NATIONAL AND INTERNATIONAL

The national news took relatively short breaks from the sub-prime mess this quarter to televise our national election process. The Republican race is over and Arizona Senator John McCain is the presumed nominee. The Democrats are down to two, former first lady and New York Senator Hillary Clinton and Illinois Senator Barack Obama. The two Democrats are running neck and neck and the campaign has turned negative. But with long breaks between primaries in different states, the news returns to the economy again.

The consumer confidence survey is at the lowest reading in many years. Job losses, home price declines and high gasoline prices have taken their toll on the American public’s attitute.

Chart taken from the Conference Board Website

• The chart below from ADM Investor Services shows the price of crude oil from 1999 to the first quarter of 2008. My thought is that there is no way that we can absorb a doubling of the price of crude oil in 15 months without it having a profound effect on the economy.
  
  
• OPEC met in early March in Vienna. The organization made a public statement that US economic mismanagement was the reason for higher oil prices and laid the blame directly on the Bush administration. Oil hit $105.00 per barrel.
  
• The GDP is sputtering. It rose only 0.6% in the fourth quarter and may be slowing even more.
  
• Good News – the falling dollar has made the United States the third most affordable nation of the big economies. Mexico and Canada rank first and second.
  
• Consumer spending is not falling as fast as one might think. I think a large part of that is because gasoline is a part of the number and we are paying much more to power our automobiles now. A better indicator might be that the railroads are parking miles and miles of rail cars, idle because they are not carrying freight. Burlington Northern has over 1,000 cars parked in Montana alone, five percent of its entire fleet.

RESIDENTIAL REAL ESTATE

• Sales of new and existing homes continue to plummet nationally. The number of days that it takes to sell a home has gone up also. Florida, Nevada and California are being hit the hardest. Annual housing starts fell to just under 800,000 units (seasonally adjusted) in January 2007 after peaking at 1,837,000 in January 2006. Prices are lower on a national basis but the degree of drop varies significantly area to area.
  
  Chart taken from Case Shiller website
  
  For those of you having trouble following the color codes, from top to bottom on the rightmost part of the chart, the list of cities is as follows: Los Angeles, Miami, Washington D.C., San Diego, Las Vegas, Tampa, Phoenix, San Francisco, New York, Seattle, Portland, Boston, Chicago, Minneapolis, Denver Atlanta, Charlotte, Dallas, Cleveland, Detroit
  
  • Financing terms remain attractive with 30 year rates still below 6%.
  • The National Association of Home Builders reported a decline of 20% in new starts in 2007 and expects the starts to decline at least 25% this year as well.
  • Bank of America agreed to buy Countrywide Financial, one of the hardest hit mortgage brokers, for $4.1 billion in January.

COMMERCIAL REAL ESTATE

Although commercial real estate continues to outperform residential, it most likely will not escape what is going on in the overall economy.

• According to the yearend report by Jones Lang LaSalle, they expect the volume of transactions for 2008 to be sluggish, maybe down as much as 40% from 2007. The firm thinks the slowdown will work itself out by the end of the year.
  
• Kimco Realty Corp. is cutting back on its US developments this year and is steering away from mixed-use projects due to the uncertainty in the economy. The New York Developer is moving forward on 50 new centers in Mexico and is aggressive in Australia, New Zealand and Europe through its association with Valad, a Sydney developer.
  
• Ruby Tuesday announced that it will likely not open any new company owned units in 2009 but it will honor the 35 – 40 company owned and franchise units they are committed for in 2008.
  
• Best Buy has cut its outlook but will still add up to 160 new stores worldwide this year.
  
• Costco claims that the downturn is actually beneficial to its business and may help store growth. They are increasing the lines of apparel being offered and it hopes to open an additional 28 new units this year.

TEXAS & DFW REGION

• Texas added 28,000 jobs in January and 277,200 over the last 12 months, making it the best in the nation – again. But job growth slowed to 13,500 net new jobs in February.
  
• The Texas unemployment rate was 4.3% compared to a national rate of 4.9%.
  
• At a speaking engagement for the Tarrant County Women’s Council of Realtors, Dr. James Gaines, a research economist for the Real Estate Center at Texas A&M, predicted that Texas will outperform the US economy for the foreseeable future. According to the Center’s research, Gaines expects Texas will grow by another 13.6 million people over the next 25 years. That is equal to the size of greater metropolitan DFW, Houston, San Antonio and Corpus Christi, all together. Gaines also reported that in November 2007 the year to date foreclosures were down 13% while the national numbers are up 57%. Maybe we are turning the corner.
  
• DFW was found to be the third best places to do business in the US, behind Atlanta and Tampa, FL according to a study done by KPMG, Inc. The three most expensive: San Jose, CA, New York City and Detroit. OK, I can understand San Jose and NYC but Detroit. And they wonder why Detroit is losing people and businesses like it has the plague!
  
• According to Cushman and Wakefield, the first quarter net leasing of office space in DFW is up 75% following last year’s drop. Expanding and relocating businesses leased an additional 470,000 square feet according to the preliminary numbers. LBJ Freeway, the Telecom Corridor (Richardson) and North Central Expressway were the biggest gainers.
  
• DFW home prices fell in 2007 by 3.3%. The national average was down 10.7%.
  
