Will build-build replace drill-drill for investments?

Business experts shook their heads when wildcatter George Mitchell began plowing his petroleum profits into Texas real estate back in the early 1970s. It was a soft-headed notion in the face of the hard money to be made as the nation headed into an energy pinch, they reasoned, even as the millionaire started building his dream community on a remote swath of forest land north of Houston.

Those experts are still shaking their heads today, but for different reasons. Texas real estate wasn't such a bad business proposition after all. Texas' phenomenal economic boom sparked an explosion in real estate, and Mr. Mitchell's model community, The Woodlands, was poised for profit - and we're talking Texas-size profits.

Mr. Mitchell's 23,000-acre community was purchased and developed at a cost of about $26,000 an acre. Today, the average Woodlands acre sells for $62,000.

And even with the economic slump that has slowed business activity nationwide , The Woodlands is still setting records in sales of homes and commercial office buildings, according to executives of The Woodlands headquartered in a large glass complex nestled between a man-made lake and a forest.

Profit, though, wasn't the only motive for the developer of The Woodlands. When George Mitchell talks about the venture, there's an idealistic twinkle in his eye, not dollar signs. As one of the nation's most successful new towns, the development is integrated in a natural, but well manicured, setting with low-income housing alongside luxury estates and corporate and industrial complexes.

''There's no utopia and you don't escape problems in The Woodlands,'' he admits, but it's apparent that those people and businesses drawn to this community hidden in the East Texas piney woods find Mr. Mitchell's town an orderly haven in the shadow of the wild and uncontrolled growth in nearby Houston, where skyscrapers crop up next to homes overnight.

The Woodlands' success is a microcosm of the Texas real estate market, which, as host to five of the nation's biggest commercial developers, is considered the healthiest market in the country, with the most housing starts, the cheapest building, buying, and rental prices, and the brightest prospects for the near future.

According to M/PF Research Inc., a Dallas consulting firm, the state's share of the nation's construction starts nearly doubled in all sectors from 1970 to the beginning of 1982: Building permits issued for single-family units rose from 5.7 percent to 11.4 percent of the US total; its share of multifamily units grew from 8 to 15 percent; and its nonresidential permit share rose from 7.1 to 13.6 percent.

In Houston, for example, that growth appeared to be continuing through the first six months of 1982. The commercial dollar volume for housing permits issued there increased over the same period in 1981 by nearly 60 percent.

But, as Texans will repeat time and again when discussing any aspect of the state's economy, ''Texas is not recession-proof.'' To get a perspective, though, of just what kind of real estate giant the state is, it must be compared with other states.

One real estate expert notes that in other states it can take up to a year to fully lease out a new building after completion. In Texas, builders are complaining because it now takes a month or two to fill up a finished building.

Corporate interest in relocating or expanding to Texas is one indication of the real estate opportunities here, says Terry Fritz, president of the Dallas Chamber of Commerce. He says inquiries to the chamber regarding relocation or expansion by companies with more than $1 million of business annually have increased over the past five years from an average of one every 41/2 hours to one every 2 hours.

The draw that makes the Texas real estate market appealing, observers say, is that the business climate here is the most conducive to cheap construction and purchase prices. They cite the lack of unionized labor in the construction industry and the absence of state personal and corporate income taxes here.

Prime office space in this state rents for about $25 a square foot, compared with the $100 range in places like Chicago, New York, and Boston. Residential building costs are half as much as in the Northeast or Midwest. The price tag on a new single-family detached home starts at $65,000, and condominiums start in the $40,000 range.

Interest rates that may have prevented some home purchases have improved the state's rental market, which, industry observers note, has attracted many out-of-state investors, especially Californians spooked by rent control and sky-high land and construction costs in their state. Some of the most lucrative Texas real estate deals of late have been in the rental housing market: Speculators picked up rental units for $10,000 to $14,000 per unit five years ago and are selling them for twice that amount today.

Summing up the market as a whole, George Roddy, chief executive officer of Dallas's DRESCO consulting firm, makes a distinction between construction and sales. Countering claims that the construction boom has created an overbuilt market, he admits that construction in Texas has slowed in all but multifamily housing this year. ''But sales are occurring at the highest rate ever. . . . January had the highest volume of sales of commercial property, and the second-largest month ever was June,'' he says.

''Texas is to the 1970s and '80s what California was to the 1950s and '60s (in terms of real estate),'' explains Wolf Vedder, a partner in the Houston offices of the Trammell Crow Company, the nation's largest commercial developer, which is based in Dallas.

But is Texas likely to follow the same cycle experienced in California, where rapid growth created a nearly impenetrable real estate market for the small-business or first-time home buyer?

The Woodlands is an example of the kind of planning which some Texans are attempting to couple with the rapid growth that, in other areas, has driven up costs by outstripping support systems like water and electricity.

Observers note that there are still seemingly boundless horizons for Texas development, and thus real estate growth. They add that as long as the business climate is more favorable here than in other states, the real estate market will also remain comparatively good.

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