In spite of these substantial gains, some multifamily properties remain challenged by the economic recession. Currently, the market's multifamily delinquency rate is roughly 10%, equal to more than $900 million in outstanding loans. Nearly 80% of these loans are at least 90 days past due, with more than half in foreclosure or already REO. The number of loans in the early stages of distress, 30 to 60 days past due, is limited and could suggest that the market has purged its troubled assets and the remaining properties are healthy and will benefit from rapidly improving fundamentals. Improving market conditions, including a vacancy rate approaching pre-recession levels, has fueled a flurry of investment activity in the distressed multifamily segment with a nearly 60% increase in transaction velocity over the past 12 months. Out of- area investors have been a substantial source of this capital and will continue to be into 2012.

The Dallas retail sector is also benefiting from the increase in employment and generally strong economic conditions, but a robust development pipeline is limiting occupancy and rent growth in most areas. The retail vacancy rate is still projected to decline 40 bps to 11.9% by year end, but the decrease could have been more significant if not for the 1.9 million square feet set to be delivered in 2011.

Unless current economic headwinds prevail, an overall positive outlook for consumer demand has encouraged expanding retailers like Best Buy, Pet-Smart and buybuy Baby to open new locations in the D/FW Metroplex, which will ultimately elevate demand for nearby in-line space. Power centers will lead the recovery in retail operations this year; vacancy rates at these properties fell 110 bps to 7.4% during the 12 months ending the first quarter. Neighborhood/community centers, conversely, will lag in re-tenanting space vacated in the downturn, especially in outlying suburbs.

Currently, 9.5% of retail loans in Dallas are listed as delinquent, but unlike the multifamily sector, they are spread throughout the various stages because the slower improvement in fundamentals has left a wider range of properties subject to distress. More than 70 retail properties, representing $821 million in loan balances, are currently listed as distressed with a significant portion already in foreclosure/REO. But there is an almost equal number of assets that are 30 days delinquent or less, indicating that new distress continues to plague the market. While overall market fundamentals will continue to improve this year, submarkets with higher vacancy rates and slower growth such as Richland Hills, Plano and the Allen/ Frisco/McKinney area may experience additional distress over the next six months.

Construction of industrial space in D/FW, already at drastically reduced levels, will slow even further in the coming six to 12 months. Speculative construction of warehouse/distribution properties will remain almost nonexistent until vacancy retreats significantly and upward pressure on rents returns. This could require several quarters.

Flex properties reported positive net absorption in Q4, but late-year gains were insufficient to offset tenant move-outs earlier in the year, resulting in an uptick in flex vacancy.

Overall, the Dallas industrial market has struggled with the absorption of new deliveries over the past 12 months and the vacancy rate hovers near 12%, close to 50% higher than pre-recession rates. The DFW Airport submarket is the laggard and also the source of the majority of newly delivered space.

On the investment side, industrial transaction velocity will accelerate through year's end as the expectation gap between buyers and sellers continues to narrow. Investor demand has already returned, particularly from instate and East Coast buyers. As with most markets in the country, the industrial sector has the lowest dollar volume of distressed assets among the four main property types, with Dallas carrying under $300 million in distressed industrial assets at this time. But, several local industrial properties are tied up in large portfolios that appear headed for foreclosure/REO, thus increasing their likelihood of being brought to market. Lenders and servicers have been quicker to bring distressed properties to resolution as opposed to their more passive stance in the office sector, as out-of-area capital, which accounted for nearly 40% of velocity before the Great Recession, has started to return to the market and is looking for value-added opportunities.

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