1. Valuation Outlook for 2012
Harris County Appraisal District
March 22, 2012
Agent Meeting
2. Positive Economic Trends
Oil prices have stabilized; on shore drilling has
returned to a robust pace, off shore drilling in the Gulf
lags pre-BP oil spill numbers
Houston has regained 111% of jobs lost during
recession
Increase in sales tax revenue
3. Job Growth in 2012
The Greater Houston Partnership (GHP) forecast calls
for the region to add 84,600 private sector jobs in
2012, with private sector gains far more than offsetting
public sector losses.
Public sector will continue to shed jobs, particularly
for school districts and colleges as a result of fiscal
constraints
4. Factors Affecting Job Growth
A series of policy barriers to local growth remain in
place:
Cap and trade
EPA regulations on carbon sequestration
End of manned space flight
Slow return to Gulf of Mexico drilling
Possible business model changes related to the Health
Care Reform Act and reduced State of Texas budget
The European Debt Crisis
5. Outlook for Real Estate Recovery
The housing sector will rebound slowly as it
continues to clear out the current inventory of
foreclosures
Local job growth and energy sector will increase
housing starts in second half of 2012.
Most of the new growth will be in Ft. Bend and
Montgomery Counties.
The northern portion of Harris county will benefit
from the new Exxon campus beginning in 2013.
6. National Obstacles
to Real Estate Rebound
Strict lending standards
Uncertainty of government support of home
ownership
Possible scaling back of mortgage-interest income tax
deduction
Proposal on how to revamp the Fannie Mae, Freddie
Mac and the broader mortgage market
7. 2012 “Best Case” Scenario
According to Greater Houston Partnership market
analysts,
“Houston has completed the recovery and is now in
expansion mode.”
This expansion will hopefully begin to impact the 2013
tax rolls
9. Single-family Home Price
• Average price of single-family homes in December was
$219,791, flat over last year
• Median price rose 1.6 percent from one year earlier to
$160,000
- All time high for December in Houston
10. Single-family Sales Volume
Sales of single-family homes increased in December for the
seventh time this year with a 7.2 percent gain. On a year to
date basis, sales are up 4.3 percent.
Up from
December
2010
7.2%
11. Available Inventory
of Existing Single-family Homes
Month-end pending December sales were
up 3.0 percent from last year
Active listings declined 14.1 percent over
December 2010
Available inventory was reduced to 5.8
months compared to 7.2 months one year
earlier
Still remains favorable compared to national
average inventory of 7.0 months
Resale market appears to be nearing a balance of
supply and demand
12. Townhouses and Condominiums
Sales volume rose 3.2 percent compared to one year
earlier
Average price climbed 2.5 percent to $173,675 from
Dec. 2010 to Dec. 2011
Median price declined 4.9 percent to $131,750
13. New Home Market
Houston has 6.9 months of new home inventory
Still a buyers market
New home starts paced to reach 17,000 for 2012
Down from 18,048 starts last year
14. New Home Starts
by Price Distribution
Price Range Segment
$100,000 $150,000 $200,000 $250,000 $300,000 $400,000
< $99,999 $149,999 $199,999 $249,999 $299,999 $399,999 $499,999 $500k >
184 4,107 4,075 2,830 2,111 2,612 998 1,499
Source: Metrostudy
15. Parcel Creations
45,000 41,872 40,340 41,965
40,000 35,329
34,429
35,000
29,732
Number of Parcels
30,000 25,023
25,000 21,301
19,762
20,000 17,109
15,000
10,000 7,359 5,802
5,643
5,000
0
Tax Year
NOTES:
1. Minimum parcels to be created per sum of Lots and Reserves shown on recorded plats and
number of Units to be created from condominium declarations.
2. Number does not reflect street and right-of-way dedication parcels.
3. Data information is current as of Jan. 17, 2012 for instruments recorded up to Dec. 30, 2011.
16. Subdivision/Condo Recordings
2,000 1,815 1,791 1,754
1,800 1,701
1,592
1,600 1,443
1,388
1,400 1,310
Plats/Instruments
1,188
1,200
946 944 980
1,000 927
800 724
575
600 471
400
200
0
Tax Year
NOTES:
1. Plat/Instrument totals for each year were filed and recorded the previous calendar year.
2. 2011 count reflects instruments recorded up to December 30, 2011.
