NATIONAL AND INTERNATIONAL

Interest rates remain the hot topic this quarter. But this time it is the Fed lowering the Fed Funds Rate by 50 basis points to 4.75% in an attempt to stave off a recession. Will the Fed lower again next month? Will we avoid a significant slowdown? What will the loose money policy do to inflation? Only time will tell.

Look at the drop in consumer confidence last week.

Chart taken from the Conference Board Website

• The National Petroleum Council has announced that the US should adapt a crash program to wean the nation from oil. NPC believes that we must begin using far less energy as soon as possible.
  
• Russia announced it has built a super bomb, larger than anything the US has. It contains almost 8 tons of explosives.
  
• And Russia has claimed a large land mass in the Artic Circle ice cap. As global warming exposes more of the Artic to drilling, the race for the Artic could get nasty. Some say that the Artic area contains 25% of the world’s undiscovered oil and natural gas reserves.
  
• American Airlines actually had a better quarter than Southwest Airlines. I think that is a first. Southwest offered to buy out 9,000 employees in July.
  

RESIDENTIAL REAL ESTATE

The US homebuilding continues to get hit hard. Several events have shown just how creative our nation’s builders can be. In September, Hovnanian Enterprises, struggling like all the other home builders, held a nationwide sale of excess inventory in 19 states. A three bedroom condo in New York was reduced by $240,000 or 22%. It sold for $862,000. Many homes in Texas were on Hovnanian’s list of sale properties in the Metroplex. The sale was said to be successful and Hovnanian’s stock rallied the next day. Lennar reported a record loss of $513.9 million in the 3rd quarter. It was the biggest quarterly loss in the 53-year old company’s history. The homebuilders are having sales, like Hovnanian, giving away upgraded landscape packages (Centex) and doing everything they possibly can to get the backload of inventory off their books.

COMMERCIAL REAL ESTATE

The commercial real estate market was not immune from the big hits the residential market tool either. Foreclosures are up and deals are harder to come by but in our area the commercial market is still going strong. There have been some interesting adjustments to the retailers’ strategies.

• Kinko’s announced that they are adding 300 new Kinko’s/FedEx stores by next summer.
  
• Home Depot is closing its Home Depot Landscape stores.
  
• Chipotle is planning 120 new stores this year with 60 open so far.
  
• While some large investors are putting assets on the block, like Fortis which purchased the Galleria Towers last year, others are buying like there is no tomorrow. For instance, Equastone has acquired 3 million square feet of office in the area over the last 12 months.
  

TEXAS & DFW REGION

• While I am certainly not saying that Texas and our area will escape the national slowdown, the economists are saying that the state will outdo the rest of the nation. Unlike the extreme slowdown in the 1980’s, the current state economy seems better able to endure any national crunch than in past recessions.
  
• The fact that our state did not have the big run-ups in real estate prices like California, Oregon and Washington on the west coast should help us survive. Fiona Sigalls, an economist with the Federal Reserve Bank of Dallas, believes that we will actually continue to see home price increases throughout the next several quarters.
  
• But the Texas Department of Transportation (TXDOT) announced that we are running out of money for new roadway projects. The big one in our area is “The 121 Funnel”, where SH 121, SH 360 and SH 114 all intersect near the north gates to DFW Airport. The moratorium on new toll roads, passed by the Texas Legislature last session, has put many new projects on hold. This is not good at all.
  

DALLAS AREA

• According to an M/PF YieldStar study recently released, renters are surging back into apartments again in the 3rd quarter. Over 7,000 net units were leased since the end of June.
  
• The national slump doesn’t seem to have hit the high dollar homes in the Metroplex. The market for upper end homes has hit a new high with 1,332 listings on the market at over $1 million in August. And they are selling well.
  
• The Metroplex absorbed only 800,000 square feet of net new office space in the first half of 2007 according to Cushman & Wakefield. But the Dallas Central Business District had very good gains.
  
• DFW had the largest rate of job growth in the nation, 91,000 new jobs in the latest 12 month period according to the US Bureau of Labor Statistics. Houston was second with 82,000 net new jobs. New York and Phoenix came in third and fourth. Las Angeles, a much larger area than DFW, came in 10th at almost 40,000 new jobs.
  
• The Wright Amendment phase-out has been very good for both DFW Airport and Love Field. Both have seen more passengers since the change took place. Competition works every time.
  
• Speaking of airports, DFW just landed another international flight. KLM Royal Dutch Airlines will begin non-stop service from DFW to Amsterdam on March 30.
  
• Business 2.0 Magazine asked Economy.com to rank the major metro areas for growth over the next two years and DFW is at the top of the heap. Indianapolis came in second. The magazine said DFW “is smoking, adding jobs at twice the national rate. Better yet, those jobs are concentrated in well-paying fields.”
  

FORT WORTH/TARRANT COUNTY

• Sterling Bancshares of Houston has purchased First Horizon Bank giving it three locations in Fort Worth and one in Mansfield.
  
• Plains Capital Bank is opening its fourth location west of downtown in its quest to make a stand in Tarrant County.
  
• Cypress Equities, a firm owned by Emmitt Smith, the former Dallas Cowboys running back, along with his partner, Roger Staubach, is developing part of the old Masonic site in south Fort Worth. Cypress will buy 63 acres for retail and Happy Baggett will develop 500 homes ranging from $130,000 - $200,000 on the site.
  

