The other night I was driving home late from the office and stopped to get gas in my car, when I ran into a real estate attorney I had worked with some leases a couple of years back. The attorney, like me, has been working on real estate transactions for a while. We both reflected on the strength and balance of the Dallas-Fort Worth real estate market.
That conversation made me think about the origin of the forte and equilibrium of this market. What’s behind the healthiest market that I have seen in my 30-plus year real estate career? Eight factors immediately come to mind:
1. The recognition of Texas and the Dallas-Fort Worth area as a business friendly environment
2. Our Central time zone
3. Corporate relocations, encouraged by the well-placed use of the Texas Enterprise Fund
4. No personal state income tax
5. Speed to market for new developments
6. Organic growth, due to a surging population
7. DFW International Airport and Dallas Love Field
8. And, from the King and I, “etcetera, etcetera”
This list of reasons is true and growing. (I am also certain there are some better explanations that you will remind me to mention.) Most of the motives have been discussed in detail.
However, there is one little historic factor that should be discussed and remembered … a key reason why things are booming in North Texas.
Let us return to 1986. “It was the best of times, it was the worst of times” (Thank you Mr. Dickens!) The change in the tax laws for the stimulation of real estate development was devastating to many people that invested in commercial real estate for the tax benefits. The federal government changed the rules and many people were financially overwhelmed by this event. That was the worst of times!
But that change in the tax laws set the stage for the best of times. Commercial real estate development changed from being artificially encouraged, to being required to make economic sense in the laws of supply and demand. Otherwise, the project in most cases would not get funded. Commercial real estate ventures had to have proven demand or lenders and equity investors would not support the project.
Although we have had short bursts in the Dallas commercial real estate market since 1986, many of these have occurred during times when there has been some short-term benefit for this stimulated growth. When the telecommunications industry was deregulated, for example, we saw a ramp-up in demand activity. But it was short lived. The same occurred with the development of the Internet.
Our current market cycle seems to be different and more sustained—because of the growth that is occurring is real.
The tax law change in 1986 is helping to create a market that allows for planned growth with proven demand and a lack of over supplying the market. We are seeing sustained equilibrium in this market. The wheels of a free market economy turn slowly at times, but the long-term positive results will prove to be beneficial for a sustained season. Said differently, a long lasting outcome.
Another benefit we are seeing first hand in the market is the creative use of space that has sat vacant for years. Tenants are being more creative with the use of space. All of this started with the right decision to change the tax laws. (Although, I am truly compassionate for those who were financially hurt at its onset.)
So that is your commercial real estate history lesson for today! This is the reason I tell my daughters about the benefits of studying history … and literature … and math. It is a lifetime of learning!
Daryl Mullin is an executive vice president at Jones Lang LaSalle. Contact him at [email protected].