17. Local Obstacles to
Housing Recovery
Greater restrictions on mortgage lending
Renting vs. Owning
Tightened capacity for construction lending
Land development
Demand vs. Availability
Most new development in Fort Bend and Montgomery
Counties
20. Apartments
Multi-family market near top of investor
demand
Considered least risky of major property sectors
Pronounced decline in new construction late
2010 and increase in renters created positive
absorption during 2011
21. Apartments:
Rental Rates and Absorption
Rental rate growth of 3.5 percent in 2011
Caused by failing home ownership and growing
market of renters who previously opted to live with
family
Positive absorption and higher occupancies
have decreased concession offerings
In comparison to 2010, where 54 percent were given
free rent, 45 percent of apartment communities are
offering concessions as of December 2011
22. Apartments: Rental
Rates/Occupancy/Concessions
# of Average
Class Properties Rate Occupancy Concessions
A 358 131.7 92.6% -7.0%
B 1,021 88.9 91.1% -7.1%
C 1,043 68.6 83.9% -7.0%
D 488 47.9 77.4% -6.7%
Overall 2,910 86.1 87.6% -7.0%
23. Apartments: Capitalization Rates
Average cap rate by quarter has been erratic
Nationally, average overall cap rate for 2011 was
5.8 percent
Decline from 2010 rate of 6.51 percent
Locally, twelve-month rolling cap rate was 5.7
percent for 2011
Significant decrease from 2010 rate of 7.3 percent
24. Apartments: New Construction
Moderate increase over 2010
Twenty-six new complexes totaling 4,197 units
opened for leasing activity
Ten of twenty six are senior housing
Proposed construction of 39 properties totaling
12,602 units
26. Change in Office Valuation Model
Market trends indicate net rental rate should be used
in place of full service rate
HCAD changed the office model for Class ‘A’ Office
and Class ‘A’ and ‘B’ Medical-Offices
27. Commercial Real Property
Office Buildings
Signs of market stabilization:
Increase in 2011 sales dollar volume and leasing activity
Decrease in vacancies
Increase in rental rates
28. Office New Construction
Remained slow throughout the Houston area
2,484,237 square feet under construction during 2011
Pre-leasing remains prerequisite for construction
Slowing of construction buffered the office market
from more dire predictions
Notable 2011 deliveries include:
BG Group Place with 972,474 square feet at 70 percent
occupancy
Hess Tower with 844,763 square feet at 100 percent
occupancy
29. Office Building 2011 vs.
Class ‘A’
Vacancy 12.7% down
End of 2010
from 13.3%
Class ‘B’ Class ‘C’
13.6% down 10.8% down
from 14.3% from 11.1%
Overall office
vacancies
have
decreased to
12.8%
30. Office Building Rental Rates
Slight decrease in • Creating upward
vacancy rate pressure on rental
4th quarter sales rates
up over 3rd • Reduction in
quarter concessions
through 2011
All classes reflect increases in 2012 compared
to 2011
31. Office Buildings: Absorption
Preliminary reports indicate Houston absorbed 2.8
million square feet in 2011
Up from negative absorption of 320,000 square feet
in 2010
Gravitation toward quality with tenants
transitioning from Class ‘B’ to Class ‘A’ office space
Occupied by energy and related firms
32. Office Buildings:
Capitalization Rates
Average cap rate for all Harris County office
buildings in 2011 was 8.03 percent
Noticeably lower than the average of 9.39 percent for
year-end 2010
Overall cap rates expected to decrease by 25 to 125
basis points
(The lower the cap rate, the higher the value)
33. Office Buildings: 2012 Valuation
Increase projected in all classes of office space
County wide
Double digit increase in occupancy and rental rates
have resulted in lower cap rates which translates to
higher values
34. Medical Office Buildings/Condos
Medical real estate is faring better than other
property types due to:
Aging baby boomers demand for health care services
Relocation of some medical procedures to outpatient
settings, such as surgical centers, imaging and
diagnostic centers, and free-standing 24-hour
emergency care centers
35. Medical Office Buildings/Condos
Outperforms traditional office space
Stabilized occupancy and rental rates
Long-term leases
Creditworthy tenants
Steady income streams
Considered safer investment
REIT’s actively seeking Class “A” medical office
buildings located in compounds
36. Medical Office Buildings/Condos:
Rental Rates
Texas Medical
Center Suburban Markets
Class PSF Rate Type PSF Rate Type
A $15.00 - $23.00 NET $12.00 - $21.00 NET
B $12.00 - $18.50 NET $8.00 - $18.50 NET
FULL FULL
C $16.00 - $19.00 SERVICE
$13.00 - $17.50 SERVICE
FULL FULL