FORT WORTH CBD

• A Dallas hotel developer will build a six story, 140 room luxury hotel in the heart of the Cultural District. The hotel will branded with the W Hotel flag and is a part of the 11 acre Museum Place. It is expected that the hotel will cost about $22 million.
  
• The dilapidated T&P Warehouse is being transformed into 260 residential units. Cleopatra Investments plans to spend $35 million on the initial phase which is expected to be complete in 2012. Fort Worth is finally getting some quality development on the southern end of downtown.
  
• XTO Energy picked up another building in the CBD. XTO bought the former Transport Life property from Jim Finley. It is located at Seventh and Main Streets. XTO is quickly assembling a huge chunk of land in downtown.
  
• And, for a cool $1 million you could live in downtown Fort Worth too. The new Omni Hotel began marketing its condos this quarter. But the hotel project wasn’t the first with condos priced at seven figures. That is nothing unusual in Fort Worth now.
  

ALLIANCE AREA

• Alliance continues to hit on all cylinders. The breakup of Mercedes-Benz and Chrysler just gave Perot two separate high profile citizens instead of one. Mercedes will move into a Perot owned building in the Circle T Ranch portion of the park.
  
• Bell Helicopter will assemble the ARH (armed reconnaissance helicopter) at a 204,000 square foot building at Alliance Airport. Bell expects to have 230 people working at the plant on the ARH project.
  

NORTHWEST FORT WORTH

• Fort Worth continues to have meetings on the viability of the Joint Reserve Base on Loop 820. The city is determined to do anything it can to keep the JRB from being “Bracked out.”
  
  • Lockheed Martin announced that it has commitments for F-35s from 8 countries in addition to the US.
    

MANSFIELD/ARLINGTON

• Construction began on the Mansfield Pointe shopping center on HY 287 across from our Mansfield Highlands development. The $20 million 157,000 square foot retail center is being developed on 16 acres that Retail Connection acquired from a Jim Makens partnership.
  
• NNN Apartment REIT paid $16.6 million for the Towne Crossing apartments, located near the Mansfield Pointe site. The 268 unit project was built in conjunction with the development of the Target Center.
  
• Mansfield OKed a $54 million break to Forest City for their Shops at Broad Street project which is located at HY 287 and Broad. The tax breaks and reimbursements represent the largest incentive deal the city has ever considered and the $274 million project will be the city’s largest development when it is complete.
  
• Construction has begun on Hawaiian Falls/Mansfield, a 14 acre water park at Heritage Parkway and HY 360. The $10 million park is a joint venture of the city and Hawaiian Falls. Hawaiian Falls will operate the park on a 40-year lease with the city.
  

SOUTHLAKE, KELLER, NE TARRANT AREA

• The northeast Tarrant County area is about to get another shot of energy. A planned $390 million commuter rail line from southwest Fort Worth to northeast Tarrant County and then to DFW Airport is becoming a reality. The line, which has been in place for years, is currently being used by an old steam engine to run tourists between Grapevine and the Stockyards. The line is expected to have 14 rail stations which should help the economies of each of the areas around the stops.
  
• Another way of judging the health of separate communities is to calculate the per capita taxable values of each area. In Tarrant County the differences are huge. Tarrant County as a whole is at just under $66,000 per capita. Southlake has a per capita taxable value of $190,515, almost three times the county average.
  
• Terra Land Management just picked up 100 acres in the heart of Southlake. Bobby Harrell, Terra’s President, said that he will begin developing 136 one-half to one acre tracts immediately. The custom homes will start at $1.5 million each.
  
• Tennessee based Southern Land Co. is well underway on its Keller Art House project in Keller Town Center. Styled after SoHo in New York, the three story buildings will have retail on the first floor and living quarters above.
  
• I guess posh hotels do come in threes. First Grapevine got the Gaylord. The Great Wolf Lodge is under construction. Now Aloft Hotels, a division of Starwood, is building right down the street from the other two hotels in the Grapevine Station project of Westwood Group on the corner of SH 114 Business and HY 26.
  

SUMMARY

Business as usual is over for the time being in the real estate industry. I have always felt that anytime we get a bunch of acronyms flying about, it is time to be careful. How many different kinds of securitized instruments can there be?

A capitalist society hates a void in the marketplace. We had a demand for higher yields and Wall Street created them – it filled the void. The new description for borrowers of sub-prime loans was NINJA – No Income, No Job or Assets. And the market made home mortgage loans and second loans to these people. Some lied on their applications. Some were tricked by less than honorable lenders. And then the loans were packaged up and sold through Wall Street throughout the world. And now a huge amount of capital has been lost. This should not surprise anyone.

So what do we do? We monitor the marketplace. We watch what the politicians running for President of the United States are saying. Will we lose preferential treatment for capital gains in the future? Some of those aspiring to be President want to do away with it. Will capital gains tax rates increase back to 20%? Edwards says he wants it at 35%. I remember 70% capital tax rates during the Nixon administration. What about Cap rates? Will they finally go back to more historical norms closer to 10%?

I am almost afraid to say it but if any area of the US will weather the storm it is Texas in general and the Tarrant County side of the Metroplex in particular. I think we need to be careful about the amount of debt we allow on our projects, monitor our tenants carefully and be ready to react to opportunities as they might present themselves.