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REAL ESTATE ON A ROLL

What’s booming, what’s looming
By Emily Freeman Pinkston |

Breaking records in Dallas is like breaking new ground. If it’s there to be done, then it will be. Dallas has-once again-topped its own records and those of other cities in every arena of real estate activity. True to what has been the city’s guiding philosophy, the dirt has been flying. During recent months, the words “overbuilt” and “slowdown” have slipped into conversations in real estate circles- spoken in low tones as if saying them out loud would make them true. But the spectre of a seriously slowed market disappears to be quickly replaced with the bullish optimism that propels Dallas. The explanation for the optimism is multifold: “After all, we’re not like Houston. We have a diverse economy, and people are still coming here and they’re still getting jobs. Sure, things can’t stay at the feverish pitch they have been . . . but at least in Dallas, we’re the last to feel the slow-downs and the first to pull out.” Although the boom times that began in mid-1982 are leveling out, the Dallas/Fort Worth area has continued well into 1984 with record-breaking highs. Looking back over the last year or so, one sees no hint that anything but a boom cycle is in full swing:

●Dallas developers kept the dirt flying to start more square footage of commercial real estate construction than any other city in the nation. The 20.7 million square feet of new construction between July 1983 and July 1984 reported by The Office Network Inc. is roughly equivalent to two-thirds of the existing office space in the Central Business District (CBD). Despite the record high, developers announced plans for yet another 10.2 million square feet of office space, according to the spring ’84 report of M/PF Research, a real estate market analysis firm.

●Dallas topped all other cities in the amount of space that was occupied in the same period, absorbing 12.8 million square feet, according to The Office Network Inc. Considering only the multi-tenant space absorbed, Dallas still would have ranked No. 1 with 9.4 million square feet. Although an unusually high percentage (37 percent) of the tenants moving into the new buildings during the spring quarter were from outside Dallas, according to Ron Witten, president of M/PF Research, the key reason for the record absorption came from the internal expansion of companies already located here-a strong statement about the local economy.

●The Dallas/Fort Worth residential market was off in 1984 compared to 1983, but not so much to shake its position as the country’s hottest market in terms of the number of permits issued for both multilam-ily and single-family housing. During the first half of 1984, 30,780 multifamily permits and 18,000 single-family building permits were issued, according to U.S. Housing Markets Inc., a subsidiary of Lomas & Nettleton Financial Group Inc.

●The year rang in with the singing of cash registers as Dallas County broke its own record for sales of commercial acreages during a single month: January 1984 sales hit an all-time high of 702 transactions, 11.5 percent higher than the previous record, according to George Roddy, president of Dresco Inc., a real estate research and analysis firm.

●Paralleling the high number of transactions was an all-time high for one month’s commercial real estate loans: In January, $817 million was loaned, Roddy says.

●Land sold for retail development also reached its highest percentage of all land sales in a single month. According to Roddy, in February 1984,44.9 percent of all land sales were for retail use.

●The Dallas/Fort Worth market had the somewhat dubious honor of ranking second place nationally behind Houston with the highest square footage of vacant space- 30.6 million square feet, according to The Office Network Inc. Occupancy rates have been running between about 77 and 80 percent, creating a tenants’ market in most sectors.

“Occupancy rates can be more misleading than they are informative. What matters is the number of years, supply-how long it will take us to use the space we have,” explains Witten. Continued high absorption, combined with lowered new construction, can rapidly change the numbers. Putting an additional perspective on occupancy rates, Jerry D. Fults, president of Fults & Associates, a major commercial brokerage firm, points out that a healthy “full” market is closer to 90-rather than 100-percent occupied. When occupancy nears 100 percent, existing tenants have little mobility or spaces available for expansion and new major tenants have difficulty finding large spaces, leaving a city less attractive for corporate relocations.

COMMERCIAL REAL ESTATE: RECORD-BREAKING ABSORPTION AND CONSTRUCTION



“The demand is strong in all of 1984’s major office markets-downtown, Far North Dallas, along Central Expressway, the LBJ corridor (primarily between Central Expressway and I-35) and Las Colinas,” Wit-ten says of the commercial real estate market. “That’s a function of two major factors. One is the strength of both the local and national economies. The other factor is that we have as much space available as we have. Today’s office market in Dallas is very much, in most places, a tenants’ market. Not only do [leasing] concessions and availability of space encourage newcomers, but it encourages local firms to expand their office space more rapidly because the net cost is dropping by the time you take out free rent, allowances for moving expenses and those kinds of concessions.”

