Monday, April 14, 2014
Sales of homes priced at $1 million and up are surging in North Texas as affluent buyers decide it’s time to hunt for new digs
STEVE BROWN | REAL ESTATE EDITOR
Published March 21, 2014
Atight supply of homes on the market and tougher mortgage standards have kept Dallas-Fort Worth home sales in check so far in 2014. But that hasn’t put the brakes on high-end home purchases, which have surged in the first two months of the year.
Sales of homes priced at $1 million and more have exploded – up 53 percent in North Texas from a year ago, according to the latest real estate data.
At the same time, sales of modestly priced houses in the area have slowed – down by more than a quarter from a year ago. Overall pre-owned home sales by real estate agents are flat this year.
More than 100 North Texas houses priced at $1 million have changed hands since the start of 2014.
And there are another 857 homes in that price range still on the market, according to data from the Real Estate Center at Texas A&M University and the North Texas Real Estate Information Systems.
The surge in high-priced home sales has caught the attention of economists and kept real estate agents busy.
“We seeing the same thing in Houston as in Dallas – million-dollar home sales are way up,” said Dr. James Gaines, an economist with the Real Estate Center at Texas A&M. “We are in a housing recovery, and people with money recover faster than people without money.”
4939 Manson Court
Dallas, TX 75229
This 29,196-square-foot, 10-bedroom, 9-bath home sits on 3 acres in Preston Hollow. Built in 2011, the estate has a 14-car garage, an underground media room, an indoor basketball court and a resort-style swimming pool. Platinum Series Realty is marketing the property.
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9806 Inwood Road
Dallas, TX 75220
With 14,139 square feet, this 6-bedroom, 7-bath home is on 5.5 acres in Preston Hollow. The house has a movie theater that seats 20, a 10-car garage and 2,200-bottle wine room. It was built in 1996. Briggs Freeman Sotheby’s International is marketing the property.
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3800 Beverly Drive
Dallas, TX 75205
This 8,938-square-foot, four-bedroom, five-bath Colonial style home is in Old Highland Park. Built in 1922, the home is newly renovated with a full basement, guest quarters and third-floor game room. Allie Beth Allman & Associates is marketing the property.
4906 Park Lane
Dallas, TX 75520
Built in 1939, this English-style estate has 10,005 square feet, five bedrooms and five bathrooms. It sits on 5 acres on Bachman Creek and has a pool, landscaped grounds and four living areas. Dave Perry-Miller & Associates is marketing the home.
Gaines said there is now demand for super luxury homes following the recession.
“They are taking money out of the stock market or they are simply people who have capital and don’t know what else to do with it,” he said. “Putting it into a luxury home is not a bad proposition.”
While many of these deluxe property buyers pay cash or finance only a percentage of the purchase, for buyers who need a mortgage, high-end home financing is now more plentiful and affordable, Gaines said.
“Jumbo mortgage rates are now at or slightly below conventional loan rates,” he said. “And lenders aren’t as risk adverse as they have been.”
If mortgage companies are loosening up on high-end home loans, then they have become more stringent when it comes to financing low-cost housing for some moderate income buyers. People must meet tougher debt to income ratios and have higher incomes and credit ratings to buy a house than in the period before the recession.
“That’s the end of the market where the new mortgage regulations have hit the hardest,” Gaines said. “These are the people who have the most trouble qualifying for loans – generally young people and first-time buyers.
“Otherwise, this lower-end market would be doing better than it is.”
Some loan requirements may be up, but real estate agents aren’t complaining – particularly those who sell exclusive properties.
“Last year was unprecedented — the biggest year I have ever had,” said luxury home agent Erin Mathews. “And this year has seen that continue.”
Mathews said many affluent home buyers sat on the fence during the recession, and they are now ready to make a deal.
“People feel like that if they are going to make a move to upgrade, the time is now,” she said. “We are also getting an influx of relocation buyers, and that’s a nice segment of the market now.”
The tightest home inventory in probably 20 years has made it more challenging for home shoppers, agents say. But that doesn’t mean another price bubble is happening.
“You have to be fast on your feet to make a buy,” Mathews said. “But nobody is being crazy with prices.
“Even though prices are inflated from where they were in 2008, buyers want to see what else has sold and at what prices in this boomlet we are in.”
