INTERNATIONAL

The international news continues to be dominated by the emerging countries of the world doing well economically - and war. The latest terrorist surprises have been in Russia. It will be interesting to see how the country responds.

NATIONAL

In my opinion, the largest single factor keeping our economy from recovering is the US government. President Obama won the health care debate with no support from the Republicans who believe that this vote will allow them to make significant gains in the November election. So we went from uncertainty to uncertainty. And business hates uncertainty.

On top of the health care legislation, the administration is touching just about every part of business in America. For instance, bank reform, energy legislation and education are a part of big pushes in the domestic agenda. It seems that no one in the administration has any idea of what they are doing to our main street businesses. Maybe November will bring us some positive change.

One piece of good news this quarter was that the US Treasury will begin selling its Citigroup shares. The government received 7.7 billion shares as a part of its agreement to give the bank $25 billion in 2008. It appears that the US taxpayer could actually make about $7.7 billion on the deal!

The Consumer Confidence Index is showing a slight uptick for March. Although this is nothing to rave about, it is holding somewhat steady at 50. This means that about one-half of the citizens surveyed said that they thought the economy was getting better. But the other half said the opposite. If we are truly turning from a consumer economy to a country of savers, this index will not get better until the citizens believe they have enough equity stashed away to make a difference in their personal situations. That may take some time.

Taken from Conference Board website

Employment is what IT is all about. Without significant changes in our employment numbers, the consumer will not return. There is no help like a job. The chart below is from the US Department of Labor and runs through March 2010. We are currently sitting just below 10% unemployment. The chart does not reflect the underemployed and those that have given up on finding a job.

Some disturbing news was that bankruptcies jumped 32 percent in 2009. The data show that the nation’s 90 bankruptcy districts recorded 1.43 million filings. The biggest increases were in Arizona, Wyoming, Nevada and California. But Texas saw a 25 percent in filings also.

MANUFACTURING

Factory orders rose in February, bolstered by demand for industrial machinery and commercial aircraft. This was the 10th rise in 11 months. But this may not last long as the Department of Commerce stated that new orders only rose 0.6 percent in February. I personally believe a lot of this was pent up demand from no business in 2008 and the first part of 2009.

RETAIL REPORT

• Newspapers are reporting that the wealthy are recovering faster than the rest of Americans. Well DUH! Yes the sales of luxury goods are up. Neiman’s showed good profit in its fiscal second quarter. But those described as wealthy cannot drive the economy.
• The wireless carriers are at war. AT&T and Verizon have taken turns cutting fees for service plans and are slashing the cost of their most popular smart phones.
• Kroger is taking aim at Wal-Mart with its new Kroger Marketplace stores. The 123,000 square foot store in Frisco, TX added jewelry, furniture and other merchandise that directly compete with the large Wal-Marts.

CONSTRUCTION

• Home sizes are shrinking. Builders say that consumers are downsizing their expectations. Media rooms are the first to go. The median size home has dropped almost 10% over the last year to less than 2,500 square feet, the smallest in three years.
• The attitude of builders was bleak at the National Association of Homebuilders show in Las Vegas in January. Seventy-five percent said that credit conditions are much worse and that loans, even on presold homes, are hard to come by.
• According to the American Institute of Architects February Billings Index the activity of commercial architects has slipped 16.3 percent over the last year and currently stands at 5.5 months of backlog, the lowest since the AIA has been keeping records. Development will be slow to recover.
• Multi-family construction is down nationwide, mainly because of the lack of financing. This could create a rental housing shortage in the foreseeable future.

TEXAS

• Activity at factories in Texas was up for the second month in a row in February, albeit at a very low rate. The manufacturing sector, which makes up about 3 percent of our economy, expanded by 2,900 jobs in February and 1,800 in January according to the Texas Workforce Commission. At least it is a positive trend but I expect it to reverse itself this quarter and then maybe turn positive again in the fall.
• Moody’s believes that Texas cities will outpace the rest of the country over the next year and lead the recovery. But the forecast is also predicting some bad news – bumps in the road – especially for the real estate sector. The drag of housing will continue to hamper growth and the pending flood of commercial real estate onto the market will not help either.
• Moody’s estimates that that US households have lost almost $6 trillion in housing values in this recession. Remember, much of the growth prior to the last 24 months was being funded by second mortgages.
• A huge drag on the Texas economy will be tax revenues. Texas’ tax revenue dropped by 8.7 percent during the last two years – but collections on alcohol and tobacco rose as usual. So did collections on hunting and fishing. Given more free time, Texans seem to drink, smoke, fish and shoot guns. Careful out there!
• Texas cities continued to grow over the last 12 months ending July 1. The state jobless rate ended at 8.2 percent in July.
• The primaries are over and Governor Rick Perry came out on top in the contest mainly between him and Senator Kay Bailey Hutchinson. Hutchinson has now stated that she will serve out her term. This is a big deal for the state as she has a lot to offer as our senior member of the US Senate.