The districts with the greatest gains in occupancy were the CBD, Las Colinas and the LBJ Freeway corridor, according to The Swearingen Report. The most construction activity for the same period (mid-1983 to mid-1984) was in the CBD, LBJ Freeway corridor, Turtle Creek/Oak Lawn, Central Expressway corridor (downtown to Belt Line), Far North Dallas (north of Belt Line) and Las Colinas/Freeport/I-635 Extension West.

Almost 20 percent of the total office-space absorption occurred in the CBD, according to Fults & Associates. Despite its impressive gain of 3.6 million square feet in occupied space, the numbers reflect the impact of two major corporate moves-the settling into new facilities by Southwestern Bell Telephone and ARCO Oil and Gas Co.- which account for half of that space, says William A. Lawley, vice chairman of the board of The Swearingen Co. Although this past year’s absorption may be atypical, Lawley predicts a healthy 1.6 to 2 million square feet of absorption, which may increase somewhat if tenant inducements continue and the economy stays strong.

In Las Colinas, occupancy rates are particularly misleading. Although vacancies were hovering around 40 percent in multi-tenant spaces at mid-year, the continuation of the exceptional absorption rates could bring occupancy in those buildings up to 90 percent in roughly two years, according to Rosanna Stanley, a principal in Fults & Associates. This bullish marketplace is finally beginning to show the vibrancy that Ben Carpenter willed it to have. Las Colinas is destined to have yet another flurry of construction with sales of development sites during the first half of the year up 57 percent over last year.

The LBJ Freeway corridor has shown a sustained pattern of absorption over the last five years resulting in an average net gain in occupancy of 1.95 million square feet per year, the highest average in the city, according to Michael E. Jackson, senior vice president of The Swearingen Co. This year’s absorption was the highest yet during the period: 2.6 million square feet. The key commercial market isn’t slowing. At least another 4.6 million square feet of construction is either under way or is planned to begin soon.

The office market along North Central Central and the Glen Lakes area; developer Warner E. Stone’s Search Plaza, four office towers just off Central at Meadow; and, of course, the grand-daddy project of them all, the CITYPLACE development by the Southland Corp. which will straddle Central just north of downtown.

The North Central Expressway corridor (from LBJ north) is one of the city’s most dynamic markets-perhaps not in literal square footage as compared to more mature markets, but certainly in its leaping growth. Richardson, for example, has almost tripled its office space since 1980. With that expansion comes a new image, says Richard J. Mase, president of Lakeview Properties Inc., which owns six major developments in the area and has plans for four more. “The Richardson market area has experienced Central and the Glen Lakes area; developer Warner E. Stone’s Search Plaza, four office towers just off Central at Meadow; and, of course, the grand-daddy project of them all, the CITYPLACE development by the Southland Corp. which will straddle Central just north of downtown.

The North Central Expressway corridor (from LBJ north) is one of the city’s most dynamic markets-perhaps not in literal square footage as compared to more mature markets, but certainly in its leaping growth. Richardson, for example, has almost tripled its office space since 1980. With that expansion comes a new image, says Richard J. Mase, president of Lakeview Properties Inc., which owns six major developments in the area and has plans for four more. “The Richardson market area has experienced record levels of absorption (600,000 square feet in the last 12 months) and new office development as the area has evolved into one of Dallas’ major office submarkets,” says Mase. Although the area’s distinction from other markets still lies in its heavy clustering of high-technology and telecommunications firms, it is clearly broadening its base and creating new opportunities for development, since it is able to bring in major national companies such as John Hancock Mutual Life Insurance Co. and Ford Motor Credit Co. Despite an 80 percent occupancy, absorption has been so high that developers clearly are betting on the area. At least a half dozen multiacre developments have been announced within the last few months. Major developments are planned at the key exits-primarily at Campbell Road, Park Boulevard, Parker Road and Piano Parkway.

RESIDENTIAL REAL ESTATE: STRONGER THAN EXPECTED



The overall strength and optimism of the Dallas market can be seen in the fact that, despite all-time records in residential construction last year, developers continued to build at such a high rate that the D/FW market managed to lead the nation in housing starts for the first half of this year. The absorption of the 1983 construction of apartments was higher than many expected. Even so, a drop below the 90 percent apartment occupancy level occurred in the second quarter, when the level dipped to 88 percent. Witten estimates that by mid-’85, occupancy rates will drop to the mid or low 80s. Condominiums haven’t fared as well-they felt the intense competition from other forms of housing and have plunged in sales, according to Witten. A few key markets, however, have consistently sold above the others-Far North Dallas (which accounts for one in every four sales), Northeast Dallas, Far Northeast Dallas, North Arlington and Oak Lawn, M/PF Research reports.