Nowhere to go
Million dollar home sales would probably be even higher this year if there were more properties to purchase.
1That’s keeping some owners of luxury houses from selling, too.
“I had two properties under contract where I could not find another house for either seller,” said top Dallas real estate agent Allie Beth Allman. “They backed off the sales.
“They said they couldn’t find anywhere to go.”
Allman said the demand is strongest in one segment of the luxury market. “The $1 million to $3 million market is going crazy,” she said. “There are multiple offers for properties at that end of the market.”
Allman said there’s also been a shift toward new construction in the higher price ranges.
“They want new houses that they don’t have to do anything to,” she said. “People that can afford the upper end want brand new construction.”
Uptown’s turn: Office building wave starting up in top Dallas market
Crescent Real Estate/Crescent Real Estate
The tower, where Gardere will occupy four floors, will include ground-floor shopping.
The building boom that’s taken hold in the northern suburbs is spreading to central Dallas with a series of new office towers starting in Uptown and the Arts District.
One office high-rise is already under construction downtown, and another is on the way in Victory Park.
And now, one of Dallas’ largest and most prestigious law firms will anchor a tower to be constructed on McKinney Avenue.
Gardere Wynne Sewell LLP is leaving its longtime home in Thanksgiving Tower for Crescent Real Estate’s 20-story Uptown high-rise. Work will start this summer on the building next door to the Ritz-Carlton Dallas hotel.
Gardere will take four floors in the sleek glass tower, which will have a ground-floor shopping center and a lush park stretching along Olive Street. The law firm will move into its 109,000-square-foot offices in 2016.
“We’ve been in Thanksgiving Tower since 1989 — it’s been a good 25 years,” said Gardere chairman Holland O’Neil. “It was a difficult decision for us to make, but we are excited about the move.”
Gardere is renting about 100,000 fewer square feet than in its current downtown location.
“We have a lot of dead space in our current office,” O’Neil said. “When we moved into this building, the way we constructed our space was for a time when there were main-frame computers, big file rooms and libraries.”
New technology has allowed law firms to cut back their office size.
Even so, Gardere had only a handful of choices for its new location, said partner Kevin Kelley.
“Our real estate brokers told us in advance our options would be fairly limited,” Kelley said. “Our competitors are moving out of this area and either moving along Ross Avenue or to Uptown.
“The location for the new building is fantastic.”
Designed by award-winning architect Pelli Clarke Pelli, the 530,000-square-foot Crescent tower has been in the works for more than two years.
“I don’t give up easily,” said Crescent Real Estate CEO John Goff. “I think our timing for this building is very good.
“Once this project is underway, it will attract even more attention from prospective tenants.”
With the signing of Gardere’s lease, the building will move ahead quickly.
The project will have about 50,000 square feet of retail space fronting a landscaped plaza on Olive Street.
Phil Puckett and Jeff Ellerman of CBRE Group represented Gardere in its search for a new location.
The firm looked at two or three older buildings and three proposed projects before making its choice, Kelley said.
Uptown is one of Dallas’ tightest office markets, with less than 10 percent vacancy in first-class business space. And rents are up to twice the cost of space in nearby downtown.
Only one office building is under construction in the neighborhood — a 22-story tower developer Harwood International is building that is anchored by Frost Bank.
“In the Uptown market you can probably find only one building with a full floor of currently available office space,” said Crescent managing director John Zogg. “In my 25-year career, I’ve never seen this market as tight.
“So many people are trying to move to Uptown because of all the great things that are happening.”
But of almost 20 office projects underway in North Texas, only one is being built in Uptown. And downtown Dallas has only one new project, the 18-story Hall Financial Group office tower being built on Ross Avenue.
The high cost of building in Uptown and downtown vs. the suburbs means that most of the projects are outside Dallas’ core.
Also, building sites are more scarce and expensive in central Dallas.
“The dynamic that is different from 10 or 15 years ago is you have very limited development sites,” said Steve Everbach, senior managing director of Cushman & Wakefield of Texas Inc. “It’s pushing pricing for land and construction costs.
“And the market in Uptown and downtown is demanding premium properties.”
Developers can construct a value-oriented low-rise office campus in Plano, Frisco or Irving. But with development sites in Uptown topping $300 per square foot, office buildings have to be taller and more expensive.
