NATIONAL AND INTERNATIONAL

China’s economy ascended to the world’s 3rd largest in 2007, a tenfold leap over the last 30 years leapfrogging Germany. It is just a matter of time before China takes over Japan’s number two slot. The long isolated society will most likely overtake the United States in the next few decades. Its 1.3 billion people are among the world’s poorest.

OPEC decided not to get prices of crude up by cutting production earlier this month. They will meet again on May 28 to review their policies again. They are attempting to deal with both decreased world demand for their oil and chronic overproduction of the individual members’ quotas.

Cambridge Energy Research Associates stated this month that a long-term natural gas oversupply is in the works. With the dramatic increase of shale production in the Barnett Shale in the Fort Worth area and the technology developed here which can be used in other shale basins across the US and worldwide, Cambridge expects production to be more than demand for quite a while. Using natural gas in automobiles could change that quickly.

The Consumer Confidence Index as prepared by the University of Michigan hit another all time low in February coming in at 25, down from 37 in January. But it is up slightly to 26 in March. In another sign of the times, it seems that consumers are now becoming savers again, something that the federal government does not want to see. In fact, the cartoon in a recent issue of The Economist showed Uncle Sam stating “I want you - to spend”. The days of retail establishments on every corner are over in my opinion. We are going through a massive reset of consumer attitudes. And it is hitting the upscale retailers hard too.

The end of 2008 saw the nation shedding jobs at a historic rate with over 2.6 million new filings for unemployment insurance and it continued into 2009 with another 651,000 jobs lost in February and an unexpected 742,000 jobs lost in March. Bankruptcies soared 33 percent in 2008. Households’ net worth was down 23 percent in 2008. That being said, things have started to turn around at least for the time being. The stock market has staged a huge comeback. Home sales are rising with interest rates dropping again to lows not seen for years. February housing starts jumped 22 percent with most of the new units being multi-family. But single family home sales are starting to rise also. So all is not bad.

Commercial loans are going to be an issue in 2009 and 2010. The delinquency of about $700 billion in securitized loans backed by office buildings, hotels, stores and other commercial property has doubled since September. It now stands at about 1.8 percent according to Deutsche Bank. This is just short of the highest delinquency rate in decades. Deutsche Bank predicts that out of the $154 billion of securitized commercial mortgages coming due between now and 2012, about two-thirds will not qualify for refinancing. It assumes a 35% - 45% drop in commercial property values from the peak in 2007. This will create some awesome opportunities for those with cash or other equity to acquire quality assets at bargain prices.

And let’s not forget the Fed. On February 24, Ben Bernanke said that things will get worse. On March 15, less than 30 days later, he stated that the recession could end this year. This coincides with a change in President Obama’s tone also.

RETAIL REPORT

The final 2008 sales numbers were the lowest in decades. Stores were offering just about anything to get people in the doors. Many companies spent the first quarter working landlords to get rent reductions. In many instances the landlords were willing to do it but wanted to extend the terms of the leases. With main retailers line Circuit City going out of business the landlords generally are willing to bend to help the retailers.

• US retailers eliminated more than 500,000 jobs in 2008.
• Macy’s will close 11 stores in 9 states. None are in Texas.
• Office Depot will close 112 of its underperforming stores in the first quarter of 2009.
• But Best Buy and Conn’s both reported better than expected numbers in the fourth-quarter and they expect even better numbers in 2009 after the close-out of Circuit City is over.
• Buffalo Wild Wings is serving up more than hot wings; their stock is up sharply this year because of their earnings. The company’s net income was up 29% and the revenue is up 33% in the fourth quarter.

