"Dallas is a victim of the outside. The fundamentals of this market remain more balanced than any other market in the country," says John Alvarado, Jones Lang LaSalle's managing director in Dallas. "We're at a standstill because we're in a moment of transition."
Zaya Younan, chairman and CEO of Los Angeles-based Younan Properties Inc., faults the Feds for not stepping in quicker to bail out the system so markets like Dallas, where fundamentals are still good, could keep moving. "They reacted very slowly to come up with policies to reverse the trends," Younan contends, "and to this day, they are reacting slower than they should be. That's why the confidence factor is lower."
Both pros have vested interest in Dallas: Alvarado as an investment sales broker and Younan as the owner of the largest class A office portfolio in the city.
 Younan |
Brokers are starting to whisper that more owners are offering free rent and higher tenant-improvement allowances to win or retain tenants, but they aren't finding cuts in face rents as yet. Greg Leisch, president and CEO of Washington, DC-based Delta Associates, expects rents to hold their present levels as long as Dallas/Fort Worth stays in its vacancy equilibrium zone of 17% to 19%. In 2009, he predicts rents will continue to hold the line and dip in 2010 by 1% in Dallas and 0.50% in Fort Worth.
The sales side of the CRE equation shows a 45% drop since last year, according to Leisch. To date, $3 billion of assets have been sold in the region. It could hit $3.8 billion by year's end, but he's not making any promises.
Alvarado and others firmly believe the lack of paper is the primary cause of the region's slide in sales. "Dallas is seen mostly as a bright spot, but it's not immune," Alvarado says. "There are a lot who do want to buy, but can't."
Unlike recent years, it's not about the bid-ask spread. Not only is financing sparse and difficult to obtain, but Alvarado explains that lenders, buyers and sellers are having problems calculating prices in today's topsy-turvy world. As a result, most are hanging on to what they've got. The investment rule of thumb during recessions is "don't panic," he says. "Unless there's a stress situation [to sell], there's no need to panic."
And unlike one year ago, Alvarado says lenders are "more cooperative" in reworking loans to recapitalize owners so they can wait out the market. In other cases, owners are recapitalizing by taking on an equity partner.
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