Tuesday, December 30, 2008

Dallas On Track for Slowdown

Though the Dallas Worth real estate market has been insulated from most of the nation's economic woes, experts tell GlobeSt.com that the area is starting to feel the rest of the nation's pain. As a result, 2009 could be a somewhat rocky year, depending on the submarket, product type and who you talk to.
"This has been the tale of two markets this year," says Jeff Ellerman, vice chairman with CB Richard Ellis' Dallas office. "We had a great market for the first half, which was fairly resilient and with a good activity and deal flow, even as the rest of the country was suffering a downturn." Then came September and the string of bank failures. "Things ground to a halt," Ellerman says. "What we've seen here is a real significant decrease in the velocity of transactions."

"We're not frozen in Dallas, not yet," comments Mark Noble, managing director with Colliers International Dallas-Fort Worth. "But we're currently skidding and no one's certain what condition we're going to be in during the coming year."

Jones Lang LaSalle Inc. managing director John Alvarado agrees with his colleagues' assessment, saying the local market is contaminated by the country's economic downturn. Though the North Texas economy is diversified and not severely overbuilt, "everybody is anticipating seeing a little slowdown in the coming quarters," says Alvarado, who works from the company's Dallas office.
Still, not everything is on a negative path. Associate partner Tom Warren with Hendricks & Partners' Dallas office says the area managed to escape the over-inflated housing bubble that plagued other parts of the nation. "We didn't have the hyper-inflation in housing prices," he comments. "We also didn't have that situation in which all of our apartments were converted to condominiums." Nor is the Metroplex suffering from the so-called shadow housing market that is impacting Arizona, Florida and Las Vegas, he adds.

But what protected North Texas during the past year 2008 was a combination of high oil prices and positive job growth. And it's job growth, says CBRE first vice president Jake Marks, that continues driving the area economy. As a result, deal flow has remained stronger than during the early 2000s downturn. "There really wasn't anything there during the last downturn," Marks adds. "But we're still tracking in this market."

The job growth has also meant rental growth, which is good news for apartment owners. However Ryan Reid, CBRE senior vice president of multihousing sales warns there are a lot more units in the pipeline, and something to be watched. "If that job growth slows," he says. "It could have a negative impact."

Warren agrees, adding that with 19,000 units under construction, an inventory glut could be an issue. "Our crystal ball says we'll still gain between 50,000 and 60,000 jobs in 2009," he comments. "But nobody knows how broad or deep this recession will be. If oil prices stay down long enough, it will start tempering the number of jobs created here."

Out of all the sectors, retail, perhaps unsurprisingly, is the most negatively impacted and will continue to be so in 2009. CBRE research manager Steve Triolet says a lot of retail space was delivered in 2008. That, combined with retailers likely to declare bankruptcy in early 2009 will mean negative absorption. The retailers that are hanging on through the Christmas holidays now are likely to be gone in February and March of 2009, he adds.

"The malls will be particularly vulnerable," he explains. "Valley View (in Dallas) lost both Macy's and Dillards as anchors. When you lose big anchors like that, it's hard to replace them, especially in these times."

Other than retail, the remaining sectors should pick up later in the year. CBRE senior vice president Josh McArtor believes the level of shock is moving out of the market. As people understand the reality of the new pricing realm, he points out, things should move forward. "We're likely to see an uptick in volume in sales activity during the second half of 2009, once the smoke clears and everyone understand the new rules of the game," he comments.

But Hendricks & Partners' senior investment adviser Jay Gunn isn't quite ready to release a positive outlook, because he doesn't believe the market has hit bottom. "It's difficult to price things," he confesses. "The perception out there is we haven't gotten to the bottom yet. Until we do, it will remain difficult for valuation."

JLL's Alvarado agrees, suggesting that bottoming out will happen when distressed sales start coming to the market. We're getting closer to that point, he notes, but it hasn't materialized just yet. When it does, some significant transactions could happen in the latter part of 2009, with recovering happening in 2010 and beginning in 2011.

Meanwhile Ellerman, a self-proclaimed optimist, says he hopes the new presidential administration and efforts by the Federal Reserve and US Treasury to stimulate the new market will help. If that's the case, he adds, the second half of 2009 should see the area turning the corner.

"It won't mean a lot of transactional activity will neatly follow. That's wishful thinking," Ellerman comments. "But hopefully, by this time next year, we'll be looking back and saying 'wow, I'm glad we're past all of that.'"

Until that time, brokerage services will have to rely on other services to get them through. Noble of Colliers points out that auxiliary activities such as appraisals and consulting will be called upon in 2009 to help investors and renters work through the issues. Still, Dallas and Fort Worth are likely to be less impacted than other regions. "It's a mixed bag of feelings," he acknowledges. "There is going to be a tremendous amount of economic pain in other states. I think locally we're in for a difficult time. But I'd rather be in Dallas than elsewhere."

