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Low CRE Delinquencies Shine Spotlight On DFW

International Plaza I in Farmers Branch

New Trepp data on commercial real estate loan delinquencies show Dallas-Fort Worth continues to be a strong market for CRE investment.

DFW’s 30-day delinquency rate in November was 1.3% for long-term permanent commercial real estate loans, according to Trepp. The data doesn’t include short-term bridge loans. In comparison, the national CRE 30-day delinquency rate for November was 3.3%.

“Dallas has been a standout, just by the sheer number of corporations that are coming there from other locations: California, the Northeast and so forth. It’s just a terrific market,” Trepp Senior Managing Director of Applied Data, Research and Pricing Manus Clancy said.

Commercial real estate delinquencies for the DFW metro peaked in March/April, when they rose to 3.2%. The spike was based on one large loan that became delinquent during that time, he said.

“There is a $150M note that was delinquent for two months and was subsequently modified,” Clancy said. The note is on two office buildings of International Plaza, 14201 and 14221 Dallas North Tollway (International Plaza I and II, but not III) in Farmers Branch. Clancy said the note’s maturity date was extended to 2020, and the note was brought current. 

Essentially, the two buildings were left empty when JPMorgan and Fannie Mae relocated regional headquarter operations to Plano earlier this year. Combined, the two buildings have more than 750K SF of rentable space.

New York investor Taconic Capital Advisors bought the buildings in April, according to Cushman & Wakefield, which was retained to lease the property. 

While there haven’t been any new leases yet on the building, the Cushman & Wakefield team leasing it said there has been significant interest. Taconic previously said it would commit significant capital into upgrading and adding amenities.

“International Plaza is an institutional-grade, Class-A office complex, with great visibility right off the lower tollway,” Taconic’s Andrew Lam said in a statement when the property was purchased this spring. “We are impressed by its timeless appeal, high-quality construction, campus-like environment, unmatched parking, and efficient floor plates. It offers the most available contiguous Class-A office space in the entire MSA. Combine that with the continued expansion and diversity of the Dallas economy, and the area’s strong job sector — you have a once-in-a-generation opportunity.”

Eight CRE properties in REO

DFW has eight commercial real estate properties that are now owned by the lender, or REO, according to the Trepp data. The three biggest of those are Collin Creek Mall, with a current loan balance of $54.9M; Zale Corp.’s headquarters building at 901 West Walnut Lane, Dallas, with a loan balance of $37.4M; and Weatherford Marketplace, a 272K SF retail power center along Interstate 20 in Weatherford, with a loan balance of $20.5M.

All eight loans that are in REO had origination dates between 2001 and 2014 with five of them between 2006 and 2007.

“It is consistent with what you are seeing everywhere,” Clancy said. “Most of the delinquencies, other than some retail, are coming from legacy stuff that was originated in 2006 and 2007 and has yet to be squeezed out of the system,” he said.

The commercial real estate market experienced a huge volume of defaults from loans originated in 2006/2007 right before the housing downturn and financial crisis, and a few are still left to work their way out of the system via note sales or REO sales.

“I imagine that a year from now, all of those will be gone as the special servicers strive to clear the books,” Clancy said.