NATIONAL AND INTERNATIONAL

Hillary Clinton finally conceded that Barak Obama would be the Democratic nominee and pledged to support his election as President of the United States. And then the focus went back to the economy. Senators Obama and McCain are still out there but they are not on the front page any more. What one immediately sees when he opens his newspaper is jobs being lost, home foreclosures and oil above $140.00 per barrel, which translates to gasoline in the $4.00 per gallon range. I suppose the race will heat up again in October or November but that is not what is on most American’s minds right now.

THE SKY IS FALLING AND BUSINESS WILL NEVER BE THE SAME AGAIN

• The University of Michigan Consumer Sentiment is at a low not seen in decades.
  
  
  Chart taken from Market Harmonics Website
  
• When the consumer, who fuels about seventy percent of the US economy, takes a vacation from buying, it is bound to hurt. In many areas of the country, we are experiencing layoffs, businesses are cutting back on capital spending and we are seeing retail purchases and travel plans being scaled back.
  
• The jobless rate is up sharply and more pain is ahead.
  
• General Motors announced that it will sell Hummer. Or they might have to give it away.
  
• Air fares could double over the next twelve months.
  
• Floods decimate corn crops; prices are skyrocketing.
  
• Oil is at an all time high and has nearly doubled over the last two years.
  
  
  Chart taken from WTRG Economics Website
  
• The Saudis pledge to increase production immediately by 200,000 barrels per day and the price of crude oil goes up.
  
• The Dow is perilously close to bear territory with a loss of almost 25% since October.
  
• Financial Firms in the US could lose up to $1 trillion by the time the current crisis is past. Global firms will add to those losses.
  
• The Fed, walking a fine line between inflation and recession, leaves the key rate untouched at the meeting in June.
  
• Linens N Things files for bankruptcy. American Airlines announces that it will cut 8% of management and support jobs. Exxon announces that it will sell its convenience stores because they are not profitable. Dow Chemical, which raised its prices 20% across the board on June 1, stated that it will have another hike in July of 25%. Penny’s is cutting back on new store openings and is scaling back its remodel plans for existing units. Home Depot is calling off 50 new openings.

WOE IS ME.

I SAY DO NOT PUT UP WITH THIS GLOOM AND DOOM.
EMBRACE THE CHANGE.

Joseph Schumpeter (1883 – 1950), an economist born in what is now the Czech Republic, was a brilliant economist that believed that in a democracy, the act of creative destruction was necessary for the democracy to survive and flourish. The old ways of doing things had to be destroyed and replaced by new ideas. That is what is going on in the world today. Just a few examples this quarter are:

• Boone Pickens announced a $12 billion wind farm that will produce 1,000 megawatts of electricity, enough to power 300,000 homes. In order to build the project, Pickens placed an order with General Electric for 667 wind turbines, valued at about $2 billion. It does not sound like GE is going out of business anytime soon.
  
• At the same time some major airlines are announcing major route cutbacks, Southwest is expanding its service in Denver by 20 flights per day. It looks like there is something going right in Denver.
  
• Home prices are down substantially in many parts of the country. And sales are starting to pick up. Only time will tell but this could be a sign of a bottom in the home market.

West Texas ranchers are known to joke about the very nasty weather we tend to get in certain times of the year with tornados and damaging rain and hail, state that it is something to be awed. A favorite saying is “You can’t do anything about it anyway. Just sit back and enjoy it.” That is how I feel about the economic turbulence we are in at the present time. Figure it out. Watch it go by and don’t get caught out of the root cellar during a big storm.

RESIDENTIAL REAL ESTATE

• The residential market remains in a prolonged slump. US sales fell almost 16% in May and the median price, at $208,600, was a 6.3% drop. The two year downturn is being further fed by foreclosures. But the sales numbers are up slightly.
  
• Financing terms have gone up with the inflationary expectations but long term rates are still near the 6% range.
  
• New home sales remain down also. Several home builders in our area are going out of business completely. That should strengthen those that remain in business.

COMMERCIAL REAL ESTATE

Commercial foreclosures are up from this time last year. But the commercial market still out performs the residential side of the business.

TEXAS & DFW REGION

• Texas ranked among the top states in income growth last year, thanks largely to hiring and strong wages in the oil and gas business. The state saw personal income rise 1.4 percent in the first three months of the year, compared with a national rise of 1.1 percent.
  
