Tuesday, March 31, 2009

Turner: Construction Costs Continue Falling

U.S. commercial building construction costs have fallen a projected 5.77% in first-quarter 2009 compared with the previous three months, according to an index compiled by Turner Construction Co.

The New York City-based construction company index for the first three months of 2009 is 866, down from 866 in fourth-quarter 2009 and down 2.59% from the same period a year ago.

Construction costs have come down as construction spending has decreased and competition in the industry has increased -- even as activity in the education, healthcare, public and green investment sectors continue to show strength amid optimism about the $787 billion federal stimulus legislation, said Turner Vice President Karl F. Almstead, who oversees the Turner Building Cost Index.

Turner’s index is calculated based on several national metrics, including labor rates and productivity, material prices and market competition.

In the last six months of 2008, commodity and material prices fell from their recent highs and are now stabilizing as a result of production cutbacks and inventory reductions.

Turner, one of the nation’s largest commercial builders, has prepared the construction cost forecast used widely by the construction industry and federal and state governments for 80 years.

TBG Partners Promotes Meyer

Development Expert Named Managing Principal at DFW Office. TBG Partners named Mark Meyer as its new managing principal in the Dallas/ Fort Worth office. Meyer has 12 years of experience, with most of it spent at TBG. For the last decade Meyer has been developing master plans and detailed designs for city parks and recreational systems, mixed-use developments, and urban revitalization districts. Meyer's new position will consist of overseeing design and planning for many TBG DFW-area projects,including the Dallas Design District, a 160-acre bustling trades district in downtown; the City of Coppell’s trail master plan; and Hometown, a 700-acre, neoclassical traditional neighborhood development. Meyer earned his bachelor's in Landscape Architecture from Texas A&M. He is a member of numerous organizations including the American Society of Landscape Architects (ASLA), the Congress for the New Urbanism (CNU), and the Urban Land Institute (ULI), for which he has a seat on the Community Development Council.

Monday, March 30, 2009

Developers push ahead with plans for North Dallas medical complex.


Developers are pushing ahead with construction of a North Dallas medical complex.

Cirrus Group has obtained a $16.79 million construction loan for the Reliant Rehabilitation Hospital, which will be built on Northaven Road just west of North Central Expressway.

The 65,000-square-foot medical facility will accommodate 60 patients and will be operated by Dallas based Reliant Healthcare Partners.

“Construction is anticipated to take 11 months,” said Chris Godfrey, Cirrus Group’s director of finance.

Colonial Bank provided the construction financing. Godfrey said it’s one of the largest such building loans made in the area so far this year.

With the credit crunch, lending for new commercial real estate projects has been sharply curtailed.

“We have not heard of any large construction loans closing recently – anywhere in the country for that matter,” Godfrey said.

Perkins + Will is the architect for the project, which will be built by contractor Hill & Wilkinson Ltd.

Cirrus Group is one of the largest health care real estate developers in the country with offices in Dallas, Phoenix, Cleveland and Houston.

Reliant Healthcare has partners with a group of local physicians for the new Dallas hospital. The company operates other facilities in Austin, Houston and in Richardson.

By STEVE BROWN
The Dallas Morning News

Thursday, March 26, 2009

Transportation Enhancement Stimulus Funds Awarded



Landmark Dallas Project Moves Forward

DALLAS (March 26, 2009) — The Woodall Rodgers Park Foundation will receive $16.7 million in federal stimulus funds toward constructing a deck plaza over the Woodall Rodgers Freeway in downtown Dallas. The Woodall Rodgers deck plaza is a “shovel-ready” transportation enhancement project that will create approximately 1,000 immediate jobs and will stimulate
additional economic development and job growth in the future.
The project will provide a vital pedestrian and bicycle connection between both sides of the existing freeway, connecting Downtown Dallas, the Arts District, and the Uptown and Victory residential districts. The Woodall Rodgers Park will be a 5-acre urban park built on top of the deck plaza structure.
“The stimulus money will go towards a project that will be central to the Dallas’ identity for generations to come,” said
Linda Owen, president of the Woodall Rodgers Park Foundation. “We are excited and grateful for the boost in funding that will help us achieve even more of our goals for the Park.”

The stimulus funds were awarded by the Texas Department of Transportation Commission with a vote to approve a list of projects selected for transportation enhancement funds. The funding for highway and bridge construction under the American Recovery and Reinvestment Act stipulated that three percent of those funds be set aside for transportation enhancement projects. Since its completion, the Woodall Rodgers Freeway has served as a barrier between Uptown and Downtown Dallas. The deck plaza mitigates the harsh environment and will re-knit the urban fabric to enable safe, useful pedestrian connections across and along the freeway. A bridge structure will be constructed across the freeway between existing bridges on St. Paul and Pearl Street. “The pedestrian and bicycle enhancements will serve as a major catalyst for improved mobility, safety and economic development,” said Owen. “The project will transform our city’s geography and quality of life.”

The Woodall Rodgers Freeway Deck Plaza is funded and developed through a public, private partnership including the Texas Department of Transportation, the City of Dallas, the North Central Texas Council Of Governments and the private sector’s Woodall Rodgers Park Foundation. It has been in the planning stages since 2004. Utility construction began last month providing the infrastructure necessary to begin work on the deck plaza. The additional stimulus funding is expected to accelerate the deck construction which is slated for late summer or early fall 2009.

About Woodall Rodgers Park

The Woodall Rodgers Park is a 5.2-acre, $80 million deck park that will create an urban green space over the existing Woodall Rodgers Freeway between Pearl and St. Paul streets. Like the Washington Mall in D.C., the park will provide connectivity to the city’s flourishing Arts District, bringing world-class cultural offerings together as a central gathering space for Dallas and its
visitors to enjoy. Plans for the park include jogging trails, a dog park, a children’s playground, a restaurant, a performance pavilion, a water sculpture, an area for games and much more. The park is being designed by The Office of James Burnett in conjunction with the engineering firm of Jacobs Carter Burgess. Bjerke Management Solutions is the project manager. For more information, please visit www.woodallrodgerspark.org.

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MEDIA CONTACT: Joanna Singleton & Jackson Spalding

Wednesday, March 25, 2009

Developer of Dallas' Victory Park negotiating with German investors on debt

The developer of Dallas' huge Victory complex is negotiating with a group of German investors and lenders about meeting the conditions on debt for several Victory buildings.

"This development, Victory Park, like many other U.S. developments, has been impacted by the tremendous downturn in the economy," Todd Platt, CEO of Hillwood Investments, said in a statement. "We are having extensive discussions with our investment partners and remain confident in the long-term viability of the project."

Platt was quick to point out that the financial issues involve only Victory.

"Hillwood operates several highly diversified, well-capitalized groups of companies with many successful projects," he said.

Tuesday's Financial Times of Germany reported that German investors who hold the debt on some Victory buildings received a letter that raises the prospect of a "breach of contract regarding some credit agreements" with Hillwood. The debt in question totals about $185 million and was issued by fund manager US Treuhand (U.S. Trust), according to the article headlined "Wild West" that was picked up by European wire services.

The Financial Times said that there are concerns that Hillwood may be short of cash and cannot make good on commitments concerning the Victory project.

