Wednesday, February 25, 2009

If you have a Net Leased Asset that is or could be distressed....

There’s plenty of doom-and-gloom out there, and with declining values, frozen credit markets and tenant bankruptcies, the net lease property sector isn’t immune to the kinds of problems that are just beginning to emerge in the commercial property market. But experts in net lease properties and 1031 exchanges say there may be ways to soften the blow of distressed situations, including the tax consequences of foreclosures.
The advisory group of Net Lease Capital Advisors, for example, has past experience structuring exchanges for investors who face losing a property to foreclosure in such a way that both minimizes their tax bill and puts them in a new investment. If an owner is proactive in pursuing such a strategy before they are foreclosed on, says Carl Christensen, managing director of the Nashua, NH-based company, they can deed their property back to their lender through a qualified intermediary and do a 1031 exchange into a new investment.

The company has access to a significant amount of potential replacement triple-net properties that are primarily leased to investment-grade tenants and typically highly leveraged, says Christensen. Though it depends on the financial and tax particulars of each case, putting equity into the new investment can be considerably less costly than paying the capital gains--which, since a foreclosure is considered a sale, includes the discharge of debt above the owner’s basis--and depreciation recapture tax bill, he adds.

“They’re facing a 20% to 25% tax problem. But you can solve that problem for 7% to 13% [equity] and have the benefit of owning your own real estate and saving money,” says Christensen. “The downside is they have to come out of pocket for the cash, because there is no equity in the property in this particular scenario, but what they have to come out of pocket for to buy the replacement property is significantly less than what they’d have to come out of pocket for to pay the IRS.”

In addition to foreclosures, the strategy could also be applicable to forced-sale situations, when owners can’t put additional equity into a property when refinancing (at today’s lower leverage standards) is necessary and thus are forced to sell at a lower price than what they paid for the property.

“Those folks will have a little bit of equity, they won’t be totally upside down,” says Christensen. “This kind of solution is beautiful for them, because they won’t have to dump more money in to preserve their tax position.”

Net Lease Capital Advisors isn’t alone in identifying opportunities to help distressed property owners make the most of less-than-ideal situations. The net lease investment group of BRC Advisors in Los Angeles has been working on a new platform that also will provide investment-grade, highly leveraged assets as replacement properties for owners facing foreclosure to exchange into.

And Reston, VA-based Calkain Cos. last month launched a new division, Calkain Opportunity Services, to address the needs of a variety of challenged situations, such as potential debt restructurings and failed investments. Todd Harrison was recruited to head up the new division as managing director.

Despite difficult situations such as foreclosures, there are options that can help, concurs Calkain president and CEO Jonathan Hipp. “The last thing you want to do is not be smart about your options. Don’t just assume that you’re dead in the water,” he says. “It’s about good tax planning and trying to be ahead of the bus.”

James Brennan, who recently started his own qualified intermediary company, ES Group LLC, agrees that structuring a new investment to mitigate the damages of a foreclosure is “a great strategy.” Brennan, principal and corporate counsel of the Reston, VA-based QI, adds, “It’s a unique positioning of 1031, it’s a unique use of it.”

So far there the market hasn’t seen a full onslaught of foreclosures in the commercial property space--yet. But Net Lease Capital Advisors’ Christensen sees it coming, and expects to be putting to use the company’s tax-saving strategies more and more. “The demand is picking up,” he says. “We expect that we’re probably going to do quite a bit coming up. It’s really sad.” Globestreet

Economy hasn't toppled building boom in Uptown


After almost a year and a half of construction, the Ritz-Carlton condo tower with its elaborate exterior is already a local landmark. It's one of three high-rises that has gone up at Uptown's main crossroad – the intersection of Pearl Street and Cedar Springs Road.


SONYA N. HEBERT/DMN
The 23-story Residences at the Ritz-Carlton will get its first occupants in June, the developer says. Almost two-thirds of the condos in the tower already have buyers.
A midprice condo in the 23-story Residences at the Ritz-Carlton goes for $1.5 million, and buyers have spoken for almost two-thirds of the units.

"We are planning to start moving people in sometime in June," said William Mabus, vice president of developer Crescent Real Estate Equities. "Obviously, we are in economic times that are difficult.

"But so far, we have been very fortunate."

The economic downturn has slowed demand for all properties, but Uptown is still outperforming other urban districts in the Dallas area.

The neighborhood just north of downtown has been ground zero for North Texas' real estate boom. In the last five years, developers have added more than 2,000 housing units in Uptown, along with first-class office space and luxury hotel rooms.

During 2008, it was one of the top office markets in North Texas, with almost a half-million square feet of net leasing. Most of that was in a handful of office towers north of Woodall Rodgers Freeway.

Three new buildings have added more than 1.3 million square feet of office space to the Uptown market.

