital providers. Even as the administration backtracked in some cases to calm markets, a lack of clarity and permanence on key policy decisions left many business owners in a state of limbo, unsure of how best to handle major operational decisions, including those involving real estate.
Today, the pendulum appears to be swinging back toward the positive perspective, but perhaps at a slower pace and with more guarded optimism in the capital markets. It’s anyone’s guess as to when and how aggressively the next reversal of course could happen. But at the inaugural InterFace Houston Industrial conference that took place on Aug. 20 at The Briar Club, a panel of lenders who specialize in the asset class felt the need to discuss this dynamic as the first order of business.
Moderator Rob Banzhaf, founder and CEO of Newcor Commercial Real Estate, a locally based, full-service real estate company, set the table for this big-picture analysis right out of the gate.
“We saw a lot of optimism in the fourth quarter of last year and coming into this year,” he said. “Then we got into the new year, and it seemed to stall out. There wasn’t a lot of transaction volume, and although it seemed busy, it was clear things weren’t really moving forward. Then we had Liberation Day in early April, and activity really stalled out, although it’s begun to pick back up recently.”
Banzhaf’s characterization of the cycle was geared more toward industrial leasing and investment sales activity at the local level. But panelist Jonathan Paine, managing director at Walker & Dunlop’s Houston office, felt that the moderator’s analysis was applicable to the capital markets on the national level as well.
“There was a lot of optimism at the beginning of the year, but as we look back at the past six months, there’s been uncertainty about where things were going and how investors should process what was happening across the country,” Paine said. “But in the past 60 to 90 days, we’ve seen some resurgence in terms of demand and the optimism that comes along with the reshoring [of manufacturing operations] that’s expected in the current environment, based on the views coming from the White House.”
Paine was quick to qualify that the resurgence was still taking shape and was not akin to the boom in industrial demand, rent growth and pricing that occurred in the immediate post-COVID environment. But he made it clear that he believed that the general sentiments within the capital markets were improved relative to several months ago.
Panelist Josh Huse, director of operations at BridgeCo Financial, in turn agreed with Paine’s assessment. He said as a bridge lender, his firm sees a very wide variety of deals, but recently, he’s noticed an uptick in “quality deals” coming across his desk. Although that term could mean different things to different investors, it’s a positive sign on some level, Huse said.
“It’s indicative of people perhaps coming to terms with where [market conditions] are, or maybe of the optimism they’re hoping to see later this year; but either way, it’s a resurgence and increase in activity,” he surmised. “There’s still some cautious capital out there, but since we’re deploying within the private lending bridge space, we’ve seen perhaps an even bigger uptick than traditional lenders or more institutional finance shops.”
Huse gave a partial definition to the “quality deals,” identifying shallow-bay and owner-occupied industrial assets as representative of favorable market conditions. Shallow-bay industrial properties have long appealed to investors by virtue of their infill locations and smaller, multiple tenancies that may have below-market rents that are set to roll. For somewhat opposite reasons, owner-occupied assets are appealing because their cash-flow situations are that much more simplified.
Warren Hitchcock, managing director at Northmarq’s Houston office, completed the circuit of agreement by endorsing the comments of his fellow panelists. He quickly concurred that the optimism that built up in late 2024 and spilled over into 2025 before evaporating early in the year was tied to machinations of the global economy and geopolitical tensions. He too cited Liberation Day — the April 2 announcement by the Trump administration of blanketing tariffs on foreign imports that sent the stock market into freefall — as a source of painful uncertainty for industrial and supply chain operators.
Hitchcock went on to establish a connection between that activity and inflation and of course, interest rate movement — or lack thereof — in response to those variables. Having thus established his premise, he linked it all back to the local industrial sector, invoking the concept of “life cycle of the deal.”
“In terms of how that’s affected deals and capital flows in our business, at the beginning of the year, we were seeing deals being teed up and marketed and going under contract prior to Liberation Day,” he said. “That normal life cycle carried through deals closing 60 or 90 days ago, so we had a very busy first half of the year because that optimism carried through before, which then turned into more uncertainty.”
Quoting a midyear investment outlook report from J.P. Morgan, Hitchcock then described the current state of the economy as “comfortably uncomfortable.”
“I think that characterizes it pretty well,” he said.