US Treuhand's parent company is owned in part by the city of Hamburg and other German government entities.

Hillwood declined to provide details about its debt or which Victory buildings were included in the deal.

There is no indication that Hillwood is not making its payments on the debt, but other factors can trigger a loan default and could – potentially – result in a foreclosure. None of the properties involved had public-sector support.

During recent months, the ambitious Victory project northwest of downtown has been the subject of growing scrutiny because of falling retail occupancy and the cancellation of some buildings that had been planned there. The Financial Times article mentions Victory's vacancy problems and the potential for declines in the value of its buildings.

Anchored by American Airlines Center, the 75-acre Victory project has been a textbook example of U.S. urban renewal. The modern complex of skyscrapers replaced a polluted rail yard and power plant. But while the office buildings and some residential properties at Victory have done very well, the retail portion of the development never leased up.

In recent months, some high-profile tenants moved out when they were unable to attract customers to the project. Plus, a new 28-story condominium tower at the south end of the development called the House remains largely unsold.

Victory's developer – Dallas businessman Ross Perot Jr.'s Hillwood company – said it plans to broaden the appeal of the project with new moderate-price restaurants and other tenants. Hillwood acknowledges that the development has suffered because of its initial focus on high-end retail tenants and the worsening U.S. recession.

In 2006, US Treuhand and its parent company, HSH Nordbank of Hamburg, said they were providing an $86.5 million credit facility for construction of the House residential tower.

The lender said in a news release that the borrower was a joint venture of Hillwood, US Treuhand and U.K.-based developer Yoo.

The debt was held in one of US Treuhand's closed-end U.S. real estate funds. US Treuhand said the House was one of eight Victory properties financed by its real estate debt funds.

"It gives us great pleasure to assist in such a significant and exceptional project development in the United States," Bernhard Visker, head of HSH Nordbank's real estate segment, said in that announcement. "We consider the concept to be very promising and expect the overall project to raise the profile of the city of Dallas considerably."


By STEVE BROWN
The Dallas Morning News

Dallas City Council approves tax credits for low-income housing at former Plaza Hotel

The proposed conversion of a vacant downtown hotel to affordable rental housing secured Wednesday a crucial endorsement from the Dallas City Council.

Hamilton Properties Corp. has applied to the state for low-income housing tax credits to help finance renovation of the former Plaza Hotel.

The council had to approve the request as well and did so Wednesday without comment, after neighborhood opposition to the project had faded.

The vote was only the first hurdle for Hamilton Properties, owner of the 12-story Plaza property at 1011 S. Akard St. near Interstate 30.

The tax credits, to be awarded in July, would be sold to investors. Other funding would come from private loans and donations. Larry Hamilton, the company’s chief executive, says he also will apply for a city grant and may seek a low-interest government housing loan.

Even in a tough economy, he is confident the $20 million to $25 million project will land the necessary funding and attract tenants, most of whom would have to meet varying income limits.

“There’s a dearth of housing for people on the lower end [of the income scale] working downtown,” said Hamilton, whose company owns three upscale apartment buildings in the central city.

The company’s tax credit application calls for providing 140 apartments to tenants who would pay restricted rents ranging from $349 a month for efficiencies to $898 for two-bedroom units. Annual income limits for individual renters would range from about $14,000 to $28,000.

Another 12 apartments would be rented at market rates, and the project could grow to more than 200 total units, Hamilton said.

The council vote boosts a project that nearly died a month ago.

Hamilton had hoped to redo the property as a boutique hotel. But when he couldn’t get financing, he approached Central Dallas Ministries about buying the building for affordable housing, a project that came to include apartments for the previously homeless.

That plan drew opposition from residents of the nearby Cedars neighborhood, who raised a variety of concerns: The project was being rushed, its estimated rental costs were too steep, not enough units would be offered at market rates and Central Dallas Ministries didn’t have the experience to undertake such a large project.

Responding to residents’ opposition and the lead of council member Pauline Medrano, who represents the area, the council’s housing committee last month voted to oppose the Plaza’s tax-credit application.

Hamilton, not wanting the building to sit vacant, took on the project alone. And before last month’s council vote, Mayor Tom Leppert and Medrano persuaded opponents to give Hamilton a month to work out an agreeable plan.

One was reached in part because housing for the homeless was removed for the project, said Hamilton and Phillip Robinson, president of the Cedars Neighborhood Association.

“We’re hoping we can add that component,” Robinson said. “We just want to see it up and running,” as in the City Walk at Akard affordable housing project.

Central Dallas Ministries is setting aside 50 apartments for the formerly homeless in its redevelopment of a former office building at 511 N. Akard St. Opening is planned for this summer.

The Cedars neighborhood supported Hamilton’s Plaza project because of the housing options it will provide, Robinson said.

“We want affordable housing,” he said, “housing people with real working class jobs could afford.”

By ROY APPLETON
The Dallas Morning News

Foreclosure not the end for Elm Place


A lender who has scheduled foreclosure of downtown Dallas' Elm Place skyscraper can seize only a portion of the 52-story office tower.


When the former First National Bank tower opened, it was Dallas' biggest skyscraper and the tallest building west of the Mississippi. Foreclosure of the 45-year-old property at 1401 Elm St. would only include about 40 percent of the building, Guerrino Savio of New York, who represents the owners, said Monday.

The property – originally the First National Bank tower – and other real estate are scheduled for foreclosure April 7. The buildings' owners owe more than $22 million, according to foreclosure filings.

But only the lower levels of Elm Place can be seized because the debt is not for the tower portion of the building, said Savio, who is president of the 1401 Elm Street Condominium Association.

Even if the foreclosure goes through, the owners plan to continue leasing the upper floors of the building, which are 25 to 30 percent rented, he said.

The investment partnerships that own the building chose to let the lower floors go into foreclosure after Bank of America – which rents almost 450,000 square feet of space for back office uses – decided to move out, Savio said.

"We basically had to give up," he said. "We knew the moment the bank would not renew the lease that without Bank of America as a tenant, we would not be in a position to refinance the property."

He said the lender has started withholding payments from the lease on the Bank of America space.

"Therefore we were left with no funds to operate the property," Savio said. "We don't see the rent – it goes directly to the lender."

The loan in default was made by Bank of America but was sold into a pool of mortgage-backed securities owned by multiple investors, he said.

Savio said tenants in the building's tower portion shouldn't be affected if the lower floors are foreclosed on.

While a large amount of office space there is vacant, Elm Place still has loyal followers.

John Taylor's family insurance business is on the 34th floor.

"I've been here since the building was built," said Taylor, with Roy L. Taylor & Sons. "I'm the last surviving original tenant."

He's been in downtown Dallas since 1948.

"I started out in the old Republic Bank Building [now the Davis Building] and then moved to the old First National Bank building that was torn down.

"Then we were in the Adolphus Tower before we came here in 1964."

When the First National Bank tower opened, it was Dallas' biggest skyscraper and the tallest building west of the Mississippi.

The dark-gray glass and white-marble building – whose architects were George Dahl and Thomas Stanley – is still one of the biggest on Dallas' skyline.

"A lot of big Dallas companies used to be in this building," Taylor said. "The Murchisons used to be on 23 and the Hunts were above them.