"Those projects average more than 70 percent leased, which is very good," said Jeff Ellerman, vice chairman of brokerage services in the Dallas office of CB Richard Ellis.

And all that leasing has been done at rental rates above $30 per square foot – more than a third higher than the Dallas-area average.

The new Rosewood Court tower at Cedar Springs and Pearl is about 72 percent leased at rents above $35 per square foot, said Jon Altschuler of Stream Realty Partners.

"The building has been enthusiastically received in the marketplace and has been a terrific success," Altschuler said. "Uptown still has a positive feel to it.

"We're continuing to tour the building regularly, and it's nice to have some leases under negotiation," he said.

"Of course, we're cognizant that many of the financial sector firms that tend to gravitate toward the Uptown submarket aren't transacting as quickly as they have in years past, so we're expanding our marketing push aggressively toward tenants in other submarkets and industries, too."

Two other Uptown office projects are almost fully booked.

Lincoln Property Co.'s 2000 McKinney Ave. building – a 445,000-square-foot tower that overlooks the site for the planned Woodall Rodgers Park – is open and has major tenants that include law firm Baker Botts LLP and Texas Capital Bank.

And Hillwood's One Victory Park office tower is more than 80 percent leased. PlainsCapital Corp., Ernst & Young and Haynes and Boone are major tenants in the silver glass-and-concrete high-rise.

Under construction
Still under construction is developer Harwood International's Saint Ann Court office tower at Harry Hines Boulevard and Olive Street. The 320,000-square-foot high-rise is leased to a variety of tenants such as Amegy Bank, Boston Consulting Group and McGuire Craddock and Strother.

"We are currently 71 percent pre-leased and in discussions with three groups to occupy an additional two floors – the last two contiguous floors available," said Jihane Boury, Harwood International vice president.

"Harwood International is very pleased about the interest level we have had – and continue to have – at Saint Ann Court, and we will be ready for our first tenants this fall."

After Saint Ann Court is finished, the next office tower in Uptown won't open until 2010.

The 19-story 17 Seventeen McKinney building is a project of Granite Properties. So far the developer has announced no leasing for the building, which is on Akard Street near Woodall Rodgers.

"It's on schedule to deliver in April through June 2010," said Greg Fuller, Granite's chief operating officer. "Construction has not been delayed or slowed down, and there are no plans to do such."

Residential choices
After several years of widespread construction, residential development in Uptown is also winding down.

Atlanta-based developer Wood Partners just finished its 375-unit Glass House apartment tower near the intersection of Pearl and Cedar Springs.

The building is expected to rent for about $2.30 per square foot.

"We'll have our models ready soon and will begin to heavily market the property," said Wood Partners' C. Todd McCulloch.

The Glass House will join two other high-end apartment towers signing tenants Uptown.

Houston-based Hanover Co. has leased about half of its 252-unit Cirque apartment tower on Olive Street in the Victory project, said Hanover's Dana Tucker.

And Hanover's more recently opened 1900 McKinney apartment tower – with 230 units – is about 20 percent leased.

"The residents that have come to Cirque are a hip, chic, posh crowd," Tucker said. "A lot of them are new to Dallas and work downtown.

"At 1900 McKinney, we have a fair amount of empty nesters – people who have sold their homes and want to experience the high-rise living without having to buy a condo."

Demand for midrise rental units has also been strong.

Gables Residential's 550-unit Villa Rosa rental project on Cedar Springs at Carlisle Street is more than 90 percent leased. The newest phase opened last year.

"Our retail leasing has gone a little slower than we thought, but we have also been picky," said Gables' senior vice president Doug Chesnut.

Gables has one more major project under way in Uptown – a 300-unit high-rise that adjoins Granite Properties' 17 Seventeen McKinney. It will open in March 2010.

Gables delayed the groundbreaking for an apartment project at Routh Street and Carlisle.

"We don't have a huge supply in Uptown, but we are seeing our downturn," Chesnut said. "Things have slowed in the last 90 days all through the city."

Apartment occupancy
At the end of the year, total apartment occupancy in Uptown was at just over 87 percent. That's below the citywide average of 91.4 percent, said Greg Willett, vice president of apartment analyst M/PF YieldStar.

"Rents are at $1,344 a month overall average, with pricing down 2.5 percent on an annual basis," Willett said. "Thus, it's a really competitive leasing environment overall.

"What we tend to see is that the trophy assets with the highest rents are the ones struggling right now," he said. "If you can undercut the very top of the market by a couple hundred dollars on monthly rents, you're actually pretty much full."

Steve Brown/DMN

Uptown Dallas Inc. names new CEO

Uptown Dallas Inc., a nonprofit that spearheads initiatives to develop and manage the Uptown Public Improvement District, has hired Jim Reagan as CEO.