“Right now, the fundamentals are the best I’ve ever seen for this market,” Everbach said. “You are going to have premium rents and premium tenants, and they are going to pay for it because they want to be in prime real estate.”
CBRE Group’s Puckett said that expanding and relocating businesses leased most of the prime office space in Dallas’ suburbs as the economy rebounded from the recession.
Puckett said that in the suburbs, he saw “office building construction starting sooner than the Uptown and Arts District market.”
Now it’s Uptown and downtown’s turn.
This week Houston-based developer Hines announced it will build a 23-story office tower starting later this year at Victory Park.
Developer KDC and Invesco Real Estate are working on a smaller office building at McKinney Avenue and Harwood Street in Uptown.
“There are a couple of three other buildings that could conceivably be built in this cycle in Uptown,” said CBRE Group’s Ellerman. “For a long time, the Crescent was the only game in town in Uptown.
“All of the office buildings that have recently been built have done well,” he said.
Downtown skyscraper will be Dallas’ biggest building redo
Tom Fox/Staff Photographer
The former First National Bank tower on Elm Street was constructed in 1965. At 52 stories, it was Dallas’ tallest tower for more than 15 years.
It’s the biggest empty building in downtown Dallas — 52 stories with more than 1 million square feet of space.
The former First National Bank on Elm Street is so big that some prospective buyers were put off by the task of remodeling the vacant skyscraper.
But it was the huge scale of the property and its potential impact on downtown that attracted New York-based Olympic Property Partners to the deal, principal Seth Weinstein said.
“To come down to Dallas and make a substantial investment of time and energy, the size is important to us,” Weinstein said. “We would not have come down here for a quarter-million-square-foot project.
“We think that the sheer size of the project will in itself create a critical mass.”
Since buying the tower last month, Olympic Property Partners execs have been poring over redevelopment plans and working with architects and engineers.
Demolition inside the 50-year-old skyscraper will begin in 60 to 90 days, Weinstein said.
“We plan to start construction around the first of the year,” he said. “We hope to open the building in the summer of 2016.”
First, the developers have to rip out the insides and haul away tons of construction debris and asbestos before starting to rebuild.
Expected to cost $175 million, the redevelopment will be the largest such venture to date in downtown Dallas, where more than a dozen old office buildings have already been repurposed for new apartments, retail and commercial space.
The Elm Street tower has been closed since 2010, when the previous owners could no longer afford to operate the mostly vacant high-rise.
Since then, the tower has changed hands three times while developers pondered potential remodeling plans.
Olympic Property Partners finally stepped up to the plate when it received a promise of $50 million in development incentives from the city.
“Without those tax increment finance district dollars, we would not be able to motivate the capital to do this job,” Weinstein said. “It showed me that the city of Dallas is really committed to this project.”
Dallas has a lot riding on the building redo.
“Leaving any major asset like that to just sit there and continue to decay is not a plan,” said John Crawford, CEO of the economic development group Downtown Dallas Inc. “It is a drag on everything around it and the entire downtown area.”
Crawford said it’s important for the project to succeed as a mixed-use venue.
“It’s not just some more apartments going in,” he said. “They are trying to create a destination.”
Much more parking
Olympic Property Partners’ redevelopment scheme calls for turning the lower floors of the building into retail, office space and parking.
The tower section of the project will house about 500 apartment units.
“The whole base will really change,” said architect Jerry Merriman with Merriman Associates Architects. “The tower itself will remain pretty much intact.
“On the lower levels, that’s where the radical new designs come.”
The redevelopment will add about 500 parking garage spaces.
“It will be the best parked building in downtown Dallas when we are done with 950 parking spaces,” Weinstein said.
On the ninth floor of the building, the developers plan to create a large outdoor park area with restaurant space, outdoor dining and recreation facilities for the apartment residents.
“We are going to reopen the old observation deck on the 50th floor,” said Bryan Dorsey with BDRC 4Site, the local partner in the project. “We are ready to take this project all the way.”
The developers will blow out enclosed areas on the lower floors for new public spaces and install bright graphics and signage.
“These buildings in the ’60s and ’70s were built fortress-style,” Weinstein said. “They didn’t encourage people to walk into the building.