"There are still some lawyers in the building, but the bank is about gone."

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By STEVE BROWN Real Estate Reporter

Small Uptown building sold

A small Uptown building in a prime location has changed hands.

The former Pillsbury and Peters Fine Art building at Cedar Springs Road and Fairmount Street was bought by a real estate partnership.

The 10,000-square-foot property is just two blocks from the Crescent complex. It housed a retail location for Bifano Furs before it became an art gallery.

Gategreen Partners LLC, a real estate investment partnership set up by Dallas' Thompson family, bought the building. The Thompsons founded the 7-Eleven chain.

Real estate broker Newt Walker, who sold the property, said the new owners plan to put their offices in the building.

"Before the crash, we had it under contract for a midrise residential building," Walker said. "The final sales price was substantially less than it would have been a year ago."

Walker, who negotiated the building sale with broker Rick Jones, wouldn't disclose the price. The property is on the tax rolls for less than $2 million.

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By STEVE BROWN / The Dallas Morning News

Tuesday, March 24, 2009

Survey shows Dallas-area home prices gained nearly 2%

Most Texas home markets continued to eke out tiny increases in home prices in early 2009, according to a new report by First American CoreLogic.

Texas home prices were up by just less than 2 percent in the California-based housing analyst’s latest survey released Monday.

While Texas prices rose, nationwide home prices in January fell by 11.6 percent compared to a year ago to the lowest level in almost five years.

First American CoreLogic’s recent reports on the Dallas-Fort Worth home market have been in contrast to most other industry measures, which show residential values have fallen slightly here.

The latest report says that home prices in the Dallas area were up 1.54 percent from a year earlier in January.

However, local statistics from home sales indicate median prices were down 6 percent during the same period.

The Dallas area had the third best home price performance in CoreLogic’s new report, behind Austin and Houston. It is one of only four U.S. housing markets showing a price increase.


BIGGEST PRICE DECLINES AND GAINS
Based on estimated change in values in January from a year earlier.

BIGGEST DECLINES
Riverside-San Bernardino-Ontario Calif. -29.62%
Miami-Miami Beach-Kendall Fla. -28.79%
Las Vegas-Paradise Nev. -28.41%
Oakland-Fremont-Hayward Calif. -27.73%

GAINS
Austin-Round Rock 3.92%
Houston-Sugar Land-Baytown 3.58%
Dallas-Plano-Irving 1.54%
Denver-Aurora-Broomfield Colo. 0.97%

SOURCE: First American CoreLogic

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By STEVE BROWN / The Dallas Morning News

Monday, March 23, 2009

Dallas' Elm Place high-rise posted for foreclosure


One of downtown Dallas' largest office skyscrapers is scheduled for foreclosure.

Elm Place's listing may signal a coming wave in commercial property foreclosures, analysts say. The 52-story Elm Place tower at 1401 Elm St. has been posted for forced sale by lenders who are owed more than $22 million for the office building and other downtown properties.

Built in 1965 as the First National Bank tower, the 1.3 million-square-foot skyscraper was once the tallest west of the Mississippi River.

But in recent years, the dark gray glass and white marble building has been largely vacant as tenants have opted for new office locations.

An official with Peloton Real Estate Partners, which leases the building, said Friday that he was aware of the possible foreclosure, set for the first week in April, but could provide no further information

Bank of America, which for years housed some back office operations in the lower floors of the building, signed leases last year to consolidate those operations in other buildings.

Elm Place and the nearby 10-story 1025 Elm Building – also posted for foreclosure – are owned by real estate partnerships that have had the buildings since the early 1990s. The partnerships are 1025 Elm Holdings and Elm Street Portfolio LP.

Downtown office leasing agents say that they aren't surprised that Elm Place is facing foreclosure.

"Because of its age, this just unfortunately isn't the class of buildings we are seeing a lot of tenants go for," said Phil Puckett of CB Richard Ellis Inc.

The pending foreclosure of Elm Place is the highest-profile commercial mortgage default in North Texas in more than a decade.

"This is the biggest one I've seen in the Dallas area in a long time," said George Roddy, president of Addison-based Foreclosure Listing Service.

In 2008, commercial property foreclosure postings in the Dallas-Fort Worth area were up 30 percent but remained relatively low compared with high volumes seen here in the late 1980s and early 1990s.

Analysts have warned, however, that commercial building foreclosures are likely to soar this year because of the credit crunch and worsening economic conditions.

When Elm Place opened 44 years ago, it was hailed as an icon for Dallas' growing skyline.

Designed by noted Dallas architect George Dahl, the $35 million tower was clad in more than eight acres of dark gray glass and white marble imported from Greece. There was an observation deck on the 50th floor, a 300-seat auditorium and a "roof garden" on top of the eight-story base of the tower.

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By STEVE BROWN / The Dallas Morning News

Friday, March 20, 2009

Huge Park Lane project opening across from Dallas' NorthPark



Park Lane is looking less like a construction fortress. The urban mixed-use development on North Central Expressway across from NorthPark Center is ready for shoppers.Nordstrom Rack and Dick's Sporting Goods, stores that required a trip north of LBJ Freeway for Dallas residents, are now open.

Shoppers line up for chance to win $1,000 shopping spree at new Nordstrom Rack
Wondering how to get in?

Enter from the North Central Expressway frontage road, or zip above it on NorthPark Boulevard into a parking garage to the second level of Dick's.

Or take an escalator, elevator or stairs from the garage down to Nordstrom Rack, the Seattle-based retailer's popular outlet store. From Greenville Avenue, take Blackwell Street to the frontage road and into the garage. Both stores are on a street, smartly shaded for Dallas summers, with wide sidewalks that beg for outdoor seating and a cocktail.

By early next year, you'll be able to continue on NorthPark Boulevard to the development's elevated Greenville Avenue side. It will be anchored by North Texas' largest Whole Foods Market at one end and restaurants at the other, where a cascading fountain will follow steps down to the street level.

Future stores include some that are common in suburbia but not inside LBJ.

In April, Children's Place and Lane Bryant/Cacique open, and Old Navy is scheduled for fall. Developer Harvest Partners says it may have a replacement to fill a large space that had been reserved for now-defunct Circuit City.

Park Lane secured its financing long before funds for construction projects dried up. Although much of the project is up and ready for an economic recovery, many retailers are unable to commit to new stores, so Park Lane's retail and restaurant space will open in phases.

Bailey's Prime Plus, Village Burger Bar and other restaurants won't begin opening until summer. Two more components, a hotel and a sports club, have been pushed back and have no opening dates.

The Heights at Park Lane, apartments developed by PM Realty in a joint venture with Harvest Partners, is about one-third leased. Amenities, views and verandas in 20- and 15-story high-rises are similar to Uptown's new projects. Three of four penthouses that rent for more than $10,000 a month are leased.

For years, the southeast corner of Park Lane and Central Expressway was prime property for renewal. Retail made sense for that spot, across from NorthPark Center – considered a top U.S. fashion destination after its recent $235 million renovation and expansion – said K. Blaine Lee of Harvest Partners.

While retail easily clusters around suburban malls with wide-open spaces, encircling NorthPark with more destination shopping has been harder.

"We had been trying to get this property for 10 years," Lee said.

