Mansion sales and discount dining: How the oil rout has hurt the rich in Houston, Texas

HOUSTON – Prices for mansions in Houston’s swankiest neighbourhood have tumbled in lock step with crude prices. The Houston Opera has offered free season tickets to patrons who lost their jobs in the oil bust. An expensive restaurant offers cut-price dinners.

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Twenty months in to the worst oil price crash since the 1980s, well-heeled residents from the world’s oil capital are among the hardest hit largely because tanking energy firm shares constitute a lot of gas and oil executives’ compensation.

In River Oaks, a neighbourhood of palatial mansions and lush gardens, the average sales cost of a home has tumbled to US$1.3 million from US$2 million in the middle of 2014 when oil began its more than 70 percent slide, according to data from the Houston Association of Realtors and Keller Williams. Median property prices in the area have previously fallen further in this downturn, which isn’t yet over, compared to 16 per cent stop by the previous oil slump in 2008 and 2009.

“When oil does well, River Oaks does well. When oil does bad River Oaks does bad,” said Paige Martin, a Keller Williams broker which specializes in the neighborhood. “Not everybody can afford a US$10 million house.”

City-wide data also show that while overall sales of single family homes fell 2 per cent in January, sales of these priced over US$500,000 tumbled 9 percent. The overall median house price was US$200,000, up 5 percent on the year, based on the realtors’ association.

While Houston’s economy is much more diversified now than in the 1980s once the city lost 13 percent of their jobs, it remains home to 5,000 energy-related firms and also the fortunes of gas and oil executives are tied more than ever before towards the energy market.

Since U.S. lawmakers passed legislation in 1992 encouraging “performance-based” pay, the proportion of investment in executive compensation has steadily increased, said David Bixby, head of the Houston office for Pearl Meyer compensation consultants.

“Now, you’re looking at 70 to 80 percent of CEO compensation in stock typically for oil and gas companies,” he explained. “They are going to be exposed to commodity price cycles.”

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ACROBATS As well as for SALE SIGN

For example, former oil executive, Kolja Rockov, whose extravagant wedding with dancers and acrobats was a local online sensation 3 years ago, briefly put his unfinished mansion available on the market for US$6.9 million, based on listings.

A Jan. 21, 2015 SEC filing showed he involuntarily sold 239,000 shares from the company’s tanking stock he’d used like a collateral for a loan. Rockov lost his job as Linn Energy LLC’s CFO in August.

Rockov said the house is actively being built, isn’t for sale, and the man left his job by mutual consent. A Nov. 5 SEC filing said he was “terminated without cause.”

Luxury car sales will also be slower in Houston than in other areas of the state and also the country.

“If you’re employed by an energy company, the thing is all this stress who are around you, it might nick your purchase confidence, even if you’re fairly high income,” Earl Hesterberg, chief executive of Houston-based Group 1 Automotive Inc, told Reuters.

He said over stock was most acute for top line BMW and Mercedes-Benz models in Texas and Oklahoma.

In a nod towards the downturn, Ouisie’s Table, a River Oaks institution, presenting its “Oil Barrel Bargain,” a three course dinner for the price of a barrel of oil, now around US$30.

To be sure, oil executives are not alone in feeling the pain. Many blue collar jobs in oilfield equipment production have disappeared. So have thousands of middle management jobs in oil exploration and production. A regular Uber customer is likely sooner or later to ride with a former energy industry professional.

“Its smart for that mortgage,” said Matthew Clemonds, who once did mapping for pipeline companies and today works for the ride-sharing company.

Job growth has slowed to some crawl from the breakneck pace of 100,000 a year during the oil boom; housing starts are down and subleasing of recent work place is booming, according to government data and NAI Partners, a genuine estate consultancy.

But to date, because of its diversity, the metropolitan economy has shown remarkable resilience, adding 20,000 jobs to just over 3 million last year.

For example, Houston hosts the Texas Clinic, the world’s largest cluster of hospitals, research facilities and affiliated universities, which says it employs 106,000.

In the energy sector, about US$50 billion being invested in new petrochemical plants to take benefit of cheap supplies is helping offset upstream job losses.

“This is actually the best oil price downturn we have ever had,” said Ted Jones, chief economist at Stewart Title Guaranty Company. “We still have more jobs than we’ve had in history.”

Bill Gilmer, a school of Houston economist, says so far it has paid off to tough it out through oil’s booms and busts and notes that ever since 1969 Houston has consistently ranked one of the fastest growing U.S. cities.

“The only issue is it could be a rollercoaster.”

? Thomson Reuters 2016