Reagan’s position was created by the district’s board of directors as part of an initiative to create programs in the Uptown area for public safety, neighborhood upkeep and marketing of the area.

Prior to joining Uptown Dallas, Reagan spent 17 years leading nonprofits and almost two decades in corporate executive leadership. He spent the past 11 years at the Austin Symphony Orchestra as executive director.

“I’m very excited to put my more than 35 years experience as a nonprofit and corporate CEO to work for Uptown,” said Reagan.

Reagan has already met with the Dallas Police Department and city leaders to move forward with Uptown’s plan to develop and manage its growth.

Dallas stocks: Who’s up, who’s down?

The Dow Jones industrial average was down another 198.48 points by 2:30 p.m. Central standard time Monday afternoon, hitting 7,167.19 — a figure that teases the possibility of the Dow dipping below 7,000.

The NASDAQ also was down 40.97 points, hitting 1,400.26, while the S&P 500 fell 23.84 points to 746.21.

While many Dallas-based companies felt the pinch of falling stock prices, a few companies reported stock gains early Monday afternoon.

Among them was Tenet Healthcare Corp. (NYSE: THC), which saw its stock price rise 7.14 percent on Monday, hitting $1.05 per share, up from 98 cents at close the day prior. Tenet’s earnings are expected this week. Earlier this month, the hospital operator announced it had inked a deal to sell USC University Hospital and USC Kenneth Norris Jr. Cancer Hospital for $275 million — with proceeds used to cover general corporate expenses, according to the company. Frozen Food Express Industries (NASDAQ: FFEX) also rose 4.58 percent to $3.88 per share.

Airline stocks including Fort Worth-based AMR Corp. (NYSE: AMR), the parent company of American Airlines Inc., recorded a stock price of $4.48 per share, up 4.43 percent in the late afternoon. Dallas-based Southwest Airlines (NYSE: LUV) was up slightly by .15 percent to $6.53 per share.

On the downside, many Dallas-Fort Worth area stocks remained in the red.

Below is a list of several major players with falling stock prices as of 2:30 p.m. CST:

Commercial Metals Co. (NYSE: CMC), down 8.41 percent to $10.13 per share; XTO Energy Inc. (NYSE: XTO), down 5.75 percent to $30.15 per share; Crosstex Energy LP (NYSE: XTEX), down 6.25 percent to $3.15 per share; Torchmark Corp. (NYSE: TMK), down 6.21 percent to $20.70 per share; Pioneer Natural Resources (PXD), down 7.43 percent to $13.96 per share; Idearc (NYSE: IDAR), down 17.65 percent to 7 cents per share.

Weitzman Group/Cencor Realty Services Launch New Division

Cencor Solutions To Focus on Challenged Retail Properties

The Weitzman Group/Cencor Realty Services started a new division called Cencor Solutions.

Cencor Solutions will provide brokerage and management services to owners of challenged Texas retail properties. It will also help clients with investment opportunities by gathering various assets from lender and investor portfolios, including bank REO portfolios.

Veteran Tom Terkel, an executive in Cencor's Austin's office, will direct the new group, which will include leaders from Cencor Realty Services and The Weitzman Group, who when combined have nearly 50 years of experience.

Dallas announces plan to fund improvements

The City of Dallas is proceeding with plans to create three special districts to pay for improvements and economic development using funds collected from taxes or assessments collected from property owners.

Creation of the districts would give developers authority to issue public debt and permit them to levy taxes to pay it back — powers that developers in Dallas previously have not had.

The districts, called municipal management districts, would be created in pockets in North Oak Cliff, west of the Trinity River, and land surrounding North Lake near Coppell.

The management districts would be a powerful tool to attract business, develop infrastructure, promote employment and encourage transportation, housing, safety and other improvements, said Karl Zavitkovsky, director of the Dallas Office of Economic Development. The districts would provide an independent financing mechanism for these functions, he said.

“They have some fairly significant powers, but there are also checks and balances,” Zavitkovsky said.

Creation of Municipal Management Districts, or MMDs, requires approval by the Texas Legislature. The Dallas City Council is set to vote Wednesday on a resolution supporting creation of the three districts.

The districts would include:

• North Oak Cliff ­— A 313-acre urban infill project being developed by Dallas-based Incap Fund in what’s being called the River District Area. It includes pockets roughly bounded by Davis Street on the south, Cockrell Hill Road on the west, Interstate 30 on the north and Zang Boulevard on the east.

• Trinity River West — A 342-acre site owned by investment company West Dallas Investments surrounding the westside connection point of the planned Calatrava Bridge. It’s roughly bounded by Commerce Street on the south, Sylvan Avenue on the west, Pueblo Street on the north and Beckley Avenue on the east.