"We had Ikea signed," but Frisco officials were ready with the big subsidies that the giant home furnishings retailer demanded, said Tod A. Ruble, who with Lee, Eliot B. Barnett and Robert A. Baker make up Harvest Partners. They have spent years putting this 33.5-acre, $750 million project together.

Putting up a giant deep blue and bright yellow box would have been an easier construction feat, but would have lacked the charm of Park Lane.


Pulling it together

It had to be a 24-hour, densely populated place, Lee said. "People had to live here, come for shopping and entertainment, work here and go to school here."

The corner is also home to the Art Institute of Dallas and the International Culinary School. Aveda Institute, the salon company's first school in North Texas, is opening in July.

Harvest Partners estimates the development will draw 15 million visitors a year, compared with NorthPark's 23 million. About 7,500 people will work or live on the property. About 500,000 live within a five-mile radius.

It's across Park Lane from a DART station, and a trolley that will run between NorthPark and the station will have stops in the development.

The challenge was to weave a mixed-use development around three existing buildings on the site. But the office buildings and the culinary school, inside a former cinema, also provided the cash flow to make the project work, Ruble said.

The developers credit the former landowners – NorthPark developer Ray Nasher and Kolter Property Co. – for securing the zoning and other city approvals and improvements to allow a multi-use project.

Tenants will complement those at NorthPark, Barnett said. When Nasher sold the land, he included two restrictions: no department stores more than 100,000 square feet and no movie theater.

"If I could trade a suburban site with one across from NorthPark Center, it's a no-brainer. As stores choose to open, we'll get them," Ruble said.

Park Lane is expected to have 700,000 square feet of retail, restaurant and entertainment space.

Older centers north of Park Lane that face Central Expressway are leased and getting new tenants. Sports Authority expanded its Caruth Plaza store last year. This summer, Toys R Us is moving south from its longtime Walnut Hill Lane location next to Best Buy into space vacated by Linens 'n Things and CompUSA. It will include a full Babies R Us store similar to combo stores it built in Allen and Irving last year.


Spillover effect
The Park Lane development is having an impact on nearby projects.

"It's great for the east side of Dallas for Park Lane to finish and be successful," said Oliver Robinson, vice president of retail development at Trammell Crow Co.

Trammell Crow is preparing a 44-acre site for a nearly 500,000-square-foot shopping center at East Northwest Highway and Skillman Street that's expected to house J.C. Penney, Wal-Mart and Sam's Club.

With Target, Kohl's and other stores across Northwest Highway at Medallion Center, the development would create a destination cluster of big boxes now not inside LBJ.


PARK LANE PROJECT AT A GLANCE

Size: 33.5 acres, equivalent to five city blocks.

The $750 million project includes 750,000 square feet of office and 700,000 square feet of retail, restaurant and entertainment space. Whole Foods and smaller shops with surface parking face Greenville Avenue on an elevated level. The rest of the tenants are at the same level as the North Central Expressway frontage road.

The project has staggered openings:

ENTERTAINMENT

Splitsville Lanes — Fall 2009

RETAIL

Nordstrom Rack — March 19

Dick’s Sporting Goods — March 19

Lane Bryant/Cacique — April 3

Children’s Place — April 24

Aveda Institute — July (March 16 opening temporary space for job fair and student applicants.)

Old Navy — Fall 2009.

Whole Foods — late 2009 or early 2010

DINING

Bailey’s Prime Plus — Summer 2009

Village Burger Bar — Summer 2009

Fresh Berry — Summer/Fall 2009

Gordon Biersch — Fall 2009

FUTURE PLANS WITH NO DATES: Hotel Sorella and SportsClub/LA health club.

SOURCE: Harvest Partners



By MARIA HALKIAS
The Dallas Morning News

Thursday, March 19, 2009

Dallas-Fort Worth ranks low on list of top retail real estate markets


Dallas-Fort Worth residents love to shop until they drop.

But two California cities have the best retail real estate markets, according to a new nationwide report.

San Diego and San Francisco get top marks in real estate broker Marcus & Millichap Real Estate Investment Services' just-released national retail index.

Dallas-Fort Worth – which has one of the highest per capita inventories of shopping space in the country – ranks only 26.

Despite big economic slowdowns in California, San Diego and San Francisco were rated the top shopping center markets because of their low vacancies, “allowing owners to keep rent declines modest,” the new report says.

Both San Antonio, No. 24, and the D-FW area moved up on the annual ranking because of “employment forecasts that are far better than the national average.”

“Although job losses in the Metroplex will be minimal in 2009, the local economy will remain comparatively sound during the national recession due to continuing population growth,” the analysts said.

Dallas-Fort Worth had the biggest population gain of any U.S. metropolitan area in 2007-2008.

The report predicts that the D-FW area will have the smallest job fallout of any major U.S. metro area this year.

But the potential for future construction in the retail sector traditionally keeps most Texas cities low on the Marcus & Millichap list.

TOP U.S. RETAIL PROPERTY MARKETS FOR 2008

1. San Diego
2. San Francisco
3. Washington, D.C.
4. San Jose
5. Portland
6. New York City
7. Seattle
8.Orange County
9. Los Angeles
10. Austin

Other Texas Cities

24. San Antonio
26. Dallas-Fort Worth
27. Houston

SOURCE: Marcus & Millichap Real Estate Investment Services
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By STEVE BROWN / The Dallas Morning News

Wednesday, March 18, 2009

Troy Aikman buys Highland Park property from developer at center of Dallas City Hall corruption scandal




Hall of Fame Dallas Cowboys quarterback Troy Aikman last month purchased a multi-million-dollar Highland Park property from Brian Potashnik, a commercial developer at the center of a sweeping Dallas City Hall corruption scandal.

Aikman, who owns a home at 4425 Highland Drive, purchased 4419 Highland Drive from Potashnik on January 7, according to Dallas County deed records.

The records indicate Aikman took out a $5 million mortgage to purchase the next-door property.

The 42,000 sq. ft. lot at 4419 Highland Drive is appraised at $7.319 million, including a 7,411 sq. ft. house with four bedrooms and five bathrooms, according to Dallas Central Appraisal District records.

Residential real estate sale prices are not public record in Texas.

Potashnik is charged with 12 bribery and two conspiracy counts as part of a Dallas City Hall public corruption indictment involving former Mayor Pro Tem Don Hill, a former city plan commissioner and state. Rep. Terri Hodge, D-Dallas, among others.

Dallas City Council member James Fantroy, who died in October, already served jail time after being convicted of stealing money from a local college.

Potashnik has maintained his innocence. He has yet to face trial.

Neither Aikman nor Potashnik could be reached for comment. Potashnik's lawyer, Abbe Lowell, also could not be reached for comment.

The law office of Don W. Ledbetter, which is listed as having prepared the documents, declined to comment.
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Dallas Morning News, by Dave Levinthal

Friday, March 06, 2009

Real estate developers spruce up Dallas' Lemmon Avenue


Lemmon Avenue crosses the line from chic to shabby. In Uptown and near Turtle Creek, posh condos and trendy watering holes line the Dallas thoroughfare. But past the Dallas North Tollway, the Lemmon strip has long been lined with scruffy car lots, bars and faded retail.

