NATIONAL AND INTERNATIONAL

since the large increases from March through May. It is significant that we are able to stay up at the 50% level without a big drop. The index fell in September to 53.1 instead of rising to 57 as predicted.

Taken from the Conference Board Website.

The nation is still shedding jobs. Unemployment has been on a steady increase since January 2007 and it still marches higher. It doesn’t look like this will change anytime soon. Everything economic depends upon one little four letter word: JOBS. Until we get unemployment back down, spending will not take off. And until we start spending more, the economy will not begin recovering. The unemployment rate hit 9.8% in September.

Ben Bernanke was given a second term at the Fed. This gave the markets an extra boost of optimism. Bernanke seems to have the support of many, both in Congress and on Wall Street.

The Cash for Clunkers program generated almost 700,000 new car sales. But most economists seem to think that new car sales will fall off steeply now that the program is over.

The wealthiest 10 percent of Americans are those making more than $138,000 per year. The top 5 percent make $180,000 annually. The top 10 percent account for as much as 50 percent of consumer spending according to the American Affluence Research Center.

US Natural Gas prices seemed to have bottomed out and are rising. The commodity usually trades about 1:7 with crude oil. Oil is trading at about $70.00 per barrel. If the ratio is to be relied upon, either Nat Gas will rise or oil will fall.

Speaking of oil, BP has reported a new discovery in the Gulf of Mexico. The Tiber well is reported to be the biggest find in the Gulf and one of the largest new wells ever, up to three billion barrels of oil. The well was drilled to over 35,000 feet. In comparison, Mt. Everest is just over 29,000 feet tall.

In a race to acquire new strategic elements of business, Xerox is acquiring ACS and Dell Computer has agreed to acquire Perot Systems. Expect many more mergers and acquisitions as we come out of the recession.

RETAIL REPORT

In one of many new retail contractions, Blockbuster Video is announcing that it intends to shutter hundreds of its standard retail outlets, up to 960, over the next 12 months. The company plans to focus on its kiosks, aiming for up to 10,000 by next year.

TEXAS

DFW REGION

• DFW was listed as one of the most affordable office markets (where anyone would want to actually live) in the US again. New York topped the list with average gross rental rates of over $59 psf followed by Washington, DC at $35 psf. DFW came in at $21.19 psf followed by Atlanta at $21.18. Detroit’s price was $20.46 and the lowest office rates are in Pittsburgh at $14.57 psf.
  
• Dallas was the costliest market in the state for corporate transfers according to Coldwell Banker. But before you get too down on Big D for its annual home price comparison of $332,375, look west at La Jolla, CA at over $2 million. Fort Worth was $153,400 and Detroit was $132,000.
  
• DFW home prices dropped 1.6 percent in July from a year earlier according to the S&P Case-Shiller home price index. That is a big improvement from a year ago when the index fell by more than 5 percent. Maybe our home prices are nearing bottom.
  
• DFW office occupancy declined by another 650,000 s/f according to Cushman & Wakefield. The biggest drop was along the LBJ corridor where net leasing was down 234,000 s/f. The largest vacancy rate is the Stemmons Corridor with more than 30 percent of the office space vacant. The North Fort Worth submarket has the lowest vacancy rate: 4.19 percent.
  
• In my opinion, the biggest train wreck in decades is coming to DFW, and the nation, very soon. Keith Mullen, the co-chairman of Winsted PC’s financial services group, and a leading Dallas attorney, describes it as a real estate tsunami. I agree. Literally thousands of real estate loans are coming due over the next 6-24 months. I have heard the number at between $1.4 trillion up to $4 trillion. And these loans cannot be refinanced because the properties are just not worth the debt. The owners may or may not have additional cash to put into the deals – or they may not see the sense in pouring fresh cash after negative equity. This is both good and bad for us. It is good because we will have the opportunity to acquire quality properties at rock bottom prices. But this is bad because it will reset the value of the properties we still own.
  
• A new high end burger concept is coming our way. Smashburger, a chain from Tyler plans to open stores in the area this year and next.

FORT WORTH CBD

• The Trinity Uptown officials have made it clear; either sell us the land needed for the massive flood project or we will condemn you. The $909 million flood and economic project is going to move forward, one way or the other.
  
• CBD residential sales are finally slowing in the recession. OmniAmerican foreclosed on the Le Bijou last month. Several downtown condo projects are now allowing rentals to keep cash flow positive.

FORT WORTH

• Fort Worth continues to out-perform the rest of the Metroplex in office occupancy, multi-family occupancy and in retail leasing. But that just means the statistics are less bad, not great. The Fort Worth area should continue to move forward with slightly more momentum than its larger sister city to the east.
  
• While multi-family occupancy was down nationwide, occupancy in the DFW area improved in the third quarter (89.9%) even though it was not enough to keep the rent rates from going down. But Fort Worth was down the least in the Metroplex at a 2.1% drop in rents from one year ago.

ALLIANCE AREA

The Alliance Trade Zone is still the nation’s largest. Alliance racked up $7.46 billion in foreign goods advanced in 2007 compared to $3.9 billion for Newark, NJ and $3.17 billion for Port Hueneme, CA. These are the latest figures released by the US government.

NORTHWEST FORT WORTH/LAKE WORTH

• Texas Health Resources has announced an expansion to its hospital in Azle. After demolishing two older buildings, construction is starting on a new 5,000 s/f education and support services wing as well as an expanded outpatient service area.
  
• The US Senate voted down more F-22 aircraft which could cause some jobs at Lockheed to be at risk after 187 of the fighters are built.
  
• However, Defense Secretary Robert Gates announced that “the US can’t afford not to have the F-35”, also a Lockheed project. The Pentagon intends to buy more than 2,500 of the planes for close to $300 billion plus Lockheed intends to sell many more to foreign nations.

MANSFIELD & ARLINGTON

• Forest City Enterprises offered the Mansfield School District about 23 acres to be used for its auditorium and professional development center. The developer of the long awaited Shops at Broad Street is facing the fact that it will not be able to begin construction on the mixed use project anytime soon.
  
• State Highway 360 is finally going to get the main lanes to supplement the frontage roads that have been serving as the only good north/south connector from Mansfield to DFW airport for years. The toll road will be operated by the North Texas Tollway Authority and will likely not open for five years.

SUMMARY

I am more optimistic than I have been for at least 2 years. But my optimism is guarded. First, only when we can actually realize the actual losses in value that have occurred over the last two years will we be able to come out of this mess. We have to go through the “reset”.

Second, we must have a new way of looking at all investments. We will need to rethink our old standards. For instance, I think the new definition of equity will have nothing to do with how much cash we put into a deal. Equity is the amount of cash left over (if any) after we close the deal and all expenses are funded.

Third is the difference in CAP rates, rental rates and concessions it takes to get a tenant into a building. It makes no difference what we pro forma a project at; the only thing that matters is the current market.

Fourth, but certainly not least, is going to be the massive amount of commercial real estate coming onto the market over the next 24 – 36 months. If the properties are marketed on a fire sale basis, the pain will be over quickly but the write-downs will be huge. Those decreases in values are going to affect our existing property values as well.

I will continue meeting with lenders over the next few weeks to ascertain what they think the landscape might look like when these properties come onto the market. I must assume that if we are to capture any bargains, we will have to move quickly and we will therefore need to know where we can borrow funds for acquisitions. We will be formulating strategies as soon as possible. Until then, we will continue to operate our current projects and seek other opportunities.