NATIONAL AND INTERNATIONAL

The really big news this quarter is interest rates. The 10 year treasury bills have topped 5.25 percent for the last several days and there seems to be no indication that they are going down anytime soon. What does this mean for us? For starters, it means that our permanent financing for real estate is going to be higher. But even more than that, the large institutions and insurance companies are getting tighter with their coverage of loans. It appears that we will see even smaller loan amounts on selected investments. As usual, the big lenders are following the herd theory and running all at once for the sidelines.

The Consumer Confidence Index took another downturn this quarter ending at 103.9, down from 108 in May (1985 = 100). What does this mean to our retail projects? We will not know until it really shows up on decreased retail sales, if it does. We need to remind ourselves of two things. First, Texas in general, and Fort Worth in particular does not fall right into the national averages. Second, but when we start thinking “it can’t happen here”, watch out!

RESIDENTIAL REAL ESTATE

The nation can’t decide if it is in recession or not. But let there be no doubt about it, the homebuilding industry is! Construction of new homes and apartments fell by nearly 25% in May to an adjusted annual rate of 1.474 million units. US mortgage defaults set a recent high with 0.58 percent of all mortgages entering foreclosure. But the real story is the sub-prime market where the foreclosure rate hit 2.43 percent of all sub-prime loans. This will likely cause the median price of homes to fall across the country for the first time since the Great Depression of the 1930s according to Lawrence Yun, a National Association of Realtors economist. Needless to say, the sentiment of home builders is sagging as well.

COMMERCIAL REAL ESTATE

But commercial real estate transansactions continued to increase during the first four months of 2007, hitting a record $157 billion in sold transactions. All product types seemed to be a part of the mix. But will interest rates soften the activity? Only time will tell.

Typical of the commercial real estate rush is Crescent Real Estate Equities Co. decision to allow itself to be bought by Morgan Stanley. Morgan is acquiring the assets of Crescent for $6.5 billion and assuming a $3.1 billion debt package. What does it mean when really smart people begin selling out?

RETAIL & OTHER NATIONAL NEWS

• Tweeter’s is going the way of so many other high end electronics stores – out. Tweeter’s has closed all their stores. A combination of fierce competition from Best Buy and Wal-Mart and slower sales of high end flat screen televisions took its toll on the firm.
  
  
• Best Buy cut its ’08 forecast blaming a soft economy. Few doubt that Best Buy will recover nicely with the economy. But Best Buy must believe in something good. Management is increasing its projected store counts in North America (US & Canada) from 1,400 to 1,800. They plan to open 130 new units this year with 95 domestic.
  
  
• Albertson’s is leaving Oklahoma in a further contraction of stores. The firm will sell its Fort Worth grocery warehouse to Associated Wholesale Grocers of Kansas City, KS.
  
  
• Costco announced further expansion for 2008 stating that they will open 33 to 38 new stores next year. The chain also plans to relocate 10 existing units in 2008.
  
  
• Roger Staubach, fresh from getting the Super Bowl for Dallas/Fort Worth (Arlington actually), announced that he is stepping down as his firm’s CEO. Staubach, a former Hall of Fame quarterback that took the Naval Academy to win after win, and two time winning Super Bowl quarterback for Dallas is only 65 years old.
  
  
• Southwest Airlines is talking about going international flights with flights to Mexico and Canada coming first. Europe might come later.
  
  
• Canada, Mexico and the US are creating a trading block that will rival the European Union and Asia in size and might. The North America Super Corridor Coalition met in Fort Worth in early June to discuss the parameters of this idea.

TEXAS & DFW REGION

• Texas job growth continues to lead the nation. In May, Texas created 22,700 new jobs followed by Illinois with 12,200, California with 10,800, New York with 10,700 and Washington with 9,100. Many of these jobs are being created in the DFW Metroplex area. The Barnett Shale has a lot to do with the job growth.
  
  
• A coalition of wind farms is suing TXU Corp saying that TXU, Texas' biggest electricity producer, worked to keep the wind farms power out of the power grid. This happens as we are experiencing huge price increases for electricity at the same time that a group is trying to take TXU private.
  
  
• Texas was awarded one of two wind-energy centers by the US Department of Energy. The new labs will be in Corpus Christi and Boston and will test blades as long as 330 feet.
  
  
• Four Texas cities were ranked among the 11 fastest growing large cities in the US by the Census Bureau. Fort Worth came in 3rd behind Phoenix and San Antonio. Dallas was number eight.

DALLAS AREA

• According to PMI’s latest study on falling home prices, the DFW area is one of the safest areas in the country in regards to home prices stability. PMI stated that they feel that the area’s risk is about 1/5th of the US average.
  