Now a new wave of Lemmon Avenue redevelopment is aiding a turnaround. The auto dealerships have been fancied up, and new housing is in the works.


"Hopefully, the neighborhood will come along," said Todd Cook, vice president of investments for Inland American Communities Group. "It's been a real blighted area that is now emerging."

Inland American has opened the doors on the first phase of its Cityville Oak Park development on Lemmon at Mahanna Street. It's one of three projects the builder is working on in close-in Dallas neighborhoods.

The apartment and retail complex replaces a hodge-podge of rundown rental units and commercial buildings on about six blocks east of Lemmon.

"About five years ago, we were evaluating development sites and saw a unique opportunity to amass 20 acres right next to Highland Park," Cook said. But first, Inland American – which previously operated as FirstWorthing Group – had to buy more than 600 apartments, knock down the old buildings and get the land rezoned for new development.

Construction started last year.

The first tenants are moving into Oak Park, which has 372 apartments and 18,300 square feet of retail space. There's room on the site to build more apartments and townhouses later.

The four-story building of ground-floor shops and rental homes faces Lemmon Avenue and has views of the downtown skyline.

"Even though you are not in Uptown, it's an emerging urban area," Cook said. "And we wanted to offer rents priced slightly less."

Apartments in the Oak Park community start around $850 and go up to $2,500 a month.

Getting attention

Staying below prices in the nearby Uptown and Oak Lawn neighborhoods is a smart plan, said apartment analyst Greg Willett of M/PF YieldStar.

"Most of the Dallas apartment projects that have come online in pioneering locations have proved successful as long as rents stay a little under the levels seen for product of comparable quality in the better-established neighborhoods nearby," Willett said. "Timing, more than anything, seems to impact short-term results for these developments.

"Demand for this sort of community isn't especially deep, so it's important not to have too much high-end product in secondary locations at any given point in time."

Inland American plans to complete apartments in its Oak Park project in several phases between now and September.

"We just opened the doors last week and have had tremendous traffic," Cook said. "We also have had a lot of interest in the retail."

The developer is talking to prospective tenants, including restaurants, dry cleaners and other service businesses.

A block next door that was previously occupied by a hamburger stand has been developed into new strip retail. A corner liquor store building at Mahanna and Lemmon is also getting a face-lift.

"I've had probably 30 people already call about the building," said real estate agent Ian Russell. "I'm trying to gauge interest from potential tenants."

Illinois-based Inland American is also working on two other close-in Dallas apartment and retail projects.

Two more

Construction began late last year on a project at Lemmon and Carlisle Street near the West Village. The project will have 227 apartments and 8,000 square feet of retail.

"Cityville Katy Trail will deliver first units in late spring of 2010, with project completion by end of the third quarter of that same year," said Inland American executive vice president John Allums. "The units will be priced higher than Oak Park due to the type of construction – underground parking – and the units will have a finish-out that is commensurate with the new product in the Uptown neighborhood."

Inland American is still designing a retail and rental housing building it plans to build on Haskell Avenue at Capitol on the site of the former Loews movie theater. "We are currently working on revisions to our overall development plan to accommodate potential retail tenants," Allums said.

By STEVE BROWN
The Dallas Morning News

Thursday, March 05, 2009

Great News: Read On....

93% of Americans Have Jobs!

Recipe for Disaster: The Formula That Killed Wall Street

In the mid-'80s, Wall Street turned to the quants—brainy financial engineers—to invent new ways to boost profits. Their methods for minting money worked brilliantly... until one of them devastated the global economy.

Road Map for Financial Recovery: Radical Transparency Now!

A year ago, it was hardly unthinkable that a math wizard like David X. Li might someday earn a Nobel Prize. After all, financial economists—even Wall Street quants—have received the Nobel in economics before, and Li's work on measuring risk has had more impact, more quickly, than previous Nobel Prize-winning contributions to the field. Today, though, as dazed bankers, politicians, regulators, and investors survey the wreckage of the biggest financial meltdown since the Great Depression, Li is probably thankful he still has a job in finance at all. Not that his achievement should be dismissed. He took a notoriously tough nut—determining correlation, or how seemingly disparate events are related—and cracked it wide open with a simple and elegant mathematical formula, one that would become ubiquitous in finance worldwide.
For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.

His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.
Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril.
David X. Li, it's safe to say, won't be getting that Nobel anytime soon. One result of the collapse has been the end of financial economics as something to be celebrated rather than feared. And Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees.
How could one formula pack such a devastating punch? The answer lies in the bond market, the multitrillion-dollar system that allows pension funds, insurance companies, and hedge funds to lend trillions of dollars to companies, countries, and home buyers.
A bond, of course, is just an IOU, a promise to pay back money with interest by certain dates. If a company—say, IBM—borrows money by issuing a bond, investors will look very closely over its accounts to make sure it has the wherewithal to repay them. The higher the perceived risk—and there's always some risk—the higher the interest rate the bond must carry.
Bond investors are very comfortable with the concept of probability. If there's a 1 percent chance of default but they get an extra two percentage points in interest, they're ahead of the game overall—like a casino, which is happy to lose big sums every so often in return for profits most of the time.
Bond investors also invest in pools of hundreds or even thousands of mortgages. The potential sums involved are staggering: Americans now owe more than $11 trillion on their homes. But mortgage pools are messier than most bonds. There's no guaranteed interest rate, since the amount of money homeowners collectively pay back every month is a function of how many have refinanced and how many have defaulted. There's certainly no fixed maturity date: Money shows up in irregular chunks as people pay down their mortgages at unpredictable times—for instance, when they decide to sell their house. And most problematic, there's no easy way to assign a single probability to the chance of default.

Wall Street solved many of these problems through a process called tranching, which divides a pool and allows for the creation of safe bonds with a risk-free triple-A credit rating. Investors in the first tranche, or slice, are first in line to be paid off. Those next in line might get only a double-A credit rating on their tranche of bonds but will be able to charge a higher interest rate for bearing the slightly higher chance of default. And so on.

