Is Big D's Growth Spiraling Out of Control?
Job growth and population increases make Dallas a real estate gem, but they also bring more congested roads and rising home prices. That may eventually hurt DFW’s competitive advantage, we learned at Bisnow’s DFW Office event yesterday at Providence Towers.
KBS Realty Advisors VP Ryan McManigal (between Transwestern’s Scott Walker, Justin Miller and Kim Brooks) tells us more macro-market challenges come with more people in a metro area. A prime example: LA, where the roads are all crowded and the houses are expensive. Uptown, for example, is already hard to navigate at rush hour, he says. Ryan says KBS just made its fifth Dallas office building acquisition with 3811 Turtle Creek and is always looking to buy in well located areas with a good rent roll. He’s anticipating selling some of the KBS properties (across the portfolio) over the next one to two years because there’s a lot of capital chasing fewer deals.
KBS and Providence Towers hosted the event, where about 300 gathered on the third floor of the east tower. Kim tells us it’s the last full floor (24k SF) available in Providence Towers quoting $25.50/SF plus E. KBS has updated the property in the past few years with the addition of a wine lounge and putting green. (Do they have a putter fixing station to go with that?) The fitness center is in the process of seeing updates, too.
Brookwood Financial Partners partner Thomas Brown (right, with Transwestern’s Mike Hardage) has amassed 1.1M SF in Dallas with the acquisition of four buildings in the last couple of years (125 John Carpenter Freeway is the most recent deal). Thomas says he hopes to grow the Dallas portfolio of value-add opportunistic deals by turning over a few more rocks. Brookwood is investing $1M to $5M into each building for capital improvements (lobby improvements, adding conference centers, delis, etc) after previous owners didn’t have the money to put into the buildings.
The first panel at the event: Henry S. Miller president Mark O'Briant, Ryan, Younger Partners partner Moody Younger, Thomas, and moderator Cassidy Turley executive managing director Johnny Johnson. Thomas says Brookwood didn’t invest in Dallas until this last cycle. The lack of new construction coming out of the recession coupled with job growth is triggering a tremendous amount of absorption as vacancies decline and there’s rent growth for the foreseeable future.
Mark (far right, with Jordan Foster Construction’s Roger Pavlovich, Cadence McShane’s Amanda Willadson, IRR’s Robert Stone) says sales volumes in the last two years have reached 700 deals annually (around ’06 to ’08, there were 400 to 500 transactions a year). But, even with all the activity in the market, he doesn’t see those numbers as sustainable into next year. Out of those mammoth numbers, he said most of the action has been in the smaller properties with about 45 bigger than 250k SF. Even though the competition is good and drives up prices, he says the land mines could be overpaying, and cautions buyers to do their due diligence, especially in older buildings that may have mechanical issues.
Moody (left, with Republic Title’s John Wilson) says he doesn’t see overbuilding becoming a problem like it was in past cycles. Lenders are capping development by only providing capital to the good deals or build-to-suits, he says. On the demand side for acquisitions, prices are starting to inflate now as capital is chasing deals. On the upside of that, Moody doesn’t seen a lot of change in the interest rates. Cap rates have compressed as far as they can, too, he says.
Behringer’s Jeff Carter, Johnny, Search Commercial’s Darryl Colthron and Frisco EDC’s John Bonnot. Johnny says 10 years ago, employees were chasing employers for jobs. Today that has changed and now the employers are searching for quality labor. The big three locations of Preston Center, Uptown and far north Dallas are where employers want to be to attract the talent, he says. He also got the panel to fess up on their predictions for the college football champs. Johnny (sad to see LSU out of the hunt) is going with Florida State, as did Mark. Thomas picked TCU (Go Frogs!), Ryan went with Oregon and Moody (who gave up on Texas Tech) picked Alabama.
Event sponsor WLS Lighting Systems’ Ken Bronstad (right, with FSG Electric’s Larry Walters) says building owners should be looking at interior retrofits for their office spaces with LED and HID solutions. It’s all about energy savings and reducing energy consumption, as well as lowering maintenance costs, he tells us.
Event sponsor (RE)meter is like a credit score for commercial real estate in the lease underwriting process, says Jason Beckstrom and Jack Buck. Jack tells us the software unites exclusive data and industry trends to gauge a potential tenant's stability. Think of it like a FICO score for tenants, he says. It’s a great new tool for owners, landlords and landlord reps, Jack says. Look for more event coverage in tomorrow’s DFW Bisnow issue.