Metroplex Wades Through Murky Waters

A combination of new supply and weak economic conditions in Dallas/ Ft. Worth caused vacancy to increase across commercial property sectors over the past year. With the exception oflocal office properties, vacancy rates now exceed previous peak levels reported in the wake of the last recession. Construction has eased market-wide and starts should remain at reduced levels for some time, but developers finishing existing pipelines will deliver more new supply to the market this year than will be absorbed, applying further upward pressure on vacancy rates. Rents have taken a hit in recent quarters and will continue to slip, but the rate of decline will slow considerably, particularly in the apartment sector, where rents should begin to stabilize later this year as meaningful job creation resumes.

The combination of rising vacancy and reduced rents in recent quarters has made it difficult for many local owners to meet debt-service obligations, a trend that will continue throughout the year. In the CMBS sector, more than 15% of the loans outstanding are reportedly at debtservice coverage ratios of 1.0 or less, and more loans will fall into this segment as 2010 progresses and property fundamentals soften further. Maturing debt also poses risks in today’s marketplace, as reduced property values, elevated loan-to-value requirements and generally constrained lending present significant challenges to local owners who need to refinance. Of the CMBS loans slated for maturity in 2010, nearly 20% are reportedly at LTVs of 100% or more. As of the first quarter, the Dallas/Ft.