The reason that ratings agencies and investors felt so safe with the triple-A tranches was that they believed there was no way hundreds of homeowners would all default on their loans at the same time. One person might lose his job, another might fall ill. But those are individual calamities that don't affect the mortgage pool much as a whole: Everybody else is still making their payments on time.
But not all calamities are individual, and tranching still hadn't solved all the problems of mortgage-pool risk. Some things, like falling house prices, affect a large number of people at once. If home values in your neighborhood decline and you lose some of your equity, there's a good chance your neighbors will lose theirs as well. If, as a result, you default on your mortgage, there's a higher probability they will default, too. That's called correlation—the degree to which one variable moves in line with another—and measuring it is an important part of determining how risky mortgage bonds are.
Investors like risk, as long as they can price it. What they hate is uncertainty—not knowing how big the risk is. As a result, bond investors and mortgage lenders desperately want to be able to measure, model, and price correlation. Before quantitative models came along, the only time investors were comfortable putting their money in mortgage pools was when there was no risk whatsoever—in other words, when the bonds were guaranteed implicitly by the federal government through Fannie Mae or Freddie Mac.
Yet during the '90s, as global markets expanded, there were trillions of new dollars waiting to be put to use lending to borrowers around the world—not just mortgage seekers but also corporations and car buyers and anybody running a balance on their credit card—if only investors could put a number on the correlations between them. The problem is excruciatingly hard, especially when you're talking about thousands of moving parts. Whoever solved it would earn the eternal gratitude of Wall Street and quite possibly the attention of the Nobel committee as well.
To understand the mathematics of correlation better, consider something simple, like a kid in an elementary school: Let's call her Alice. The probability that her parents will get divorced this year is about 5 percent, the risk of her getting head lice is about 5 percent, the chance of her seeing a teacher slip on a banana peel is about 5 percent, and the likelihood of her winning the class spelling bee is about 5 percent. If investors were trading securities based on the chances of those things happening only to Alice, they would all trade at more or less the same price.
But something important happens when we start looking at two kids rather than one—not just Alice but also the girl she sits next to, Britney. If Britney's parents get divorced, what are the chances that Alice's parents will get divorced, too? Still about 5 percent: The correlation there is close to zero. But if Britney gets head lice, the chance that Alice will get head lice is much higher, about 50 percent—which means the correlation is probably up in the 0.5 range. If Britney sees a teacher slip on a banana peel, what is the chance that Alice will see it, too? Very high indeed, since they sit next to each other: It could be as much as 95 percent, which means the correlation is close to 1. And if Britney wins the class spelling bee, the chance of Alice winning it is zero, which means the correlation is negative: -1.
If investors were trading securities based on the chances of these things happening to both Alice and Britney, the prices would be all over the place, because the correlations vary so much.

But it's a very inexact science. Just measuring those initial 5 percent probabilities involves collecting lots of disparate data points and subjecting them to all manner of statistical and error analysis. Trying to assess the conditional probabilities—the chance that Alice will get head lice if Britney gets head lice—is an order of magnitude harder, since those data points are much rarer. As a result of the scarcity of historical data, the errors there are likely to be much greater.
In the world of mortgages, it's harder still. What is the chance that any given home will decline in value? You can look at the past history of housing prices to give you an idea, but surely the nation's macroeconomic situation also plays an important role. And what is the chance that if a home in one state falls in value, a similar home in another state will fall in value as well?


Here's what killed your 401(k) David X. Li's Gaussian copula function as first published in 2000. Investors exploited it as a quick—and fatally flawed—way to assess risk.

Enter Li, a star mathematician who grew up in rural China in the 1960s. He excelled in school and eventually got a master's degree in economics from Nankai University before leaving the country to get an MBA from Laval University in Quebec. That was followed by two more degrees: a master's in actuarial science and a PhD in statistics, both from Ontario's University of Waterloo. In 1997 he landed at Canadian Imperial Bank of Commerce, where his financial career began in earnest; he later moved to Barclays Capital and by 2004 was charged with rebuilding its quantitative analytics team.

Li's trajectory is typical of the quant era, which began in the mid-1980s. Academia could never compete with the enormous salaries that banks and hedge funds were offering. At the same time, legions of math and physics PhDs were required to create, price, and arbitrage Wall Street's ever more complex investment structures.
In 2000, while working at JPMorgan Chase, Li published a paper in The Journal of Fixed Income titled "On Default Correlation: A Copula Function Approach." (In statistics, a copula is used to couple the behavior of two or more variables.) Using some relatively simple math—by Wall Street standards, anyway—Li came up with an ingenious way to model default correlation without even looking at historical default data. Instead, he used market data about the prices of instruments known as credit default swaps.
If you're an investor, you have a choice these days: You can either lend directly to borrowers or sell investors credit default swaps, insurance against those same borrowers defaulting. Either way, you get a regular income stream—interest payments or insurance payments—and either way, if the borrower defaults, you lose a lot of money. The returns on both strategies are nearly identical, but because an unlimited number of credit default swaps can be sold against each borrower, the supply of swaps isn't constrained the way the supply of bonds is, so the CDS market managed to grow extremely rapidly. Though credit default swaps were relatively new when Li's paper came out, they soon became a bigger and more liquid market than the bonds on which they were based.
When the price of a credit default swap goes up, that indicates that default risk has risen. Li's breakthrough was that instead of waiting to assemble enough historical data about actual defaults, which are rare in the real world, he used historical prices from the CDS market. It's hard to build a historical model to predict Alice's or Britney's behavior, but anybody could see whether the price of credit default swaps on Britney tended to move in the same direction as that on Alice. If it did, then there was a strong correlation between Alice's and Britney's default risks, as priced by the market. Li wrote a model that used price rather than real-world default data as a shortcut (making an implicit assumption that financial markets in general, and CDS markets in particular, can price default risk correctly).
It was a brilliant simplification of an intractable problem. And Li didn't just radically dumb down the difficulty of working out correlations; he decided not to even bother trying to map and calculate all the nearly infinite relationships between the various loans that made up a pool. What happens when the number of pool members increases or when you mix negative correlations with positive ones? Never mind all that, he said. The only thing that matters is the final correlation number—one clean, simple, all-sufficient figure that sums up everything.
The effect on the securitization market was electric. Armed with Li's formula, Wall Street's quants saw a new world of possibilities. And the first thing they did was start creating a huge number of brand-new triple-A securities. Using Li's copula approach meant that ratings agencies like Moody's—or anybody wanting to model the risk of a tranche—no longer needed to puzzle over the underlying securities. All they needed was that correlation number, and out would come a rating telling them how safe or risky the tranche was.
As a result, just about anything could be bundled and turned into a triple-A bond—corporate bonds, bank loans, mortgage-backed securities, whatever you liked. The consequent pools were often known as collateralized debt obligations, or CDOs. You could tranche that pool and create a triple-A security even if none of the components were themselves triple-A. You could even take lower-rated tranches of other CDOs, put them in a pool, and tranche them—an instrument known as a CDO-squared, which at that point was so far removed from any actual underlying bond or loan or mortgage that no one really had a clue what it included. But it didn't matter. All you needed was Li's copula function.

The CDS and CDO markets grew together, feeding on each other. At the end of 2001, there was $920 billion in credit default swaps outstanding. By the end of 2007, that number had skyrocketed to more than $62 trillion. The CDO market, which stood at $275 billion in 2000, grew to $4.7 trillion by 2006.

At the heart of it all was Li's formula. When you talk to market participants, they use words like beautiful, simple, and, most commonly, tractable. It could be applied anywhere, for anything, and was quickly adopted not only by banks packaging new bonds but also by traders and hedge funds dreaming up complex trades between those bonds.
"The corporate CDO world relied almost exclusively on this copula-based correlation model," says Darrell Duffie, a Stanford University finance professor who served on Moody's Academic Advisory Research Committee. The Gaussian copula soon became such a universally accepted part of the world's financial vocabulary that brokers started quoting prices for bond tranches based on their correlations. "Correlation trading has spread through the psyche of the financial markets like a highly infectious thought virus," wrote derivatives guru Janet Tavakoli in 2006.
The damage was foreseeable and, in fact, foreseen. In 1998, before Li had even invented his copula function, Paul Wilmott wrote that "the correlations between financial quantities are notoriously unstable." Wilmott, a quantitative-finance consultant and lecturer, argued that no theory should be built on such unpredictable parameters. And he wasn't alone. During the boom years, everybody could reel off reasons why the Gaussian copula function wasn't perfect. Li's approach made no allowance for unpredictability: It assumed that correlation was a constant rather than something mercurial. Investment banks would regularly phone Stanford's Duffie and ask him to come in and talk to them about exactly what Li's copula was. Every time, he would warn them that it was not suitable for use in risk management or valuation.