• North Lake ­— A 942-acre site being developed by Lucy Billingsley, roughly bounded by Belt Line Road on the north and west, Hackberry Drive on the south, and Vista Circle and Lakebreeze Road to the east.

Incap’s North Oak Cliff project is planned as mixed-use development and envisions high-density work force housing near Dallas’ downtown, Uptown, Victory Park and Trinity River Urban Lakes project. Creating a management district there could fund a street car system along Davis Boulevard, connecting residents to downtown Dallas and the Dallas Area Rapid Transit light-rail system, city plans say.

An MMD in the area would also provide financing for enhanced landscaping and lighting along commercial corridors, green spaces and increased safety and security programs ,which would make the area more attractive for young urban professionals, according to the plans.

Few details were available on what, specifically, would be funded through MMDs in the other two proposed districts.

If the Legislature approves creation of the management districts, city council members would appoint a board to run it.

MMDs are self-governed but must be approved by the city in which they function. The districts may issue tax-exempt bonds but the bond debt is not city debt and does not count against the city’s bonding capacity. Bond issuances must be approved by the city council.

MMDs may levy property taxes, assessments or impact fees to support the bond debt in accordance with their approved service plans. Property tax increases must be approved by a majority of voters in the district.

Assessments must be requested by petition of affected property owners. State law provides that all property owners — residential and commercial — in an MMD are subject to assessment, but in practice, typically only commercial property owners are taxed, Zavitkovsky said. With assessments, property owners agree to pay a percentage of their assessed property value until a project’s cost is paid off.

MMDs provide supplemental services but do not replace the services provided by the city. They exist until dissolved by a petition of the property owners, a vote of the board or a resolution of the city council.

Houston has more than 20 MMDs, which tend to be effective in well-defined areas with strong real-estate markets but struggle in weaker submarkets that lack catalyst projects or a strong economic base, according to information gathered by Dallas city staffers and presented to the city’s Economic Development Committee.

Most property owners in Houston’s MMDs like the idea that revenue from assessments and impact fees will be reinvested in their targeted area, although some have complained about the extra tax, according to the information presented to the EDC.

DART to Receive $62 Million in Stimulus Funds

Dallas Area Rapid Transit stands to receive approximately $62 million in stimulus funds from President Barack Obama’s recently signed economic stimulus package, a spokesman for the transportation company said Tuesday.

DART did not find out about the money until late last week and soon learned the public transportation platform is up for $61.5 million in formula funds and an additional $300,000 in rail modernization money, according to Mark Ball, a DART media representative.

Ball said news of the funding came too late for DART to add the funds to the agenda of a board meeting scheduled for Tuesday. He said at this point, DART is trying to figure out how the money can and will be spent. With that question still up in the air, Ball said DART has yet to determine how the additional funds will be allocated.

Ball said DART received a general figure last week, indicating that DART would benefit by receiving 70 percent of an $80 million transit stimulus slated for the area. “What does that mean?” he said. “We are trying to figure that out. Can we use it to buy new trains, can we use it for maintenance?”

Ball said DART will know more after it has time to sift through all the details and requirements.

