DALLAS—For many years, the Younger Partners investments/land division has produced a Dallas-Fort Worth land absorption report designed to assist investors in deciding the viability of acquiring undeveloped land for medium and long-term positive returns. Since its 2016 report was distributed, DFW has experienced continued growth in virtually every commercial and residential product type. Much remained the same in its 2017 report, although there are legitimate evolving trends to be considered.
The report points out that absorption of undeveloped and underutilized land continues at an unprecedented rate. Aggressive, new vertical development has left even fewer desirable infill sites remaining, producing ever-increasing activity further out from current job markets and increasing commuter distance demands, according to the report. However, employers, recognizing that the seriously evident shrinking pool of employee candidates who are sensitive to job location, are moving employment centers closer to demand. This competition for employees, inflated raw land cost, a rapidly increasing cost of living and transportation congestion are all beginning to affect the extended growth cycle.
DFW remains attractive for relocation compared to its competition, however, the gap is decidedly smaller from an economic standpoint. As long as the region has the anticipated continued job growth, inbound population increases, low interest rates and a sound local economy, there is no reason for an immediate reverse cycle. However, if any one of these collapses, the effect will be felt by all, GlobeSt.com learns.
Historically low capitalization rates, purchase prices far in excess of replacement costs and decreasing retail demand have made income-producing investments extremely vulnerable to negative economic conditions and all but impossible to rationalize purchasing. Excessive competition to acquire cash flow assets producing even the smallest yields is a precursor to failure. The report cautions that cyclical correction in the national economy would have the greatest negative impact.
Inherently, land investment differs greatly from other types of real estate products generally by its inability to produce interim cash flow and its sensitive vulnerability to recurring cycles. The criteria used to determine potential land opportunities, while becoming considerably more sophisticated during the last two cycles, remains principally in implementing some basic strategies, GlobeSt.com learns.
Perhaps the most important of these is the ability to project and fund ownership long term. Positive liquidity, the ability to sell for an acceptable profit at the optimum market time, can be highly speculative. When an investor is placed in an imposed forced sale position or loses confidence in the future of the investment, returns are jeopardized and most frequently result in a significant loss.
Location will ultimately best determine value. Values of similar properties will vary greatly in specific submarkets and in different geographical locations. Public perception, while an intangible, also plays a large role, Younger points out.
As an example, southern Dallas County, until recently, has had little attention from investors and developers. Ignored were its extensive existing infrastructure, excellent highway and rail access, attractive land values, and existing employee base. While historically competitive locations in the north, without similar benefits, traded at prices two and three times higher, the southern sector remained overlooked. During the last few years, however, both users and developers have rapidly recognized this area as the jewel it is. Millions of square feet of new construction, intermodals and support commercial have been built and more is planned, including new life to the Southern sector, which promises to have a long term and deserved resurgence.
Anticipated use governed by demand, zoning, proximity to infrastructure, interim use, historical absorption, positively perceived location and the municipal political climate, are but a few of the investment points to be considered. Current investment and development activity by informed entities and verifiable market comparables are equally important, says Younger Partners.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