TEXAS & DFW REGION

• The economy finally gave way to the national recession this quarter. After doing pretty well while the rest of the country suffered, Texas has now lost jobs in the last four months, November through February when it cut 46,000 positions. The jobless rate hit 6.5% in February.
• Medical continues to do well in the state. Physician-owned hospitals continue to grow and will infuse $2.3 billion into the economy this year.
• Choice Homes, a huge homebuilder in Texas, suspended operations in February. Wall Homes is in bankruptcy reorganization but is still operating under a different name after reorganization.
• Wages and benefits continued to beat inflation in the North Texas region in 2008, outpacing the rest of the country. With essentially no annual inflation, the 3.2% average rise was one of the highest in the country.
• Site Selection Magazine rated Fort Worth Arlington as the second best new market in the US for new and expanded corporate facilities in 2008. Houston was first. Texas was number two in state rankings behind Ohio.
• Carl’s Jr., a “gourmet” sit down fast food restaurant with a $6.00 burger, announced that it will jump from 5 to 102 locations in North Texas over the next nine years.
• The Trans-Texas Corridor is out. Rail North Texas is in and has a good shot of getting funding this year in Austin as the legislature meets in its biennium. The area is planning to raise hundreds of millions of dollars a year to build and operate a commuter rail system comprising more than 215 miles of passenger rail across Tarrant and Johnson counties and the greater DFW area.
• Although the price of natural gas is very low, the Barnett Shale continues to pump up jobs and profits in the area. Even at less than $4.50 mcf, the gas play produced nearly 1.4 trillion cubic feet of gas in 2008 and generated 111,131 permanent jobs into the local economy.
• I still think water is going to be the largest issue in coming years. With the population of North Texas expected to double by 2060, insufficient water supplies could cost the state almost $100 billion by then.

FORT WORTH CBD

• Chili’s and La Madeline both closed in downtown. The Chili’s space was quickly relet to another restaurant.
• There were no new office buildings projects announced this quarter. This should help stabilize the office market. The CBD is enjoying an occupancy rate of 88%, after losing a couple of large tenants to corporate relocations and consolidations. The average asking office lease rate in downtown Fort Worth is $28.32 psf compared to $18.56 in downtown Dallas. This says a lot about the quality of life in the Fort Worth CBD.
• Cypress Equities announced several restaurant leases in its 7th Street development near the Cultural District. They included Bailey’s Prime Plus, Delaney’s Irish Pub and Ali Baba Mediterranean Grill of Dallas.
• But Cypress has postponed its hotel in the same district.
  

FORT WORTH

• Each year Builder Magazine assesses the risk that cities across the nation will experience the value of their homes dropping in value. Fort Worth came in third from the bottom after Houston and Austin. The ranking estimates that Fort Worth has less than a 2.5% chance that its home prices will lower next year than this year. Sometimes it is good to be last.
• The SH 121T (Southwest Parkway) project, a toll road between the Fort Worth CBD and Cleburne, has cleared its last bureaucratic hurdle. With a solution to the Union Pacific rail yard behind it, the project is officially underway.
• Trademark Property Co. has halted its WestBend project on University Blvd. near TCU. The location is golden but Trademark wants to wait until a better economy to move forward.
• Discount Grocer Aldi, a German grocery chain, aims to build nine new stores in Tarrant County this year. I hope they do better than Food Lion did a few years ago.

ALLIANCE AREA

Recession or not, Alliance continues to sign new deals. Hillwood leased 295,000 square feet to Trans-Trade, a Grapevine-based global logistics from that will expand its operations near Alliance Airport. Perot just keeps on getting deals.

NORTHWEST FORT WORTH/LAKE WORTH

• Texas Health Resources is about to close on the 47 acre tract that was just rezoned for its hospital use at our Landmark Quebec project.
• Evidently Starplex is about to get started on its theater at the same development.
• 24 Hour Fitness will open at our Landmark Lakes project the first part of April.
• Samson Park, the small community east of Loop 820 is on a very nice beautification project along Jacksboro Highway. The makeover includes a tax increment financing district, roadway landscaping and will eventually include sidewalks, curbs and gutters.

SUMMARY

Now that the federal government has finally quit screaming how bad things are maybe we can get on with business. Yes, we are in a recession and undergoing a massive reset of CAP rates, borrowing criteria and capital availability. But personally I think we are coming out of part of it. We still have to get through the huge issues with commercial property debt and that is going to take years. But our citizens are beginning to spend again, although slowly. At some point we will be able to look back at this time and say, “Do you remember …?” When that happens I want to be able to say that we survived one of the worst economic times of my lifetime and we are still standing. Again, I think we need to be very careful but not shy.

MAY THE GAMES BEGIN!