Thursday, February 19, 2009

Federal Funding Request for Projects in Dallas, Texas

The total cost of all the projects submitted by Dallas is $1,222,823,840

Description City State Jobs Cost Program Type Vote Ratio
Margaret McDermott (IH-30) Bridge Reconstruction Dallas TX 2465 $246,540,000 Streets/Roads -34
Upgrade communication system for centralized traffic control system Dallas TX 330 $33,000,000 Streets/Roads 5
Streetlights on freeways without existing lighting Dallas TX 250 $24,398,000 Streets/Roads 19
Pedestrian Bridge over UP Railroad at Cadiz Street Dallas TX 200 $20,000,000 Streets/Roads -46
Sylvan Avenue bridge reconstruction Dallas TX 197 $19,700,000 Streets/Roads 0
Linfield Road Pedestrian Bridge Dallas TX 100 $10,000,000 Streets/Roads -16
Chalk Hill Road Reconstruction Dallas TX 90 $9,100,000 Streets/Roads 2
Battery Back up for traffic signals city-wide Dallas TX 90 $9,000,000 Streets/Roads 5
Replace structurally deficient traffic signal poles Dallas TX 90 $8,800,000 Streets/Roads 7
Sign replacement program - regulatory and warning. 100,000 signs city-wide. Dallas TX 83 $8,250,000 Streets/Roads -35
Industrial Boulevard reconstruction from Continental Avenue to RR Dallas TX 52 $5,200,000 Streets/Roads -2
East Dallas Veloway Phase I: build a 2-mile multi-use trail that will create a 19-mile continuous trail connecting East Dallas neighborhoods with two DART light rail stations, employment centers, schools, retail centers and recreational facilities Dallas TX 18 $2,257,920 Streets/Roads 16
Katy Trail Phase IV: build a 2.5-mile multi-use trail from Skillman Street to the Northwest Highway DART Light Rail Station Dallas TX 18 $2,257,920 Streets/Roads 25
Irving Boulevard/Mockingbid Lane Inersection Improvement Project: add dual left-turn and right-turn lanes on all approaches Dallas TX 10 $1,240,000 Streets/Roads 8
Lake Tawakoni 144-inch raw water pipeline Phase I Dallas TX 450 $45,000,000 Water 4
Tawakoni Balancing Reservoir Expansion Dallas TX 300 $30,000,000 Water 0
Water & wastewater Replacement (In-house) Dallas TX 200 $20,000,000 Water 5
SW Pipeline (Wintergreen Raod from I-35 to Houston School Road) Dallas TX 180 $18,000,000 Water 2
Ferris Branch Replacement Construction Phase II - 24,000 lf of pipeline replacement Dallas TX 67 $6,700,000 Water 2
Appian & Central Low Construction Phase I (AP) Dallas TX 65 $6,500,000 Water 0
McKamy, Cottonwood & central Branch Phase I Dallas TX 60 $6,000,000 Water 3
Water & wastewater main replacement (Phase II) (Dal-Tec) (EV) - 30,000 lf of pipeline replacement Dallas TX 60 $6,000,000 Water 6
Water & wastewater main replacement construction (HZ)(LB) - 25,000 lf of pipeline replacements Dallas TX 32 $4,800,000 Water 5
Southside Plant - DLD Field Regrading Dallas TX 30 $3,000,000 Water -2
54-inch wastewater interceptor Turtle Creek from Maple to Cedar Springs Dallas TX 22 $2,200,000 Water 11
48-inch DFW line tunneling Dallas TX 20 $2,000,000 Water 0
Cullum Street (Waterview to Coit) Dallas TX 8 $750,000 Water 1
Apron & Fuel Hydrant System Replacement: Design of concrete apron & fuel hydrant system for new terminal building to be constructed in four phases Dallas TX 55 $5,500,000 Airport -1
Construction of Taxiway L extension & repair Dallas TX 44 $4,400,000 Airport 2
Airfield Lighting Vault Replacement: Construction of north & west vaults Dallas TX 24 $2,400,000 Airport 0
ARFF Vehicle Replacement Dallas TX 2 $1,000,000 Airport -11
Design for taxiway A & B reconstruction Dallas TX 2 $45,000 Airport -2
Drainage reconstruction & sidewalk construction along UP Railroad at Beckley Dallas TX 11 $1,100,000 Amtrak 7
Construction of Convention Center Hotel Dallas TX 3800 $386,000,000 CDBG -1198
Trinity Trails Phases 2,3,4 Dallas TX 160 $16,000,000 CDBG 4
Continental Avenue modification to pedestrian bridge Dallas TX 100 $10,000,000 CDBG 7
Energy efficency & conservation Dallas TX 36 $3,640,000 CDBG 13
New sidewalks, curbs, etc. Dallas TX 30 $3,000,000 CDBG 13
Bernal Trail Extension Dallas TX 25 $2,500,000 CDBG -1
IH-20 Gateway Park Dallas TX 5 $500,000 CDBG -2
Marsalis Avenue sidewalk replacement and pedestrian improvements Dallas TX 25 $250,000 CDBG 0
Police Academy Construction Dallas TX 620 $62,000,000 Energy -3
Fire Station #6 Energy Efficiency Replacements & Upgrades Dallas TX 520 $52,000,000 Energy 4
Library Energy Efficiency Upgrades Dallas TX 420 $42,000,000 Energy 0
Latino Cultural Center - Phase II design and construction Dallas TX 180 $18,000,000 Energy -612
Underhanging of 138kV Transmission Lines along Irving Boulevard Dallas TX 40 $4,000,000 Energy 4
West Dallas Revitalization Project: Work with low-income neighborhoods to weatherize houses and retrofit them with energy efficient technology, equipment, systems and apppliances. A green collar jobs element will train residents to retrofit such houses Dallas TX 250 $900,000 Energy -24
Replacement of lamps in City-owned parking lots with energy efficient LED lights Dallas TX 37.5 $700,000 Energy 21
Equipment, supplies and tree stock for Great Trinity Forest tree planting (includes site preparation) Dallas TX 5 $500,000 Energy -1
Installation of Solar Panels on city, school district bldgs., on streetlights, traffic signals Dallas TX 27.5 $500,000 Energy 24
Installation of geothermal heat pumps at the proposed site of the Texas Horse Park Dallas TX 30 $150,000 Energy -8
Construct 55 dwelling units at Roseland Homes Dallas TX 61 $6,100,000 Housing -16
Demolition of Turner Courts & Rhoads Terrace Dallas TX 25 $2,450,000 Housing -2
Concrete work at all sites Dallas TX 20 $2,000,000 Housing -3
Replace roofs at Cedar Springs Dallas TX 9 $900,000 Housing -7
Exterior repairs at Hidden Ridge Dallas TX 5 $500,000 Housing -4
Remodel kitchens at scattered sites Dallas TX 4 $400,000 Housing -24
Replace roofs at Brooks Manor Dallas TX 3 $250,000 Housing -1
Replace roofs at Cliff Manor Dallas TX 3 $250,000 Housing -3
Replace elevators at Brooks Manor Dallas TX 4 $240,000 Housing -2
Clean lagoon at Lakewest Site Dallas TX 2 $200,000 Housing -3
Exterior repairs at at Little Mexico Village Dallas TX 1 $150,000 Housing -74
ADA entrance upgrades at all sites Dallas TX 1 $105,000 Housing 2
Upgrade the City of Dallas public safety radio system to the 800 Mhz digital spectrum, providing City of Dallas first responder with full regional interoperability Dallas TX 30 $40,000,000 Public Safety 15
Hire 20 new police officers Dallas TX 20 $1,500,000 Public Safety 36