• One of the sweet spots in our economy is the multi-family market. Long lagging the national market, DFW now is at 94.1% leased, an occupancy level not seen since 2000 in our area. And M/PF YieldStar expects our market to continue to outperform the national market.

DALLAS AREA

• The biggest news in Dallas this quarter is the Foreign Trade Status of over 3,200 acres of land in South Dallas that was cleared after two years of work and federal hoops to jump through. The Dallas Logistics Hub is the largest FTZ-designated expansion in Texas and most likely in the US.

FORT WORTH/TARRANT COUNTY

• Without a doubt the Barnett Shale numbers for 2007 are huge. Although the gas play is larger than just Tarrant County, most of the existing field is centered in Tarrant and most of the economic activity is based here also. In 2007 the economic impact was $8.2 billion, up from $5.2 billion in 2006. The jobs tied to the play now stand at 83,823 and it is estimated that we needed an additional 38,000 housing units because of the Barnett. 3.7 billion cubic feet was produced daily in 2007, 4.3% of the nation’s total.
  
• Two new banks announced that they are coming to Fort Worth and one existing bank is expanding. Jefferson Bank and First National Bank are opening their first branches and Southwest Bank, headed by Vernon Bryant, announced that it is planning a location on South Hulen and one in Arlington.
  
• The US Corps of Engineers has formally recommended that the boundaries of the Trinity Uptown be revised to include an additional 1,000 acres on the city’s east side. The total project cost is now estimated at $576 million.

FORT WORTH CBD

• The Omni Hotel construction has passed the half way mark and workers are racing towards a December 31 opening. About 600 workers are on the job every day, six days a week. Almost 150,000 room nights have already been booked.
  
• The Neil P, an upper end condo conversion development on the west side of the CBD, was put on the market by its owner to sell the remaining project in bulk. Stating that the sales had not reached its investment objectives, the decision to get out of the deal was made. As far as I know, it is the only condo project in the Fort Worth CBD that has not met expectations.
  
• Cypress Equities, a Dallas based venture that includes Emmitt Smith and Roger Staubach, launched its West 7th Street project. The deal will be anchored by a three-story Movie Tavern and will include retail, office and a 345 unit residential component.

ALLIANCE AREA

• Last quarter we reported that Nokia closed its big facility in the Alliance Gateway. This quarter ATC Logistics & Electronics announced that it will hire up to an additional 800 workers at its facility right down the road. ATC currently employs about 2,700 workers at its plant to ship and repair cell phones, GPS systems, etc.
  
• Northlake, on the far northern end of Alliance, is set to be the next location for development in the corridor. Trophy Design announced its 2.5 million square foot mixed use development near Texas Motor Speedway at the NEC of I35 West and FM 1171.
  
• LNR has taken down the next phase of its option to 305 acres on I35 West and North Tarrant Parkway. The deal will contain more than 1,000,000 square feet of retail, a 660 unit multi-family component and 750,000 square feet of hospitality, office and medical office.

NORTHWEST FORT WORTH/LAKE WORTH

• The largest new deal in the Lake Worth area is our Landmark Quebec project. Infrastructure was begun in January on the 200-acre mixed use development that contains 100 acres of Industrial Park, 50 acres of multi-family and 50 acres of Commercial Retail. The Phase I and Phase II infrastructure should be complete by July and vertical construction on the theater, hotel and some other retail components will be underway in the fall.
  
• Lockheed has announced the first of up to 850 layoffs from the F-35 program. As the program advances, the design engineers will work themselves out of a job. This was not unexpected. The biggest part of the layoffs will occur in the first half of 2008.

MANSFIELD/ARLINGTON

• The Dallas Cowboys stadium continues to amaze those around it. While we all knew the specs, until you are right up next to the giant structure, you can’t visualize just how big it is.
  
• Our retail building on Lot 6 in front of Tom Thumb at the Commons is up and ready for tenants to join Smoothie Factory. We are working leases that will take us to 100% leased.
  
• EECU, the credit union that bought the land next to Mexican Inn has submitted plans to the City of Mansfield. They expect to be under construction soon.
  
• The first hotel on our Mansfield Highlands project is set to open this summer. The same developer has broken ground on his second hotel at the south end of the Highlands.

LAS COLINAS

• The positive effect of Houston-based Hines buying the remaining undeveloped land in Las Colinas cannot be under estimated. Hines’ expertise in getting deals done has caused a virtual explosion of big deals, from retail, residential and office to entertainment venues to happen in this park that is celebrating its 35th year.
  
• Las Colinas’ office numbers were revised for 2007 to 460,000 square feet net new space leased and there is over 600,000 square feet under construction.
  
• There are no less than 14 Class A residential deals underway.

SUMMARY

Now where are we and what do we do? Many think that we are already in a full scale recession and certainly there is no question about that if you are in some parts of the country. But what gives us an advantage during this slowdown?

First, interest rates are still very low by historical standards. And although there is a shortage of high leverage money, there are plenty of lenders that still want to make loans on high quality developments, both for construction and long term debt. One thing to think about is putting long term loans on any quality investments that we intend to keep.

Will higher commodity costs (energy, metals, concrete, etc) cause the inflation rate to go up? What about labor costs? If costs go up, quality real estate usually is a good hedge against rising inflation.

Cash is king! Having some cash put away for deals when they present themselves certainly makes sense during troubled times.

I am looking forward to this year. We expected a slowdown for several quarters. Now that uncertainty is gone. Take advantage of the new environment.