  
• M/PF Research states that apartment rents are on the rise in the DFW area, up about 2.2% from March 2006.
  
  
• There is a school of thought that the slowdown in residential construction is actually good for the commercial side. It is opening up workers for the commercial property boom.

FORT WORTH/TARRANT COUNTY

• Fort Worth Arlington was selected by Worldwide ERC and Primacy Relocation as the best large city in the US for relocating your family. The deciding factors were home pricing, home affordability, appreciation rates and property taxes. Other top cities were Nashville and Kansas City, MO.
  
  
• The Barnett Shale is said to be responsible for 55,000 jobs in our region with an impact of over $5 billion. The gas play is expected to create 108,000 jobs each year through 2015 according to the Perryman Group and the Texas Railroad Commission.
  
  
• Speaking of the Barnett Shale, Chesapeake Energy Corp, which paid DFW International Airport $186 million in initial royalty fees for the rights to drill at the airport, has spudded its first of over 300 wells that it expects to drill on the 18,000 acres.
  
  
• And, last but not least, the City of Fort Worth alone is expected to see over $15 million from the 2011 Super Bowl at the New Cowboys Stadium.

FORT WORTH CBD

• The Bass family has put City Center, its twin glass towers located in the heart of the CBD, up for sale. What is going on? Surely the family does not need the money. Again, look at the very successful and see what they are doing. The Bass family certainly ranks as very successful and they are selling.
  
  
• The office market in the Fort Worth CBD continues to be strong with a vacancy level of less than 5%.

ALLIANCE AREA

• Weber & Co. has purchased 39 acres on HY 287 north of I35 West for a new retail development. Weber usually anchors its developments with Super Targets.
  
  
• 3,800 new home lots are being planned in south Denton County by Realty Capital and Hanover Development. Although this is a little out of the normal Alliance corridor, it will feed workers and shoppers to the Alliance developments.
  
  
• Motorola, long a tenant in the Alliance Gateway portion of the park, has sold its building and is outsourcing its warehouse operations to Cinram International, a Canadian company that plans to move them to larger quarters sometime next year. Cinram is looking at DFW and the Alliance area for the new space.
  
  
• Best Buy has signed up with JC Penny, Hobby Lobby and Sam Moon at Alliance Town Center located on 135 West. The 600,000 square foot center is a joint development by Trademark and Hillwood which is owned by Ross Perot, Jr. and is rumored to be getting a Cinemark Theater also.

NORTHWEST FORT WORTH

• Fort Worth is very concerned that nothing stands out to the BRAC Commission (Base Realignment) in the future. The city along with cooperation of other cities in the immediate area of the Joint Reserve Base, are working towards making certain that BRAC has no reason to try to close the JRB. The group is considering things like rezoning, increased soundproofing requirements, etc.

MANSFIELD/ARLINGTON

• Mansfield ranked as the fourth fastest growing in Terrant County, behind Fort Worth, Arlington, and Burleson. The city issued 759 new building permits in 2006. This was down substantially from 2005 and 2004.
  
  
• Mansfield is getting another new medical center, a $7 million ambulatory surgery facility which is expected to open in May 2008. The center will focus on cosmetic, orthopedic, gastroenterological, obstetric and urological procedures. The spokesman for the physicians that will own the facility expects that 400 – 500 procedures will be done the first year and that they will perform up to 800 each year after that.
  
  
• The Arlington Highlands has opened to great fanfare. The open air shopping experience is slated to have more than 100 stores and is located on the north side of Interstate 20 east of Matlock Road.

SOUTHLAKE, KELLER, NE TARRANT AREA

• Southlake is getting another medical center also. LandPlan development announced plans to build a medical campus on 30 acres between HY 114 and Highland east of White Chapel.
  
  
• Grapevine’s last big development may be high rise condos. Architectural renderings were being shown at the ICSC convention in Las Vegas.
  
  
• Stein Mart is seeking incentives to occupy the former Winn Dixie grocery store on Keller Parkway. The building has been vacant since Winn Dixie quit our area several years ago.

LAS COLINAS

• Las Colinas in particular and the DFW Airport area in general continues to see increased construction of retail and big industrial projects. There is at least 4 million square feet of new product coming out of the ground right now and the leasing has turned positive again.

SUMMARY

The rise in interest rates at the same time we are experiencing a dramatic slowdown in residential construction bothers me. The inverted yield curve has disappeared. If we continue to see interest rates increase, CAP rates are bound to go up. That automatically makes our properties worth less on the open market. Costs to construct have gone up. We need to watch the markets very closely for the next few months.