Sunday, December 28, 2008

Real Estate Report: Industry took its share of lumps in 2008

Don't be surprised if Santa puts coal in the real estate industry stocking this season.

Between the credit crunch and the economic slide, the property market has gotten a nasty surprise in 2008.

So what's one more lump after the hail of bad news that's already hit the business this year?

While the commercial side of the real estate market kept building under control, the slowdown in business growth and lending for construction has put a pinch on builders and buyers.

And forecasts of business consolidations in the months ahead could mean more tough sledding for landlords who may see building vacancies rise.

On the housing front, analysts are warning of another year ahead with depressed sales and reduced construction.

The good news is that Dallas-Fort Worth has so far avoided big home price cuts.

But how long can that last in the face of record residential foreclosures?

Some of the standouts this year:

BIGGEST DISAPPOINTMENT
Victory retail


The huge Victory project northwest of downtown Dallas has received international acclaim for its mixed-use redevelopment of an old rail and industrial site. But shoppers seem unimpressed. Developers of the high-rise complex have been unable to lure enough customers to support the retail and restaurant venues. Two anchor tenants – LFT department store and Nove Italiano restaurant – went under after struggling to attract business.

BIGGEST BOOM
Apartments


While the credit crunch has quashed most new commercial projects, apartment building continues to boom in North Texas. More than 20,000 rental units were in the pipeline this year – the most in the country.

BIGGEST MOVE
Downtown


Dallas' sometimes-maligned central business district got a boost this year when some of the country's biggest businesses decided to relocate offices downtown. AT&T Corp. moved its headquarters from San Antonio, and Tenet Healthcare Corp. is relocating its head office from Far North Dallas. Insurance giant American International Group Inc. and financial firm Capital One also are shifting workers from the 'burbs to the CBD.

BIGGEST SURPRISE
Job market


With all the dire news about the nation's economy, the Dallas-Fort Worth job market has been a bright spot. Close to 50,000 jobs were added in North Texas during the last year – if you can believe the numbers. Employment economists have a spotty track record in times like these.

BIGGEST BIRTHDAY
Las Colinas


One of Texas' biggest real estate successes – the huge Las Colinas development northwest of Dallas – celebrated its 35th anniversary in 2008. When the project was started on the Carpenter family's river bottom ranch, naysayers predicted it would flop. But construction of nearby Dallas/Fort Worth International Airport helped make Las Colinas one of the top business addresses in the country.

BIGGEST BUILDING START
17Seventeen McKinney


A whole flock of construction cranes has landed in Dallas' Uptown district. The $200 million 17Seventeen McKinney project includes two high-rises with offices and apartments being developed by Granite Properties and Gables Residential. The development – between Dallas' Arts District and Victory project – won't open until 2010.

BIGGEST SALE
Galleria towers


Fewer buildings changed hands in Big D this year because of the lack of credit to finance big buys. The largest sale in North Texas was the three-building Galleria office complex in Far North Dallas. Estimated at more than $300 million in value, the landmark office buildings were snapped up by a California investor.

LONGEST WAIT
Calatrava Bridge


Back in the 19th century, it took less than two and a half years to build New York's iconic Brooklyn Bridge. But it's been three years since the groundbreaking for Dallas' first landmark Calatrava Bridge across the Trinity River. And it's likely to be sometime in 2011 before it's finished. In the meantime, investors and redevelopers who wagered that the project will spur a revival on both sides of the river are in limbo.

BIGGEST LOSS
Staubach Co.


The sale of Dallas' Staubach Co. to Chicago-based Jones Lang LaSalle for more than $725 million was one of the country's biggest real estate industry deals of 2008. While the merger of the two firms was a plus for shareholders and customers, the Staubach sale signals the passing of one of the greatest corporate names in the Dallas property business.

BIGGEST BUST
The housing market


Finding the bottom to the home market meltdown has proved as difficult as guessing which direction the stock market will take. Prices in the Dallas-Fort Worth area have not fallen far, but the flood of foreclosed homes on the market – more than 20,000 this year – and declining sales volumes could mean more trouble for the residential sector. Analysts don't expect a rebound until late next year.

BIGGEST SAVE
Old Parkland


Dallas doesn't usually get high marks for historic preservation. What would you expect in a town where the motto has long been "keep the dirt flying"? Fortunately, the bulldozers were kept away from one local treasure – the historic Parkland Hospital complex on Maple Avenue. Investor Crow Holdings converted the 95-year-old former medical campus into a stunning office complex. Mr. Steve Brown - Dallas Morning News.