Energy Future Holdings hires Transwestern to manage Dallas real estate portfolio

Real estate service firm Transwestern said Wednesday that it has been hired by Dallas-based Energy Future Holdings to manage its local real estate portfolio.

The deal includes leasing and management of the 48-story Energy Plaza skyscraper in downtown Dallas.

The new management contract will bolster Transwestern’s presence in Dallas’ central business district.

“Transwestern remains a strong believer and supporter of the Dallas central business district, with currently in excess of 3.7 million square feet of office properties under contract,” Jack Eimer, president of Transwestern’s central region, said in a statement.

Real estate service firm Transwestern said Wednesday that it has been hired by Dallas-based Energy Future Holdings to manage its local real estate portfolio.

The deal includes leasing and management of the 48-story Energy Plaza skyscraper in downtown Dallas.

The new management contract will bolster Transwestern’s presence in Dallas’ central business district.

“Transwestern remains a strong believer and supporter of the Dallas central business district, with currently in excess of 3.7 million square feet of office properties under contract,” Jack Eimer, president of Transwestern’s central region, said in a statement. Steve Brown

Friday, February 13, 2009

D-FW home foreclosure filings hit record level

Dallas-Fort Worth area foreclosure filings inched up by only 3 percent this month compared with a year ago.

But it was enough to push foreclosure postings for the first quarter of 2009 to a record level.

More than 13,000 foreclosure postings have been recorded for the first three months of this year, Addison-based Foreclosure Listing Service said Thursday. That’s a 1 percent increase from first quarter 2008.

More than 4,200 D-FW area homes are threatened for foreclosure at the next sale in early March.

Collin County saw the biggest jump in month foreclosure filings – up 9 percent from a year ago.

Dallas-Fort Worth area foreclosure postings
Residential properties scheduled for foreclosure auction in March for each of the counties and change from a year ago:
Dallas County 1,912 1%
Tarrant County 1,340 2%
Collin County 539 9%
Denton County 485 4%
DFW area 4,276 3%
SOURCE: Foreclosure Listing Service
Steve Brown

Commercial property experts say Dallas-area market will weaken, then be one of the first to recover

There's no way to sugarcoat it – things are tough in the North Texas commercial real estate market and likely to worsen in 2009.

A combination of a dismal national economy and a freeze on lending has choked commercial property owners and lenders in most parts of the country.

"It is true that our economy is more diversified, new construction is minimal – except for retail – and current occupancies are reasonably healthy," said Gregory Fuller, chief operating officer for Plano-based Granite Properties. "But this downturn, unlike others, is touching every aspect of our economy, from consumer spending to manufacturing, autos, technology and, most of all, access to reasonable credit."

The Dallas Morning News recently polled Fuller and other North Texas real estate industry leaders about conditions in the commercial property market.

For the most part, these veteran real estate execs agree that conditions will probably deteriorate this year.

"The dearth of capital flows to the real estate market coupled with extreme caution by businesses will continue to challenge transactional activity and prices," said Jeff Swope, one of the founders of Champion Partners.

Still, real estate folks – who are famous optimists – are betting that Dallas will be one of the first markets to recover when the national economy turns around.

"In general, we should all be very happy to be in Dallas, Texas, in 2009, as we will outperform almost every other commercial real estate market in the country," said Jim Yoder of Jones Lang LaSalle. "We will continue to produce new jobs, albeit at a slower rate than in past years, and expect our vacancy and rental rates to hold steady or decline only slightly."

Developer Lucy Crow Billingsley is already planning for when the business shifts again and financial markets come back to life.