In hindsight, ignoring those warnings looks foolhardy. But at the time, it was easy. Banks dismissed them, partly because the managers empowered to apply the brakes didn't understand the arguments between various arms of the quant universe. Besides, they were making too much money to stop.
In finance, you can never reduce risk outright; you can only try to set up a market in which people who don't want risk sell it to those who do. But in the CDO market, people used the Gaussian copula model to convince themselves they didn't have any risk at all, when in fact they just didn't have any risk 99 percent of the time. The other 1 percent of the time they blew up. Those explosions may have been rare, but they could destroy all previous gains, and then some.
Li's copula function was used to price hundreds of billions of dollars' worth of CDOs filled with mortgages. And because the copula function used CDS prices to calculate correlation, it was forced to confine itself to looking at the period of time when those credit default swaps had been in existence: less than a decade, a period when house prices soared. Naturally, default correlations were very low in those years. But when the mortgage boom ended abruptly and home values started falling across the country, correlations soared.
Bankers securitizing mortgages knew that their models were highly sensitive to house-price appreciation. If it ever turned negative on a national scale, a lot of bonds that had been rated triple-A, or risk-free, by copula-powered computer models would blow up. But no one was willing to stop the creation of CDOs, and the big investment banks happily kept on building more, drawing their correlation data from a period when real estate only went up.
"Everyone was pinning their hopes on house prices continuing to rise," says Kai Gilkes of the credit research firm CreditSights, who spent 10 years working at ratings agencies. "When they stopped rising, pretty much everyone was caught on the wrong side, because the sensitivity to house prices was huge. And there was just no getting around it. Why didn't rating agencies build in some cushion for this sensitivity to a house-price-depreciation scenario? Because if they had, they would have never rated a single mortgage-backed CDO."
Bankers should have noted that very small changes in their underlying assumptions could result in very large changes in the correlation number. They also should have noticed that the results they were seeing were much less volatile than they should have been—which implied that the risk was being moved elsewhere. Where had the risk gone?
They didn't know, or didn't ask. One reason was that the outputs came from "black box" computer models and were hard to subject to a commonsense smell test. Another was that the quants, who should have been more aware of the copula's weaknesses, weren't the ones making the big asset-allocation decisions. Their managers, who made the actual calls, lacked the math skills to understand what the models were doing or how they worked. They could, however, understand something as simple as a single correlation number. That was the problem.

"The relationship between two assets can never be captured by a single scalar quantity," Wilmott says. For instance, consider the share prices of two sneaker manufacturers: When the market for sneakers is growing, both companies do well and the correlation between them is high. But when one company gets a lot of celebrity endorsements and starts stealing market share from the other, the stock prices diverge and the correlation between them turns negative. And when the nation morphs into a land of flip-flop-wearing couch potatoes, both companies decline and the correlation becomes positive again. It's impossible to sum up such a history in one correlation number, but CDOs were invariably sold on the premise that correlation was more of a constant than a variable.

No one knew all of this better than David X. Li: "Very few people understand the essence of the model," he told The Wall Street Journal way back in fall 2005.
"Li can't be blamed," says Gilkes of CreditSights. After all, he just invented the model. Instead, we should blame the bankers who misinterpreted it. And even then, the real danger was created not because any given trader adopted it but because every trader did. In financial markets, everybody doing the same thing is the classic recipe for a bubble and inevitable bust.

Nassim Nicholas Taleb, hedge fund manager and author of The Black Swan, is particularly harsh when it comes to the copula. "People got very excited about the Gaussian copula because of its mathematical elegance, but the thing never worked," he says. "Co-association between securities is not measurable using correlation," because past history can never prepare you for that one day when everything goes south. "Anything that relies on correlation is charlatanism."
Li has been notably absent from the current debate over the causes of the crash. In fact, he is no longer even in the US. Last year, he moved to Beijing to head up the risk-management department of China International Capital Corporation. In a recent conversation, he seemed reluctant to discuss his paper and said he couldn't talk without permission from the PR department. In response to a subsequent request, CICC's press office sent an email saying that Li was no longer doing the kind of work he did in his previous job and, therefore, would not be speaking to the media.
In the world of finance, too many quants see only the numbers before them and forget about the concrete reality the figures are supposed to represent. They think they can model just a few years' worth of data and come up with probabilities for things that may happen only once every 10,000 years. Then people invest on the basis of those probabilities, without stopping to wonder whether the numbers make any sense at all.
As Li himself said of his own model: "The most dangerous part is when people believe everything coming out of it." By Felix Salmon

Wednesday, March 04, 2009

Troubled Assets - Mining Distress for Opportunity


Since the credit crunch took hold in the fall of 2007, questions about its impact on commercial real estate have been front and center. But assessing the damage has remained largely guesswork—until now.

With highlights in this issue and in the Troubled Assets Radar report, Real Capital Analytics is providing some answers. As of December 17th, 2008, we have identified at least $106B of threatened commercial properties. Many of these troubles have intensified since September, when concerns heightened over maturing debt, securitized and otherwise. The Troubled Assets Radar covers all geographic regions, property types and financial challenges. This is our first report, but we will continually update this new resource.

Office sales in 2008 have fallen hard, and pricing and cap rate data are beginning to reflect the depth of the capital market tumble. Year-to-date, sales of $49.6B were 67% below $152.6B for the same period last year. Closed sales in November totaled just $1B and involved fewer than 50 properties. Volume was off 60% from October’s $2.6B, and 90% below sales volume for November 2007.

Early sales data through mid-December show that the pause in the market continues and there is not likely to be the typical frenzy of year-end closings. After conservatively predicting 2008 office sales last month at around $61B, the year end total should settle between $53B and $55B.

While no one is buying, new offerings continued with $4.3B of office properties listed for sale, comparable to levels in September and October. Sellers appear to be getting more realistic since asking caps are up 25 bps and asking prices are down sharply since September. Prices on closed deals are no longer as influenced by the flight to quality and are also down sharply.

RCA has initiated a program to identify distressed and potentially troubled assets. The inventory of office property already tops $22B and is growing rapidly. Truly distressed situations where the mortgage is in default, the owner is bankrupt or the property has already been foreclosed total approximately $6.1B, encompassing over 150 assets. Of this total, 24 office properties valued at $450M have reverted back to the lender to become Real Estate Owned (REO). Most of the distressed assets have only recently fallen into default and a foreclosure process commenced. The analysis also ignores $7.6B of distressed office deals that have been resolved.

For more detailed information, learn about RCA’s Troubled Asset Search tool.

Landlords keep business tenants by agreeing to cut rent


Landlords keep business tenants by agreeing to cut rent

11:29 PM CST on Sunday, March 1, 2009
sjean@dallasnews.com

Companies looking to cut costs to weather the recession are haggling with landlords for reduced rent and other concessions – and often winning.