“We’ve opened up all four sides of the building to invite people in.”
Weinstein said he has secured equity and debt to pay for remodeling the building. The company has a track record of developing apartment and commercial projects.
He said he saw the potential for the tower when he first toured the property.
“As soon as I took a look at this, we decided to pursue it,” he said. “Very few office buildings of this scaleactually lay out appropriately for conversion to residential.
“This is a much better residential building than it is an office building.”
Case-Shiller report takes edge off record home price gains
Dallas-area home prices continue to rise at a double-digit rate. But the latest increase took the edge off record-high numbers in the Standard & Poor’s/Case-Shiller Home Price Index.
Prices of pre-owned homes were up 10 percent in January from a year ago, according to Case-Shiller’s report. That’s a fractional pullback from the all-time-high 10.2 percent gain in December.
Nationally, home prices were up 13.2 percent from the same month in 2013.
But the percentage increase in prices in January was less than the December rise in more than half of the U.S. markets tracked in the monthly survey.
“The housing recovery may have taken a breather due to the cold weather,” S&P’s David M. Blitzer said in the report. “Expectations and recent data point to continued home price gains for 2014.
“Although most analysts do not expect the same rapid increases we saw last year, the consensus is for moderating gains.”
The greatest year-over-year price increases in January were in Las Vegas, 25.5 percent, and San Francisco, 22.6 percent.
Dallas-area prices are almost 5 percent ahead of where they were before the recession. Nationwide prices still lag by about 20 percent from where they were in mid-2006.
“Dallas and Denver are the only cities to have reached new record peaks,” Blitzer said.
Dallas-area home prices have been rising in the Case-Shiller Index for 23 consecutive months.
Case-Shiller’s index tracks over time the prices of specific single-family homes in each metropolitan area. The index survey does not include condominiums and townhouses.
Case-Shiller’s latest house price numbers for Dallas reflect a leveling off in the market that housing analysts have been expecting.
After prices increased by about 10 percent in 2013, economists are expecting a slightly smaller rise this year.
“We have heard from builders and Realtors alike that prospective buyer traffic remains strong this spring but that there exists a fair amount of sticker shock as these buyers assess their home purchase options,” said Ted Wilson with Dallas housing analyst Residential Strategies Inc.
“Prices are up substantially — on both new and existing homes — from where they were just two years ago.”
Downtown Dallas scorecard: 6 skyscrapers sold, more deals in works
Kye R. Lee/Staff Photographer
Downtown Dallas property values are more than $1 billion higher than in 2004, according to appraisal district data.
Six and counting — that’s how many landmark downtown Dallas office towers have changed hands in the last couple of years.
It’s the biggest transfer of ownership of Dallas’ skyline since the late 1980s.
Like the ’80s sell-off, most of the skyscrapers changing hands downtown these days are being peddled as problem properties.
The buyers are investors hoping to cash in on downtown’s comeback.
The property value numbers for downtown show the strength of the rebound.
During the last decade, real estate appraisal values in Dallas’ central business district have grown by about 30 percent, even in the face of the worst recession in generations.
Total property values downtown are now more than $1 billion higher than in 2004, according to data from the Dallas County Central Appraisal District.
Last week’s sale of the 32-story One Main Place tower to a New Orleans buyer is the latest in a string of central business district office purchases.
More downtown deals are in the works.
Investors who are buying the properties plan to refurbish and fill up the buildings with new business tenants.
They are already seeing success.
Cousins Properties, which bought the 33-story 2100 Ross tower out of foreclosure in 2012, has increased occupancy in the high-rise to more than 80 percent.
New owners of the Thanksgiving Tower on Elm Street and buyers of the KPMG Centre on Harwood have landed major new tenants to fill empty office space, too.
Of course, downtown Dallas still has a long way to go to be on par with other big U.S. cities.
It’s one of the four major U.S. markets with more than 20 percent vacancy in its office skyline, according to a new report by commercial real estate firm JLL.
Looking at downtown’s landmark skyscrapers, mostly built in the 1980s, the average occupancy is now about 71 percent, according to the JLL report.
Occupancy rates range from almost 85 percent in the Chase Tower on Ross Avenue to as low as about 56 percent in Thanksgiving Tower.