D $14.00 - $16.00 SERVICE
$10.00 - $13.00 SERVICE
37. Medical Office Buildings/Condos:
New Construction
New construction slows due to uncertainty of
how health care reform will impact industry
Developers cautious on speculating
However, demand for medical care from
growing population will require additional
space
According to the U S Census Bureau, Harris County’s
general population has been growing at an average of
2.3 percent per year
38. Retail
Increased occupancy
Overall vacancy rate decreased to 6.7 percent in 2011
from 8.2 percent in 2010
Positive absorption of 979,791 square feet in the
4th quarter of 2011
Exceeded positive absorption from 2010
Rental rates slightly down from 2010
Reduced amount of new construction
Expected that positive absorption will correct supply
and demand in overbuilt markets causing upward
pressure on rents
39. Retail: Vacancy
Highs and Lows
Highest vacancy rates are in the Far North and Lake
Houston areas
about 12 percent
Lowest rates are in the Galleria and Uptown areas
just outside the CBD
Less than 2 percent
40. Retail: Rental Rate
Highs and Lows
Highest rental rates were in Downtown, Galleria,
and areas inside the West Loop, such as Greenway
Plaza and River Oaks
Rents ranged from $25 - $36 per square foot
Lowest rates were in Pasadena, Galena Park and
Channelview school districts
Rents ranged from $10 - $12 per square foot
41. Hospitals
Expansion and renovation projects continue
Hospital Corporation of America’s West Houston
Medical Center
The Women’s Hospital of Texas West Houston
Clear Lake Regional Hospital
Values likely to increase slightly
42. Malls
Positive net absorption in 2011
Vacancy rate remained at 7.0 percent in 2011
Rental rates increased from $22.90 per square
foot to $23.76 per square foot
General Growth, which owns Baybrook,
Deerbrook and Willowbrook malls has received
$500 million in pledges to help it emerge from
bankruptcy and grow the value of its malls
These properties are in litigation for 2011
43. Department Stores
Of the 59 stores in Harris County only 44
remain open
Sears reported decreased sales in 2011 and
announced the closing of some stores in region
Dillard’s Houston sales remained flat while JC
Penney reported sales were up
Macy’s reported eight stores with increases,
some double digit and two stores with
decreases
Nordstrom and Neiman’s project increased
sales of 4-10 percent and 3-5 percent,
respectively
44. Hotels-Motels
Average daily rates have increased by 2.8 percent in
2011
Overall, Revenue Per Available Room (RevPar)
increased an average of 6.2 percent in the Houston
area
Area-wide occupancy rose to 57.7 percent in 2011,
and is expected to be about 63.2 percent in 2012
Values will be increasing slightly
45. Warehouses
Fourth quarter reports indicate that industrial
warehouse market has started to stabilize
Net absorption was positive and overall vacancy rate
decreased to 5.0 percent
New speculative construction activity has picked up
Most new construction pre-leased
Demand for new projects will continue as amount of
available space shrinks
Rental rates have experienced slight increases and
capitalization rates have declined slightly
Economic drivers pointing to recovery in this
property type and they will see a slight increase in
values for 2012
46. Vacant Land
Land sales through fourth quarter were 844 in
2011 compared to 588 in 2010
Only 62 were foreclosure and 130 were auction sales
Sustained demand for land near CBD, Texas
Medical Center, West Houston, and inside the
loop
Lenders slowly financing new projects, but more
selective
Investors still concerned with uncertainty in the
economy
47. Vacant Land: 2012 Valuation
Amendments to the restrictions on
development in City of Houston floodways
Flattening of appraised land values
Despite slight increases or decreases, the market is
showing signs of improvement
Similar to the national market, local market
participants are waiting for further developments
During construction of the light rail project,
properties along the rail line will decrease 15 to
20 percent in appraised value
49. Refineries
Total U.S. refined product consumption
currently for 2011 has been less that 2010, but
greater than 2009
Inventories of crude expected to be
consistent with 2011, but per barrel pricing
will be higher
Increased product margins for refiners in
U.S.
Healthy global demand
Natural gas prices remain relatively low
Gulf Coast refiners impacted by crude price
differences
50. Refineries: 2012 Valuation
It is expected that refinery values and
inventories will be higher (double digit) in
2012 relative to 2011.