"This is the time in which great money will be made," she said.

INDUSTRY EXECS OFFER FORECASTS
Gregory P. Fuller, chief operating officer, Granite Properties Inc.: “The 2009 outlook for the commercial real estate sector has turned negative very quickly across the nation. Rents and occupancies at shopping centers and office buildings will suffer the most, but industrial buildings and apartments will not be immune from the downward trend. North Texas, contrary to last year’s popular opinion, will not be left unscathed. Commercial real estate is a lagging industry, and we could be in for 18 to 24 months of downward pressure.”

Jon Altschuler, president and partner, Stream Realty Partners: “The market’s nervous, all participants. It seems like everyone has an edge to them. I’m advising landlords to be creative and aggressive in pursuing office leases. In the near term, that’s how they’ll get their buildings leased. And for my colleagues, I’ll be encouraging them simply to keep the hammer down. Several heroes will be created from this market, and that’s what we want to be.”

Lucy Crow Billingsley, partner, Billingsley Co.: “Danger and opportunity are two sides of the same coin. 2009 is the pivotal year in which we each establish our positions on what danger we face or what opportunities we are positioned to seize. To mix metaphors, you could also say that we have been playing musical chairs and the music stopped.”

Jeff Swope, chief executive, Champion Partners: “The decimation of the financial system in 2008 was deeper and more widespread than even the most pessimistic could have predicted. The recent global economic system, built upon easy debt and unparalleled liquidity, is now broken. 2009 will be dedicated to the reconstruction of the finance system as the recession prolongs, with a gradual rebuilding of new and viable economic systems beginning in 2010.”

Jim Yoder, managing director, Jones Lang LaSalle: “In general, we should all be very happy to be in Dallas, Texas, in 2009 as we will outperform almost every other commercial real estate market in the country. We will continue to produce new jobs, albeit at a slower rate than in past years, and expect our vacancy and rental rates to hold steady or decline only slightly.”

Geoff Meyer, Texas development director, Opus West Corp.: “I think we will continue to outperform other areas of the U.S., but certainly not at the pace we’ve become accustomed to. Clearly the slowdown has reached us, and I don’t expect any speculative development in ’09, and it’s quite probable none will occur in 2010. Until we can get by the threats of weakened demand and a total lack of capital, it is going to be very, very difficult. We have definitely gotten a wake-up call and have to get a ‘back to basics’ mentality.”

Jean Russo, senior director, Cushman & Wakefield of Texas: “The D-FW industrial market, in comparison to other parts of the U.S., seems to be better positioned for positive net absorption for industrial properties in 2009. The construction of new projects, having reached an all-time record of over 20 million square feet in 2008, has relatively halted. No single market currently appears to be that significantly overbuilt — vs. what we saw in the ’80’s — in comparison to demand. Of course, rental rates are softening because of pressure from competing landlords and the increasing available supply of product.”

Jack Eimer, central region president, Transwestern: “I am personally tired of hearing the same predictions over and over again. 2009 is going to be tough. It’s going to get worse before it gets better. Commercial real estate values will drop precipitously. Layoffs throughout our industry will continue, etc., etc., Enough already. Let’s focus on the positive aspects of this downturn. We live and work in D-FW. Would you prefer to be on either coast right now? Focus on being positioned for what I believe will be a strong recovery.” Steve Brown

Wednesday, February 04, 2009

Fourth-Quarter Profit Tumbles 60.6% at Jones Lang LaSalle

Global commercial real estate services firm Jones Lang LaSalle (NYSE: JLL) today reported a drop in fourth-quarter profits of more than 60%. Acquisition and restructuring charges, including severance costs, totaled $30 million and contributed to the sharp decline in earnings. Over the past year the company has cut its workforce by about 800 from approximately 33,700.

For the fourth quarter, Jones Lang LaSalle reported net income of $41 million, or $1.17 per share, compared with net income of $105 million, or $3.16 per share for the same period in 2007. The company’s share price closed up more than 17% on the day to finish at $26.90, but still well below its 52-week high of $90.83.

During this morning’s earnings call, CEO Colin Dyer acknowledged the tough financial pressures facing the firm. “The financial crisis has vastly reduced the availability of private credit around the world and has had a negative impact on all asset prices, including commercial real estate.”

Although profits tumbled, one bright spot in the report was the firm’s corporate solutions business for the Americas. The unit provides outsourcing services including transactions, project development and integrated facility management. Revenues for the corporate solutions segment grew 29% for the year and 26% in the fourth quarter on a year-over-year basis.

Lauralee Martin, chief operating and financial officer of Jones Lang LaSalle, noted during the call that the company is already structured to help clients weather the financial storm and work through any problems they may encounter. “But then very quickly [clients will ask] can we do the property management, can we do the leasing, can we do the capital markets,” said Martin. “They’re going to need to create value if they can’t sell [properties], or at least maintain value. It’s that cycle of positioning that we want to get ourselves in the middle of.”