DFW NORTH TEXAS REGION

• North Texas is topping the nation in growth but foreclosures are way up. Tarrant County residential foreclosures are up 22 percent from a year ago. The Dallas side of the area is even worse. According to George Roddy, the local expert who has been tracking foreclosures since the 1970s, filings for the April sales topped $1 billion, the highest in years with 6,168 properties (residential and commercial) posted in the April foreclosure list. The recession in real estate is far from over.
• The 333 commercial properties posted for the auction block this month includes the Four Seasons Resort and Club at Las Colinas where the Byron Nelson Championship is played. After posting this property several times, Capri Capital says the property will be taken back this month and sold at auction.
• Two other high profile projects are in the news. TIAA-CREF put Lincoln Centre, a 1.6 million office project up for sale. This just shows that even the most astute investors are having trouble. Personally I think TIAA-CREF is selling it’s “A bag” to be able to keep lesser quality properties.
• And the owners of the 52-story, one-million square foot Elm Place building in downtown Dallas is just closing the building down – after spending over $12 million on renovations in recent years. They said that it just cost too much to keep the building on line without some major tenants to pay the bills.
• North Texas home sales dropped again in the first quarter. The 5 percent decline in March is the third month in a row that the figures have shown a year over year drop. But what is bad in D-FW is good by comparison in the country.

Now for some positive news about our area:

• ALDI, the big discount grocer that operates over 1,000 stores in 29 states in the Midwest and Eastern US, is opening 25 stores in North Texas. The stores are much smaller and carry fewer selections than a typical Kroger and do not even compare with the big stores of Wal-Mart and Target. But at least there is development.
• The net decline in office absorption slowed in the first quarter, to 789,000 square feet according to Cushman and Wakefield. The top losers were Far North Dallas and Las Colinas in the Dallas area. Fort Worth came out OK but the figures do not reflect some large move-outs that were recently announced but have not taken place.
• Rental demand for apartments is up. The high residential foreclosure numbers are partly responsible for this.
• North Texas is topping the nation in growth. The area attracted nearly 141,000 people in the 12 month period ending in July. Again, this is good compared to the rest of the country but is not impressive when we look at our area over time.
• Housing starts are up 59 percent from a year ago in the first three months of 2010. However, they are starting from a very low number. In the first three months of 2010, builders started 3,460 homes. That pales compared to 12,370 in 2006. But at least we are going the right way – up.
• Site Selection Magazine named the North Texas area as the third most active major metro area for corporate relocations and growth in 2009. First were New York and Chicago, both much larger venues than DFW.
• North Texas was selected as the 5th least expensive place to do business among the 22 large US metro areas by KPMG, LLP. First were Tampa, Atlanta, Miami and Baltimore.

FORT WORTH CBD

For the first time in quite a while, there is just not much going on in the Fort Worth CBD. Next quarter we will be reporting that the vacancy rate in Class A office has gone up due to some high profile tenants being bought out and consolidating their space elsewhere with their new parent company but this quarter the CBD has been very quiet.

FORT WORTH & ALLIANCE AREA

Texas Health Resources did a swap of land with Alliance. They traded a tract that the hospital provider purchased from Alliance several years ago for another tract that Alliance still owned on Golden Triangle near I-35W. They are under design for a new hospital on that tract. The head of real estate told me last week that THR is trying to get “in front” of the competition in the area.

NORTHEAST TARRANT COUNTY/SOUTHLAKE/KELLER

• Two significant events have been announced in the NE Tarrant area this quarter. Carillon, a 285 acre project of Hines Development located on HY 114 and White Chapel Blvd. just announced its first commercial tenant. Children’s Medical Center of Dallas will develop a 34,000 square foot ambulatory surgery center in the mixed use project.
• But the big news, and the largest project in TXDOT history, is the DFW Connector. Construction has begun on the $1.02 billion roads and infrastructure project at the north end of DFW Airport. The project will consume 1.6 million square yards of concrete, 300,000 tons of asphalt, span 47 bridges over 8.4 miles and take four years to complete. Once finished the new roadway system will be great. Until then those of us that live in NE Tarrant County will pick the times we go to Dallas, and the routes we take, very carefully.

NORTHWEST FORT WORTH

• Starplex Theaters is under construction at our Landmark Quebec development. The contractor was given 210 days to deliver the 14 screen building to Starplex for its tenant finish-out. Starplex plans to be open for Christmas.
• The Star Village project was foreclosed by its lender. The retail and six screen-theater just could not make it in today’s environment.

SUMMARY

Six years ago I predicted that we would all have our offices in drug stores because of the competition between the major pharmacies and the fact that they seemed to be buying every corner in the DFW Metroplex. Then I said we would be in bank buildings, which would be good because of the amount of covered parking they would provide.

In 2006 & 2007 I wrote about all the sub-prime loans that I thought would cause us trouble in the financial markets. I am not uncommonly smart; it was just common sense. Had I been a genius, I would have been advising that we sell everything we owned in the US and go to cash. But now we are in a different time. There are still real estate deals being done. Heck, a WaMu branch that was never opened was just purchased in Dallas and is being demolished to make room for a Raising Cane chicken shack. The point is that there are still deals to be done. We can still create value if we watch the trends and get in front of them. It is like riding the waves on a surfboard. Catch the curl.