Dave Fox, chairman of the board and CEO of Fox & Jacobs, the largest single-family developer in the area, has a typical optimistic outlook: “We’re still bullish. Dallas/Fort Worth grew another 70,000 or so jobs this past year. That’s a big part of what affects our business-the Dallas economy. I see nothing in the near-term future that’s any different. We’re still seeing people coming in and getting work.”

Residential construction in the established far north suburbs has been strong, but high land prices in those areas have pushed land investors and developers still farther north and northwest. Just follow the key thoroughfares, and you’ll find the development. As an example, note how George Watson and Tracy Taylor of The Watson & Taylor Companies chose Frisco as the site for their 1,500-acre development, which is designed with a core retail/commercial area that’s buffered from and separates the large single-family and multifamily subdivisions (which include everything from parks to sites for churches and an elementary school). “We bought some aerials of Dallas in the Sixties and late Fifties to study how Dallas developed along Central Expressway, out I-35, and there was some growth out Preston. As you watched Dallas grow-you could almost do time-lapse photography of the aerials- you could see that it began to widen out into the green areas along those major thoroughfares,” says Taylor. The creation of the Dallas North Tollway formed yet another corridor for new growth and also spurred growth along I-635. Following that pattern, the extension of the North Dallas Tollway should create another corridor of growth leading right to Frisco, predicts Taylor. (The extension of the Tollway up to Highway 544 is projected for 1987. Ross Perot is leading a group to work out the completion or the Tollway farther north to Highway 121, the area in which the 2,400-acre EDS complex is located; Watson and Taylor are working with landholders and city and county officials in Frisco to extend the thoroughfare up to that North Texas town.) “If you draw an oblong circle around the Tollway extension all the way to Frisco,” says Taylor, “you can identify one of the fastest major growth areas in the next 10 to 15 years.”

Likewise, the same development pattern is happening along Central Expressway as it extends beyond Richardson and Piano. McKinney is at the northernmost point of the activity now, having already been one of the hottest areas for land acquisitions because of the move of Texas Instruments to the area.

“Allen is just the natural extension of the North Dallas movement-the extension of what’s happening in the north between Richardson and McKinney,” says Roger Staubach, who, along with two partners, is developing two commercial buildings there. Much of the land in the Allen area, says Staubach, has already been through the intense speculative period and is now in the hands of developers. One such developer is the Willard R. Baker Co., which is developing 750 acres there. With land prices already well above the $l-per-square-foot-mark for residential land, Bob Harper, a partner in the Baker company, sees the town as the next major market for custom homes in the $125,000 to $250,000 range.

Another fast-evolving area is one that’s crossed by two intersecting corridors: I-35 as it extends north of Carrollton and Highway 121 as it moves through Lewisville and across to Coppell and Colleyville. Lewisville, which has seen a surge of single-family and multifamily development, is one of the key growth areas in the region today. Developers foresee enough density in it and the surrounding area to support a regional mall, which is projected for development within the next three or four years. In the same area is a 500-acre development by Xerox, which will create a need for more housing. Observes Roddy, “You can go up and down I-35, and you’re going to see much more development of both single-family and retail in little towns such as Corinth and Highland Village. Flower Mound also is an area that’s being influenced by Lewisville.”

Moving around to the Mid-Cities area, Roddy sees another area of activity: “West Grand Prairie, Arlington, Hurst/Euless/ Bedford and North Richland Hills are as hot as any part of Dallas or Collin County. We’re still seeing high activity levels in Tarrant County over 1983.” He also perceives a changing relationship between the economy of Dallas and Tarrant counties. “We’re seeing a bringing-together of these two marketplaces. During the Seventies, Tarrant County (except Arlington) would have lagged behind Dallas County by one or two years. That lag time has been decreasing, and at some point, there will be no lag time-when an investment in Fort Worth is going to be just as timely and as important as an investment in Dallas. It is fast approaching, and it may well be here within the next two years.”

Although major development in the southwestern quadrant of Dallas County (in the suburbs of Duncanville, DeSoto and Cedar Hill) has been rumored for years, the area is finally hot with activity. Roddy calls the area “the hottest part of Dallas County that there is now.” He says, “The investor market started acquiring land down there in the first part of the year. In September of 1984, we started seeing those investors selling to the developers. When that starts happening, it starts creating charisma for an area. There’s going to be billions of dollars spent down there in the next five to six years. Belgian American, for instance, is a major purchaser down there. They’re supposed to spend more than $2 billion down there over the next five years.” Bellamah Community Development Co. has pieced together a prime 4,000 acres, owned by Mountain Creek Joint Ventures, spanning the southwestern corner of Dallas and the northwest-em corner of Duncanville to take advantage of the development opportunities adjacent to Mountain Creek Lake and the planned Joe Pool Lake. The development, which should break ground this year, is designed with five “villages’-self-contained communities- that will be separated from each other by natural boundaries.