FILE 2005/The Associated Press
Fort Worth- based Pier 1 Imports said it would close up to 125 stores if efforts to reduce rent fail.
Landlords are working hard to keep tenants, rather than trying to find occupants for empty space in a tough market.

It's happening across all areas of commercial real estate – from retail and office to warehouse and manufacturing space. Locally based retailers such as Pier 1 Imports Inc. and Rent-A-Center Inc. have said they're looking at rent reductions or terminations on leases for hundreds of stores.

"Everyone out there is trying to cut costs, and typically the rental cost is second to people," said Larry Toon, who represents large office tenants for Jones Lang LaSalle in Dallas. "It makes sense for the landlords to try to settle this early."

Some tenants are using bankruptcy and early lease termination clauses as leverage for lower rent. They're requesting offset rights – an agreement that states, for example, that if a landlord can't deliver on $500,000 promised for tenant improvements, that amount can be deducted from the tenant's rent. Tenants also are getting free rent, downsizing their space, renegotiating lease terms and receiving more tenant improvement allowances.

It's simple: As businesses lay off more people, they don't need as much space.

"There's too much space coming on the market, and there are layoffs," said Matt Heidelbaugh, an office broker for Cushman & Wakefield of Texas. "Job growth drives our business, let's face it."

Some landlords are rushing to renew leases early – up to four years early – to keep tenants amid increasing vacancies. Others are offering help early, but they want to review the tenant's balance sheet.

Dallas-based retail property manager Cencor Realty Services is addressing potential problems. A team meets for two days a month to scrutinize each shopping center and retail tenants' sales and financial statements, said chief executive Herb Weitzman. It also will help arrange financing for some tenants and help others sell their business, he said.

"We want to help keep these tenants alive," Weitzman said. "We learned in the '80s and '90s what it cost – we burned up so much money."

Here's a snapshot of three commercial real estate areas:


Retail

Amid falling retail sales and a forecast for record-high retail vacancies, landlords want to keep the tenants they have. Last month, Fort Worth-based Pier 1 said it would cut jobs and close up to 125 stores if efforts to reduce rent fail.

The amount of rent reduction available depends on the tenant, its location in a shopping center and its credit rating, Weitzman said. Say a tenant is three months behind on rent; Cencor might extend the lease by three months, he said.

U.S. retail rents fell 16 percent in the past year, based on a survey by the International Council of Shopping Centers.


Industrial

Transwestern has worked on rent reductions for some corporate headquarters, distribution and manufacturing space, said Sharon Morrison, a principal of the Dallas industrial group. Betting it would be tough to rent the space of a tenant that wanted to downsize, a landlord cut rent by 75 percent for a year, she said.

Another tenant wants to extend its lease for less space, but the landlord isn't inclined to go along because the lease doesn't expire for 2-1/2 years, Morrison said.


Office

"With [office] vacancies above 20 percent, we'll see pressure on leases, and we'll see downward pressure on rental rates," Toon said.

Phil Puckett, a top broker for CB Richard Ellis in Dallas, said he recently watched the asking rent for North Dallas office space drop $4 per square foot in three weeks.

By SHERYL JEAN / The Dallas Morning News

Monday, March 02, 2009



The owner of a vacant downtown Dallas hotel has 30 days to win public support for conversion of the building to affordable rental housing.


JOHN F. RHODES/DMN
The owner of the Dallas Plaza Hotel hopes to convert the vacant downtown building into apartments that would include low-income housing.
View larger More photos Photo store The Dallas City Council on Wednesday gave Larry Hamilton time to work with neighbors who have opposed a plan to redevelop the Plaza Hotel — delaying a vote that could have killed the project.

Hamilton will apply to the state for low-income housing tax credits to help finance the renovation of the 12-story, 235-room hotel he owns at 1011 S. Akard St. near Interstate 30.

The council must approve such a move. And responding to neighborhood opposition and the lead of council member Pauline Medrano, the council’s housing committee last week voted to recommend blocking the application.

The nonprofit Central Dallas Community Development Corporation, the housing arm of Central Dallas Ministries, had planned to pursue the project. But members of the Cedars Neighborhood Association and others raised concerns about its proposal and housing experience.

Rather than have his building sit vacant, Hamilton proposed to take on the development alone. And before the matter came to a vote Wednesday, Medrano and an animated Mayor Tom Leppert took neighborhood leaders aside, persuading them to give the developer until March 25 to try to work out a mutually agreeable proposal.

“I’m very happy,” Phillip Robinson, president of the neighborhood association, said. “All we ever wanted was time to provide what the neighborhood thought was the best plan. I think Larry Hamilton can do it in 30 days.”

Medrano, who represents the area, said she, too, was optimistic an accord could be reached.

Hamilton, whose Hamilton Properties Corp. owns three downtown Dallas apartment buildings, said such optimism was heartening. “We’re hopeful we can come up with something that’s financially feasible but still meets the neighborhood’s standards,” he said.

Hamilton said the project’s size, cost and other details have not been resolved, but it likely won’t be as large as the 316-unit, $22 million to $24 million complex previously proposed. The heart of the development will be at least 148 residences for tenants who must meet income guidelines.

Approval by the council next month would only be a first, although critical, step for Hamilton.

His company will compete with other applicants statewide for about $45 million in housing tax credits available this year. It will request about $1 million, which would be allocated each of the next 10 years, giving the company $10 million in credits to raise money for the project, Hamilton said.

Hamilton Properties would sell its credits to investors looking to reduce their federal tax burden. City support of $2 million also has been proposed, but discussions have included a requirement that at least 50 apartments be reserved for the previously homeless. Other financing could come from loans and donations, Hamilton said.

Even in a sour economy, he is confident the project will succeed — if it receives tax credits. The Texas Department of Housing and Community Affairs will award the aid in July.

“If we can get that $10 million” in credits, “we can put together an affordable housing project. I’m confident of that.”

Hamilton had hoped to redo the property as a boutique hotel. But when he couldn’t get financing, he approached Central Dallas Ministries about buying the building for rental housing. The hotel closed last week.

The original plan drew mixed reviews and raised a variety of concerns: The project was being rushed, its estimated rental costs were too steep, not enough units would be offered at market rates, the hotel purchase price was too steep and Central Dallas Ministries didn’t have the experience to undertake such a large project.

The plan also called for setting aside 50 apartments for the previously homeless. “Socioeconomics was not an issue for the neighborhood or the board,” Robinson said earlier this week. “We want to build a diverse neighborhood with all levels of income.”

The association voted against the plan, 39-15. Residents of the Buzz condominiums near the hotel opposed it as well.

Larry James, chief executive of Central Dallas Ministries, and John Greenan, the development corporation’s executive director, met with residents to discuss their plan and said they addressed as many concerns as they could in the limited time they had after the project’s conception.

“I hope they get it done,” said James. “Dallas has a shortage of fit, affordable, workforce housing. … We will do anything we can to help them go forward.”

His group plans to begin meeting downtown housing needs this summer with the City Walk at Akard project.

That development, at 511 N. Akard St., will provide 206 residences, most for tenants who meet income guidelines. Fifty apartments will be reserved for the previously homeless.

05:48 PM CST on Wednesday, February 25, 2009

By ROY APPLETON
The Dallas Morning News