For the year as a whole, the company’s net income totaled $84 million, or $2.44 per diluted share of common stock, compared with net income of $256 million, or $7.64 per share for 2007.

The purchase of tenant representation firm Staubach in July 2008 helped boost revenues in the Americas 22% in calendar year 2008 and 26% in the fourth quarter. Revenue for the year in the Americas region totaled $933 million, of which Staubach contributed $128 million.

Revenue from management services – which includes property management and investment management — in the Americas rose 17% in 2008 to $422 million, and 10% in the fourth quarter to $127 million.

Meanwhile, transaction services revenue aided by the Staubach acquisition increased 26% for the year, to $479 million, and 39% in the fourth quarter, to $177 million.

Preliminary data from Real Capital Analytics indicates that the value of commercial real estate transactions in the U.S. fell 70% in 2008. Transaction volume in the fourth quarter of 2008 fell 80% on a year-over-year basis.

“Office markets around the world are experiencing higher vacancy rates, lower leasing volumes, weak net absorption and negative rental growth,” Dyer said. “In our U.S. target markets, gross absorption was down 14% from 2007 to 2008. And in Europe, gross take-up was 12% down compared with 2007 volumes.”

In the Asia-Pacific region, revenue totaled $536 million in 2008, down from $602 million in 2007. On a quarterly basis, revenue for Asia-Pacific totaled $144 million in the fourth quarter, down from $170 million a year earlier.

Revenue in Asia-Pacific stemming from management services — driven by corporate outsourcing, facility management and property management — totaled $245 million for the year, a 19% increase over 2007. Revenue from management services totaled $65 million for the fourth quarter, up 15% from a year earlier.

“Against this challenging environment [in Asia-Pacific], we’ve taken a number of actions,” said Martin. “On the cost side, we’ve taken aggressive reductions in our staffing levels. On the revenue side, we’re focusing our energy on clients needs, building a client recovery service offering, portfolio management capabilities in our hotel business, and strong corporate finance capabilities in our capital markets groups.”

Under the institutional advisory umbrella, LaSalle Investment Management generated $352 million in revenue for 2008, compared with $371 million in the prior year. Fourth-quarter revenue was $91 million, compared with $115 million in 2007.

LaSalle Investment Management raised $2.9 billion of equity during 2008 compared with $10.1 billion in 2007. Investments made on behalf of clients totaled $4.1 billion compared with $8.4 billion in 2007.
By Sibley Fleming

Monday, February 02, 2009

Dallas-Fort Worth Real Estate Execs don’t expect quick market turnaround

Don’t expect any quick deals in Dallas-Fort Worth’s stalled real estate market.

Oh, investors are out there, but they’re waiting for the right time to strike.

“There has been a huge amount of money lost by getting in too early,” said Herbert Weitzman, who recently formed an acquisition partnership with Dallas investor Craig Hall.

Weitzman - who’s also chief executive of Dallas-based retail broker Weitzman Group - was on a panel of industry veterans who spoke Wednesday evening at a meeting of the Society of Industrial and Office Realtors.

“Things are not going to get better very soon,” he said. “The deals that are going to happen are going to be later in the year.

“There is going to be a huge amount of retail REO [foreclosed property] coming on the market later this year.”

Property sales in North Texas have slowed to a trickle because of the lack of credit and worries about the economy.

“We are all hoping there is a lot of pent-up capital on the sidelines that wants to get back into real estate,” said Jack Fraker, a top investment broker with CB Richard Ellis. Fraker said his property sales were off 65 percent or more in 2008.

At the same time, property values have fallen.

“There is still a disconnect between the sellers and the buyers,” he said. “Hopefully that will change later this year.

“Most of the institutional investors have tried to avoid writing down their real estate values,” Fraker said. “They can’t hide from that for long.”

The rents that investors can get from Dallas office buildings are already falling, said CB Richard Ellis’ Phil Puckett. “I see some landlords trying to hang onto what was,” Puckett said.

While overall office vacancies in North Texas are at about 20 percent, they won’t stay there, he said.

“It’s going to go up,” Puckett said. “The question is how much space are we going to get back from company closings?”

Steve Brown

Industrial property brokers are counting on a supply of well-located buildings and competitive pricing to lure tenants from other areas of the country.

“Our mantra this year is Dallas is ‘on sale,’ ” said Tom Pearson of Colliers International. “Companies are going to continue to focus on lower costs.”

In 2008, Dallas-Fort Worth led the country in both industrial leasing and new space put on the market, Pearson said.

There will be almost no more warehouse construction in 2009, he said.

“Hopefully, that will give us some time to absorb all this new space coming on the market.”