Housing closer to and in the CBD is one step closer to becoming a reality after acquisitions in recent years and announcements of developments this year. After much speculation and rumors, Blackland Properties has announced that it will include apartments in its plans for the renovation of the Home Furniture Building in the West End Historic District. The land known as the State-Thomas area, just north of Woodall Rodgers, has been pieced together primarily for the Lehndorff Group and will likely include high-density housing. Only minutes away on I-30, the northern Oak Cliff area has experienced some condominium development during the last couple of years but could pick up as a key area for new development because of a move into the area of one of the city’s major real estate companies, Criswell Development, which announced a 2,000-acre apartment complex this fall.

LIGHT INDUSTRIAL: THE TECH MARKET BOOMS



A leading star in this year’s development is “light industrial,” a somewhat newly categorized type of development that’s alternately called tech, operations centers and office/showroom. Basically a catchall term for anything that’s not “heavy” industrial (such as bulky warehouses) or mid- to high-rise offices, tech developments are a response to a market need, created in large part by the capabilities of the computer.

Terry W. Darrow of Darrow-Hildreth, a commercial real estate brokerage firm that handles a large volume of industrial transactions, explains the needs that this type of development fills. “One type of tenant that is filling up the tech buildings is the ’backroom office operations,’ such as accounting or data processing for banks. They don’t need to be in a downtown high-rise paying $22 a square foot. They can work in the suburbs where they live and do the same job at roughly half the cost per square foot. The computer is what is enabling them to tie to each other.” Similar tenants might also include computerized order fulfillment, underwriting or claims operations of insurance companies, operations for credit card companies or research and development branches. Tech facilities frequently do house operations for high-tech firms.

As traditional warehousing developments waned over the past few years-due in part to high land prices and the changing needs of the market-many major industrial developers began to focus on the “light industrial” market. Jesse K. Pruitt, executive vice president, partner and general manager of the Dallas division of the Vantage Companies, sees a recent recovery in the industrial and light industrial market, particularly for the small user needing 5,000 to 25,000 square feet. “Facilities specifically designed to accommodate high-technology operations are finding a ready market, and new developments of this type are increasing.”

The light industrial developments being built in Dallas today don’t resemble the bland architecture usually associated with industrial developments. “Users are showing a preference for single-tenant or duplex buildings, and they want upscale brick and glass architecture, with high-finish interior, attractive landscaping and adequate parking for a facility with 50 to 75 percent offices.”

Darrow adds, “Richardson and Piano are the center of the tech market. Corporate Square was probably the first tech park in the city. You had TI [Texas Instruments] and Collins Radio and Rockwell all out there together. That’s one reason it all spawned out there. We must get a call a day from somebody looking for 2,000 to 5,000 square feet of tech space. You go out there, and they’ve just left TI or Rockwell, and they’re doing their own thing.” He cites International Parkway (just off Arapaho on the east side of Central Expressway) as an example of the booming tech market-a strip of about 15 tech buildings that have only recently been built. Land prices in that area have more than tripled (from $3.25 to about $10 per square foot) since the first land was sold for development.

“Another concentration of tech facilities is in the Midway Road/Addison Airport area between Belt Line Road all the way up to Trinity Mills,” says Al Hildreth, Darrow’s partner. Another development area of primarily office/showroom buildings is in the LBJ/Luna Road area, a sector of the city that’s seeing a lot of land development spurred by Las Colinas. In Las Colinas, the tech market seems to have found a home, too. Roy Tech Center-about 150 acres of land set aside for tech facilities-was sold within one year after it was initially offered and is now in the hands of developers, with key tenants such as Cannon, General Electric and Hewlett Packard already lined up.

Darrow expects the light industrial market to move somewhat farther northwest as land prices continue to escalate in more developed areas, and cites Coppell and Lewisville as locations to watch. Says Hildreth, “In the Mid-Cities area, we’re going to see more industrial development. Centreport [near D/FW airport], for example, has already sold out almost all the land it has allocated for industrial use.”



WHETHER IN RESIDENTIAL, commercial or the tech developments, few areas in the Dallas area are untouched by the speculator’s land flip or the developer’s construction. In such a real estate-driven market, selecting any sector as having the most activity-or being the “hottest”-is much like having to name one’s best friend in the first grade: It changes from day to day. Almost any given area has, at one time or another in recent history, been “discovered,” heated up into the center of activity and then leveled out when yet another new area is discovered.

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