51. Chemicals
Chemical-related inventory volumes should be
near the levels they were on January 1 of 2011
Value changes for most chemical facilities look to
be flat or down coming into 2012, but up for olefin
plants due to lower natural gas prices
Chevron Phillips closing operations of their
Pasadena Polypropylene plant
52. Utilities: Electric
Values are expected to increase in 2012
compared to 2011
CenterPoint Transmission and Distribution
operating income was up 7.9 percent for the
first half of 2011 compared to the first half of
2010
Since income is a major factor in the unit valuation
for CenterPoint, the increase in income will be
reflected in the total value for 2012
53. Utilities: Gas
Companies in the Natural Gas Utility industry
have continued to struggle
Softness in the housing market, a persistently
high unemployment rate, and a lukewarm pace
of the GDP growth rate have all weighed on this
sector
Public’s concern over lingering recession has
increased conservation and stunted revenue
growth for this industry
54. Utilities: Gas Storage
Facilities will have little change in the
infrastructure and will result in a flat value of the
plant and equipment for 2012
Gas volumes are expected to remain stable for
2012. However, natural gas pricing was up 4.3
percent in 2011 from the previous year
Recent court rulings have indicated that large
volumes of stored gas are in interstate commerce
therefore exempt(1st court) or that they are
taxable(2nd court)
55. Utilities: Telephone
Telephone Utilities’ overall should continue to
decline
The continued competition from customers
relying solely on cell phones and Voice Over
Internet Protocol (VOIP) offered by cable
companies will continue to have a negative
effect on values
56. Utilities: Cable
Cable companies are looking at a decrease in value
due to limited investment, depreciation of their
current assets, and the poor economy
The futures of cable and telephone companies are
unstable due to intense competition in their market
Ability for these industries to provide phone,
television, and Internet has led to a very challenging
economic environment for both industries
Telecommunications will continue to get less
expensive as technology advances
58. Dealer Inventory
Total value of Dealer Inventory increased 9.58
percent in year 2011
Increase of 34.6 percent in vehicle sales for 2011
over 2010
Since the value of the inventory is directly tied to
the prior year vehicle sales, an increase in value
for 2012 is anticipated
59. Business Personal Property
Overall, personal property tax base declined
approximately 1.72 percent for tax year 2011
Value for this sector is expected to stabilize for
2012 as economic optimism gains momentum
60. Harris County
2011 vs. 2010 Taxable Value Comparison
Taxable
Value Pct.
2011- January 2012 Difference 2010- January 2012
Category Parcel Tax Val Parcel Tax Val
Residential 1,029,694 117,665,396,564 0.91% 1,020,708 116,605,524,436
Apartments 13,960 18,430,270,405 4.15% 14,014 17,696,281,106
Commercial 57,048 63,403,439,123 5.98% 56,752 59,825,142,062
Vacant Land 164,163 9,519,480,473 -2.71% 170,133 9,784,732,334
Industrial 2,037 15,439,813,61 6.29% 2,047 14,525,916,034
Utilities 7,517 4,215,369,028 -1.82% 7,370 4,293,672,578
Commercial Personal 163,721 23,691,823,055 -0.55% 164,449 23,823,978,598
Industrial Personal 10,202 24,172,943,559 2.34% 10,336 23,619,484,610,
Other 104,160 569,922,805 -21.11% 104,097 722,423,422
Totals 1,552,502 277,108,461,773 2.29% 1,549,906 270,897,155,180
61. Harris County – Preliminary Estimate
of 2012 Taxable Value
($$$ BILLIONS $$$)
Property Category 2011 2012 Overall %
Tax Base Tax Base Change
Residential & Rural Improved $117. 665 $117.869 0.0017
Apartments $18.430 $20.410 0.1074
Commercial $63.404 $67.645 0.0669
Vacant Land $9.520 $9.893 0.0392
Industrial Real $15.439 $16.348 0.0588
Utility $4.215 $4,160 -0.0132
Commercial Personal $23.692 $23.604 -0.0037
Industrial Personal $24.173 $22.722 -0.0600
Other $0.570 $0.634 0.1124
2011 Roll: 2012 Net
January, 2012 2011 Roll Value Net Total Pct. Chg
$277.108 $283.285 2.23%
62. Changes in the Value Base
and 2012 Estimated Taxable Value
350
300 $279 $281 $271 $277 $283
$253
250 $225
$205
Taxable Value
$193
200 $175 $184
(Billions)
150
100
50
0
Tax Year