• Texas took the lead in big company headquarters passing New York for the first time according to Fortune Magazine. Texas now boasts 58 big company headquarters compared to New York with 55 and California with 52. The relative of cost of doing business in the Lone Star state is the number reason cited for relocations to Texas.
  
• The DFW area saw home prices decrease by 3.4% in May. That compared with a 20-city average drop of 15.3%. Phoenix had the largest drop of 25% and even Charlotte saw its average price decline by 0.1%.
  
• The apartment market, the darling of all real estate product types for the last year, has seen the huge amount of vacant property on the market because of foreclosures soften its rental prospects. What is being termed the “shadow market” of investor owned single family homes now for rent is putting pressure on the rental rates of even high quality apartment communities.
  
• The DFW office market, in general, was weak January - June. According to Cushman Wakefield, only 311,000 of net new square feet were leased

DALLAS AREA

The big news out of Dallas is that ATT is leaving San Antonio for the CBD. Although this will not mean that many new jobs, having a corporate relocation of the status of ATT will further validate that Dallas is on the move again. Mayor Tom Leppert, the former president of Turner Construction, announced the move stating that the Dallas Fort Worth Airport was a prime reason that ATT was moving to the Metroplex.

FORT WORTH/TARRANT COUNTY

• Tarrant County property values were up almost 10% in 2008 according to the initial data out from the Tarrant Appraisal District.
  
• The population of the City of Fort Worth passed 700,000 for the first time. The city added 16,000 new residents last year, a 2.33% growth rate. Fort Worth added 22,750 in 2006 so we are seeing some slow down in growth.

FORT WORTH CBD

• With over 1,300 new or renovated rooms coming on board all at the same time, one would think there would be some competition and deals on hotel rooms in the CBD. But the three hotels surrounding the Fort Worth Convention Center are all three booking rooms like there is no tomorrow. The Omni Fort Worth, Hilton Fort Worth and Sheraton Hotels will all open early in 2009. In early May over 162,000 room nights had been pre-booked in just these three hotels alone.
  
• The Trinity River Vision project has finally broken ground. Demolition of several older buildings and construction of the first of three bridges are all underway.
  
• Tarrant County College decided to opt to purchase the Radio Shack headquarters instead of building a downtown campus on the Trinity. The remodeling of the office space is underway and TCC expects to begin classes in the fall of 2009.
  
• Lodgeworks, a privately owned hotel management company from Wichita, KS, has broken ground in WestBend, a $100 million office, shopping & restaurant project located on the banks of the Trinity River just south of Interstate 30. The hotel is expected to open in spring 2010. Trademark is the master developer who assembled the 7 acre project that is located near the TCU campus.

ALLIANCE AREA

• The Alliance area continues to lead the growth in Fort Worth. A petition to allow alcohol sales in the dry portion of far north Fort Worth is underway and seems to be running strong. If successful, the area should see increased restaurants and stores selling beer and wine.
  
• The Northwest Independent School District is expecting an increase of over 13% in its tax rolls this year.

NORTHWEST FORT WORTH/LAKE WORTH

• Our Landmark Quebec project enjoyed a lot of new press this quarter due to the announcement of the Starplex Theater deal which we expect to close next month. One of the Texas Health Resources officials also announced that the non-profit hospital is expecting to close on 45 acres of our project.
  
• The F-35B Lightning II passed its initial tests with flying colors. The Marine and Navy version is the most technically complex version of the three F-35 models.
  MANSFIELD/ARLINGTON
  
• While Arlington posted a 2% increase in population for 1007, Mansfield weighed in at 3.7%.
  
• Glorypark, the huge mixed use development of Hicks Holdings, the owner of the Texas Rangers and Dallas Stars, has put his development around Rangers Stadium and the new Cowboys football stadium on hold until better financing terms can be found.

SUMMARY

Is the US going into a recession? I don’t know and I do not think we will know until we are almost at the bottom or maybe even on our way out. When will the housing market return to “normal”? What is normal? Are any of the retailers and restaurants expanding? Yes but deals are harder to make than in the recent past. But with fewer new projects coming on line, the available sites are fewer also.

What are we to do? I think we need to be careful, pay off as much bank debt as possible through sales to entities that make good tenants in our deals and make as many leases as we can while being careful that the tenants we choose have a good chance of making it through a prolonged weak period. Other than that, nothing has changed. Be very careful in our deals and try to capitalize on the current economy and be ready for it to grow rapidly again.