Overall downtown office vacancy is just under 25 percent. That’s high by U.S. standards but a big improvement from 10 years ago, when almost 35 percent of downtown’s office building space was sitting empty.
JLL’s analysts conclude that “significant activity has shifted back to the core.”
“There is a surge in demand for the best-in-class, urban office buildings,” said JLL managing director Evan Stone in the report.
“This is taking place in Uptown and Preston Center, but also spilling over to the Dallas central business district as investors see the opportunity to capitalize upon the strong demand and quickly dropping supply in select locations.”
Office campus, shops and high-rise hotel in the works for big Plano development
A luxury hotel tower, corporate office space, an urban shopping center and apartments — those are part of what’s planned for one of the Dallas area’s largest new real estate projects.
Developers who will break ground soon on almost 240 acres at the Dallas North Tollway and State Highway 121 in West Plano aren’t wasting any time getting the huge real estate project in gear. Construction will start in the next few months on the first phase of the Legacy West project.
“There is a huge momentum to develop this site,” said developer Fehmi Karahan, who heads one of three local firms joining forces to build on land surrounding J.C. Penney’s corporate headquarters in the Legacy business park.
The property, divided into four huge blocks fronting on the tollway and Highway 121, has remained vacant since Penney built its corporate offices in the 1980s.
Now Karahan Cos., corporate office developer KDC and apartment builder Columbus Realty Partners will develop the land in partnership with Penney.
Just a month after committing to the deal, the firms are ready to start work on the first office buildings, and a hotel tower is on the drawing boards.
“We are doing site clearing now, and we will probably start full construction in about 60 days” on a new headquarters complex for FedEx Office, KDC chief executive Steve VanAmburgh said.
More than 1,200 FedEx workers will be housed in the campus that KDC is building on Legacy Drive.
“We are already talking to two or three other prospective companies that want to be in this project,” VanAmburgh said. “The entire office component could be anywhere from 3 [million] to 4 million square feet.
“It would be easy to envision anywhere from 10 to 20 midrise and high-rise office buildings that range from 150,000 square feet to 300,000 or 400,000.”
KDC has a lot of experience with that kind of office development.
The Dallas-based firm is building the huge State Farm Insurance regional headquarters in Richardson. And it’s done large corporate facilities for Blue Cross Blue Shield of Texas, Citigroup and, in Legacy business park, for Encana Oil & Gas, Tyler Technologies, Intuit and Denbury Resources.
Karahan Cos. sought out KDC when it proposed developing the Penney land. And they included Columbus Realty, which has built 3,000 apartments in the Legacy Town Center.
With the 150-acre Legacy Town Center almost out of construction sites, Fehmi Karahan was interested in Penney’s land across the tollway.
“I always thought it was a great site to develop,” Karahan said. “For years, Penney said they weren’t ready to do anything with it.
“But at the end of 2011, they issued a request for proposals to developers.”
Other real estate firms that pitched for the chance to build on the property included Trammell Crow Co., Lincoln Property Co., Forest City Enterprises and Houston-based Hines.
“But no one knows Legacy business park better than we do,” Karahan said.
His Shops at Legacy retail and entertainment center has become a regional restaurant and shopping destination.
Karahan wants to do more such development on the Penney land, which will probably be even more urban.
One of the first phases of construction there will be a high-rise Renaissance Hotel on Legacy Drive just west of the tollway.
The hotel project has the backing of the family that owns the hugely successful Sam Moon retail firm.
The almost 300-room hotel will be joined with shopping, apartments, condominiums and office space along the west side of the tollway.
“There is definitely a demand for condominiums,” Karahan said. “There is not a high-rise condo project in this entire area.”
The need for housing in the project is being driven by the increase in jobs in the area, said Robert Shaw, CEO of Columbus Realty.
“It will be a dense, more urban project than it would have been even five years ago, much less 10 years ago,” Shaw said. “It will build on what is already in place in Legacy Town Center.”
By holding off on development of the property until now, Penney’s land will wind up looking more like Dallas’ Uptown district than a suburban development, he said.
“The timing couldn’t be better,” Shaw said. “We are in a hurry because there is a lot of interest.
“We want to make sure we are diligent and thoughtful with our development plans, but at the same time not miss opportunities.”